Pantera Leads $5 Million Round for Decentralized Derivatives Market

A protocol built to put financial middlemen out of business has secured a $5 million seed round led by Pantera Capital.

The Vega Protocol aims to make it feasible for people anywhere in the world to spin up markets for derivatives (futures, swaps, options, etc.) that can interact with each other and abide by relevant regulations.

Other key investors joined the round, including Ripple's Xpring, Hashed and KR1. Participants purchased an as-yet-unnamed ERC-20 token that will manage staking and governance services on the blockchain, according to Vega founder Barney Mannerings.

"We see the value to be in the network, really," Mannerings said, predicting that the company would shift its work to a foundation eventually.

Vega has not yet discussed what the token will do or how holding it will be beneficial. "We will be releasing some details about the staking and validator models in the next month or two," he said.

The funding round will be used to build out the software to fulfill Vega's vision, and also support establishing a nascent community of developers and potential users of the protocol, Mannerings said.

Markets everywhere

Vega is a Layer 2 solution for trading derivatives in a non-custodial and secure fashion. It's not a decentralized exchange or a standalone business. It's building the software that will allow others to set up marketplaces for assets that have a time horizon.

"It's a fairly ambitious project in terms of the complexity of the software," Mannerings said. "With derivatives, the trade has a life cycle."

For example, a trader could sell the right to buy a given asset at a given price six months out. This requires that prices are monitored, leverages are kept and risks are managed. It can require a lot of computation.

"The ethereum network is not great at running computationally intensive," Mannerings said. "We can get 10 to 100-times better performance for doing those calculations."

It's very powerful "compared to the slightly toylike version that can be created on the ethereum virtual machine," he contended.

In what Mannerings described as a sort of second release, Vega will be able to conform to the rules of any given country and verify that the user is really under that jurisdiction. Further, the software will open up tools for creating more kinds of derivatives.

Said Mannerings:

"It's going to be a simple way for people to create basically any derivative product on earth."

And he really does mean any on earth. The whole product suite anticipates a time when real-world securities will be tokenized and traded on these sorts of exchanges.

"We wouldn't be doing this if we thought the only people who would be using it would be crypto-native ICOs and bitcoin and such," Mannerings said.

Take for example a small export business that wanted to hedge the currency risk of another nation where it ships a lot of its products. For small and medium-sized businesses, Mannerings argued, that kind of hedging can be too expensive to be worth it in the current world.

It's potential that Paul Veradittakit, partner at Pantera Capital, echoed in a statement:

"The team’s vision for the future of finance is a level playing field in which all people can participate. That vision is integral to the blockchain ethos and represents everything we are fighting to enact.”

Pantera Capital partner Paul Veradittakit (right) image via CoinDesk archives