VEGA, our latest investment.
Vega is a purpose-built blockchain that aims on creating a platform where anyone can launch a derivative product on-chain without having to deal with the endemic problems of a general blockchain.
Let’s see a few of the issues/limitations that current DEX Solutions have and how Vega solves them.
LIMIT ORDERS
That goes without saying but there are no limit orders currently on the decentralized exchanges. Or at least there are no “native” limit orders. The reason is simple. No blockchain works in a publish-subscribe manner (ie, event-driven). For a limit order to trigger, there needs to be an external event that happens and initiates the action. Currently, the solutions used are based on external “oracles” for prices and external services to trigger the event (Web2 services monitor the price of an asset and when something happens it calls a blockchain contract to trigger the event).
The implications of this issue are huge and we can write a whole book about it but imagine what could happen if we have a flash-crash on a centralized exchange that feeds the price to a dex.
Vega solves this by introducing on-chain price discovery and implementing limit-orders for the assets on the native exchange. This is a major step for expanding the derivatives markets on-chain and also attracting existing derivatives traders from traditional markets.
front running & stop loss hunting
In decentralized exchanges, my orders can never be filled if someone is constantly paying more fees. This is one case of the so-called ‘front-running’. Besides that, stop orders are public in the mempool of the blockchain so everyone knows who waits to buy what and at what price.
This is also one of the reasons those orders don’t exist in Dexes. They become a bucket of liquidity to be taken advantage of or a danger for price cascades when they are public.
The first is referring to the practice of stop loss hunting, where a trader wants to enter the market so she moves the market to the opposite direction to take advantage of the stop loss liquidity, fill his order and wait for price to move in his direction.
The other, refers to the risk of rapid price movements with the help of stop losses which when hit add fuel to the advance/decline of the price.
Vega has a private mempool and a FIFO order book marrying the advantages of both worlds (centralized and decentralized exchanges) by building a chain that is purpose-built for derivative products.
ACCESS
In the traditional financial market, CDO products are more suitable for institutional investors and not directed to retail investors. But as we’ve seen in crypto, thanks to platforms like VEGA every developer will be able to build such services and every investor/speculator will be able to participate.
By eliminating the need of mastering the underlying technology, technicalities, and regulatory environment, Vega gives access to anyone with an idea the power to create it.
No middlemen, no fees, and most importantly, global market exposure.
You can learn more about their updates here.
