Vega, a blockchain project building a decentralized protocol and infrastructure to run programmable financial markets, launched its testnet today.
Vega to Bridge DeFi and Traditional Finance
As the DeFi sector continues to boom, Vega is seeking to create a more trading-focused platform to help close the gap between niche crypto speculating and professional market making. Not just that, but current blockchains, specifically Ethereum, are not fast enough to prevent certain vulnerabilities like front running.
As Barney Mannerings, Vega co-founder, said:
“Recent events, like the bZx exploit, highlight some of the challenges in the Ethereum architecture and how they affect systems built on it. We need more sophisticated solutions to safely support the more complex financial products and risk models necessary to push decentralized trading to mainstream markets. We’ve built Vega from the ground up for fairness, safety, and speed, and so as crucial DeFi infrastructure, Vega offers traders and developers many advantages in this regard, and I like to think of it as a kind of ‘Web 2.0’ moment for DeFi.”
Vega’s testnet is the first step toward offering users a platform to create, customize, and deploy markets in any asset class and run them safely.
Using the Pantera-backed Vega Protocol, traders will be able to abstract away middlemen, eliminate maintenance costs associated with traditional exchanges, and condense frontend and backend services into singular, self-regulating systems.
The platform’s developers regard DeFi as facing five critical issues: front running, low liquidity, difficult interfaces, high costs, and high latency.
Those issues, according to Vega, have discouraged market makers from moving away from centralized exchanges to DeFi protocols.
Expanding DeFi
The DeFi market, according to Defi Pulse, has just under $1 billion worth of crypto assets locked in existing DeFi marketplaces. That figure constitutes a mere 0.0002% of the value of the total daily volume of global derivatives markets.
Traditional assets trade hands at a rate of trillions of dollars per day and often rely on middlemen and banking entities to facilitate exchanges. Moreover, traditional markets require significant human capital and present billion-dollar costs that are passed onto consumers who trade these products.
The derivatives market alone is worth about $500 trillion in total notional amounts outstanding for contracts. Middlemen absorb about 1 to 1.5 percent (about $7.5 trillion) of that value.
Vega’s market-based liquidity offers liquidity providers in a market with a share of the fees generated by that market. The platform is also slated to expand this framework for a nearly infinite number of potential markets and financial products.
