By Barney Mannerings, Co-Founder of Vega Protocol
Markets move in cycles — constantly ebbing and flowing. In a brand new asset class (digital assets), built on often misunderstood technology that is still under rapid development and iteration, and with permissionless, global, 24/7 access and loads of speculation, it's no surprise that the crypto industry regularly experiences brutal downturns. Bear markets come and go, and each is an opportunity to purge the industry of grifters and fraudsters to make way for the next wave of innovation, and eventually, catalyze a new phase of growth.
In 2008, out of the financial crisis, Bitcoin emerged. During the fall-out from the 2013 Mt. Gox scandal Ethereum was conceived and the Ethereum Foundation formed. The 2018 ICO bubble and subsequent bear market created space for early DeFi protocols and NFTs to emerge – some of the first examples of real use cases for smart contracts. Now with BTC and ETH both having lost over 60% from all-time highs and many alts down 90% or more, we may be entering a new bear market.
In a speculative bull market ‘a rising tide lifts all boats.' The pursuit of easy money driven by unsustainable business models and opaque risks is a distraction that impacts both building and investing in long-term and mission-driven projects. Bear markets, on the other hand, are an ideal time for teams to double down and focus on creating truly innovative technology and robust, sustainable value. In a downturn, investors increase their scrutiny, things that seem too good to be true are usually revealed as such, and pocket books get tighter. Great products endure bear markets thanks to long term outlook and a laser focus on their mission and goals. Teams must understand at a deeper level why they’re choosing to build their product, and unite around their project’s purpose.
It's easy to be discouraged while building through a bear – fixating on paper losses and getting sucked into the narratives of the crypto community’s many detractors. It is, therefore, that much more important to constantly remind yourself, and your team why you originally set out on this journey.
True DeFi protocols are founded on the fundamental ethos that everyone should live in a fair and transparent society that works for- and is controlled by its citizens, rather than for the benefit of centralized, opaque, and non-representative entities. A society where no government or corporation possesses direct control and surveillance over people’s lives, and every individual has the freedom to go about their business without interference. This, however, is not achievable if the prevailing financial system is not open, transparent and democratic. To get there, a complete decentralized disruption of the current traditional system is necessary, one that requires rebuilding a large set of financial tools and innovations including derivatives and other financial products.
We started building in the bear market of 2018 because no one was working on a system — existing or proposed — that could offer a wide array of derivative products in a crypto-native, decentralized fashion. We saw a unique opportunity to deliver on this vision of an open and transparent financial system by building a fully decentralized derivatives trading protocol. As we dug deeper, we realized that not only were no decentralized trading protocols able to offer products or a trading experience anywhere close to what’s available on CeFi platforms, but that it would not be possible to do so on Ethereum or any other general purpose chain.
General purpose blockchains like Ethereum are limited when it comes to trading. As they have become more popular and approached the limits of their scalability, fees have come to exceed even the most expensive centralized exchanges. Plus, in most cases, markets are permissioned and decided by the project team, more like a traditional company than an open, community-driven protocol. Lastly, many of these applications still suffer from Miner Extractable Value (MEV), where miners or validators are able to front-run trades, extracting value from the trading community and mirroring the problems with high-frequency trading and other privileged players in traditional finance.
It’s time for a new way of trading. One that values fairness, with the flexibility to offer a variety of financial instruments while leveraging the composability of DeFi in order to foster the creation of new financial primitives. We believe that this critical infrastructure is necessary for Web3 and DeFi to mature, helping to create a thriving new world of finance. One that is designed from the ground up to encourage creativity and incentivize participation. A trading environment with full transparency and no black boxes – finally doing away with the risks that come with centralized parties and single points of failure.
DeFi can and will be better than CeFi, and the opportunity is arguably more urgent today than ever. Alongside the rest of the DeFi ecosystem, we'll continue on our mission building and improving regardless of the market conditions.
Barney Mannerings, Co-Founder of Vega Protocol, is a blockchain and finance expert. He built two versions of the London Stock Exchange matching engine and worked in capital markets for 15 years. He is also Co-Founder of Pik, a SaaS offering for publishers that is supported by the Google DNI Fund and whose APIs are used by over 1 million unique users per month. Barney brings his expertise in financial products and blockchain solutions to leading the vision and strategy for Vega and is the lead architect and designer of the protocol.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.