The First Futures Markets for Points Are Now Live on Vega

Permissionless market creation brings the first points derivative markets to DeFi with EigenLayer

Vega’s permissionless infrastructure enables anyone to propose the creation of new derivatives markets, which democratizes access to markets and allows for innovative market types that were previously unimaginable. To date, Vega’s DEX has facilitated nearly $1 billion in total trading volume since its mainnet launch in May 2023. With the recent Palazzo release that brings enhanced features to the platform, Vega is primed to become a destination for sophisticated traders to permissionlessly create and trade on dynamic derivatives markets.

Today, Vega is excited to share that the first ever derivatives markets for points have been created on the Vega DEX. The Vega community has proposed and voted on-chain to launch the first derivatives markets for EigenLayer points, and are rapidly evaluating additional points markets to add to the platform. The EigenLayer points futures market is the first of its kind in crypto and poised to facilitate price discovery and allow EigenLayer users to hedge the value of their points, as well as allowing the wider crypto community to speculate on the future value of this ecosystem — all while underscoring the Vega community’s commitment to expanding the boundaries of DeFi.

The Rise of Points Systems

Following a frenzy of airdrops in recent months, a new form of incentive has emerged in crypto: points. Advocates say that unlike typical tokens or cryptocurrencies, points serve as a non-monetary way for protocols to flexibly reward user engagement and encourage retention. Vega’s points markets will allow users to test this thesis, giving them the chance to figure out and realize their value.

Traditional companies have offered points programs of sorts for decades, but points primarily began to take off in the crypto industry following successful campaigns by NFT platforms like Tensor and Blur, which were followed by token airdrops to participants.

The Value of Derivatives Markets for Points

In recent months, the crypto industry has tried to reconcile the potential value of points and their inherent benefits in the context of traditional cryptocurrencies. Points have historically lacked direct monetary value and have no utility outside of their native ecosystem, and without a mechanism for accurate price discovery, the value of points remains unclear. Early OTC markets for points offer the ability for points holders to sell, but are not optimized for trading.

Vega’s protocol enables permissionless market creation on any derivative markets and unlocks three main benefits:

• Liquidity and Tradeability: For the first time, holders can actively leverage their points in derivatives markets, providing them with liquidity and the ability to realize their value.
• Risk Management and Hedging: Similar to traditional derivatives, points derivatives allow holders to hedge against the risks associated with the volatility of points’ value.
• Price Discovery: These markets facilitate the discovery of the monetary value of points based on supply and demand, offering insights into their perceived worth within and outside their native ecosystems.

“A liquid points market is an exciting way for new users to engage with projects they believe in, even when those projects don’t yet have a token. At Prime we’re excited to see Vega build synergies and drive attention to projects like ours.” — Colton Conley, Founder of Prime Protocol & Principal at Arrington Capital

Bringing Points Markets to Vega — How it Works

Vega is a DeFi appchain powered by the Vega protocol and built for the creation and trading of derivatives. Unlike other DEXs, which operate similarly to their centralised counterparts with listings and new products controlled by a single entity, Vega is an open base layer for market creation, liquidity provision, and trading.

Like all markets on Vega, these new points markets are created by the Vega community who define the key parameters of the market based on the risk profile of the underlying points and the intended market features and settlement methodology.

These markets present an interesting challenge because, unlike traditional cryptocurrencies, it is unknown how points are valued and how they will gain value over time. Perhaps some users will receive more tokens for their points than others, or perhaps not all users will receive tokens at the same time. This means a simple market in the style of other pre-launch token markets would not work in all cases and could end in ambiguity or a market failing to settle when it should.

The Vega Research team assisted the community in solving this problem by publishing a research note describing a potential way to settle these markets. The research team proposed that a community member looking to launch this sort of market could use a cash-settled futures market with the option to either create it with a fixed or dynamic settlement date, where the settlement price is defined by a novel concept known as the “Airdrop Event”.

The Airdrop Event was inspired by the concept of a Credit Event in Credit Default Swaps (CDS), which have to deal with a similar problem in determining whether a company has defaulted, and if so, the “recovery rate” to be used, for the purposes of the CDS payout. Similarly, the Airdrop Event describes the precise conditions that would trigger settlement of a points market, as well as the methodology for calculating the price per point at which the market should settle. This definition will allow traders to be confident in their understanding of the mechanics of the market.

At the time of the Airdrop Event, UMA’s Optimistic Oracle or OO will be used to resolve each points market. The OO is an optimistic data verification tool. Any user can assert claims relating to the points market to the OO, along with a security bond. For a period known as the challenge window any trusted individual can dispute these assertions by matching the security bond. If no dispute is made, the data is verified on-chain where it can be read by Vega’s smart contracts.

The Vega Engineering team also helped the community by providing example Ethereum smart contract code, showing how the latest version of UMA Optimistic Oracle could be used to implement this form of settlement on-chain in a way that can be integrated with Vega’s oracle data sourcing framework. It was proposed that UMA’s Arbitrum instance may offer a good balance of popularity (given Arbitrum’s increasing DeFi usage) and lower gas fees than Ethereum Mainnet.

For more information, check out the research note or dig into the example smart contract code.

“The Optimistic Oracle is designed for use cases where a DeFi protocol needs trustworthy data that can’t be delivered by a standard price oracle. Vega’s points futures markets are an almost perfect application. We’re excited to see Vega unlocking new DeFi use cases with the OO and look forward to seeing the market react to this product.” — Hart Lambur, Founder and CEO, UMA

Conclusion

Whether you’re looking to trade, hedge, or simply explore the world of DeFi, Vega Protocol offers a permissionless gateway to the future of finance.

To explore the first futures points market created by community members, head to Vega Console. If you have any questions, feel free to reach out on Discord and Twitter.

About Vega Protocol

Vega is Web3’s native derivatives layer. The community is creating the building blocks for a new financial system. One that puts control of the markets, the products, and the fees in the community’s hands. Vega is a decentralised network that supports the creation of derivatives markets for a variety of crypto assets. Vega’s aim is to FreeTheMarkets, by removing centralised gatekeepers and enabling a permissionless market creation and trading experience for all.

About UMA

UMA was founded in 2018 to solve hard problems facing the development of Ethereum. UMA currently builds the Optimistic Oracle, Across, the fastest and cheapest EVM bridge, and Oval, the first MEV capture protocol on Ethereum mainnet.