Gibraltar-based Vega Protocol raised $5 million toward going live with what the company calls the “first capital-efficient, decentralized derivatives trading protocol that bridges traditional finance and decentralized finance,” better known as DeFi.
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Arrington Capital and Cumberland DRW led the round. Other backers include Coinbase Ventures, ParaFi Capital, Signum Capital, CMT Digital, CMS Holdings, Three Commas, GSR, SevenX Ventures and Zee Prime Capital as well as the DeFi Alliance and a group of individuals.
This round follows Vega’s $5 million seed round, led by Pantera Capital, in October 2019. This latest funding gives Vega just over $10 million in venture-backed capital raised since being founded in 2018, Vega co-founder Barney Mannerings told Crunchbase News.
Designing a derivatives market
Mannerings met his co-founder Ramsey Khoury some years ago, and the two bonded around cryptocurrency, discussing investment in the space and the need for a decentralized protocol that would remove the middleman, thus reducing associated fees.
“I’ve spent years on markets and technology — designing other trading systems — and you realize how inefficient it is and that the cost to get in is high,” Mannerings said. “It is very easy to make a case that markets should be more efficient to run and have rapid innovation.”
Simply put, Vega enables anyone on its network to create and launch a derivatives market. When trading derivatives, such as futures contracts or options, the trade is based on the value of the underlying assets. For example, you agree to buy or sell a set amount of an asset, at a specific price, at some future date.
Traditional trading needs a buyer, a seller and a middleman, Mannerings said. Instead, Vega is eliminating the middleman and allowing for a buyer to buy without a seller and a seller to sell without a buyer. It does this through built-in liquidity incentives that match traders and market makers across any financial product.
The new funding will go toward advancing its Mainnet release. It will also connect to major blockchains for collateral, which can be in any digital asset, but will initially build into the Ethereum ecosystem. Future deployments will widen Vega’s scope into other major blockchains, including Bitcoin, Polkadot and Cosmos.
The company went into 2020 thinking it would build the platform, but the global pandemic threw a wrench in that plan, Mannerings said.
“We started to see what was going on in DeFi and the fire power needed to go into that market,” he added. “We certainly went for high-quality investors. This is a strategic round, and we want to get traders, institutions and people who will signal this is a serious product. The message we want to send is this is here to stay, and we are doing it in a way that others aren’t.”
Investor sentiment
Michael Arrington, partner at Arrington Capital, said he met the Vega team when the company was raising its seed round, but did not invest then, something he admits in hindsight was a mistake.
“Besides the fact the team is stellar, them being involved in liquidity events make investment in them a no-brainer,” Arrington said in an interview.
He believes that the most important thing in cryptocurrency isn’t bitcoin, but automated market makers using liquidity pools that make trading protocols like Vega and Uniswap possible.
“That’s why Uniswap has grabbed so much market share,” he added. “If you have to do derivatives or exotic stuff, you need a meeting of the minds and a buyer and seller. This gets so complicated and one-size-fits-all. Vega is taking the AMM philosophy and applying it to derivatives in a way that is so brilliant.”
Hot sector
Meanwhile, the trading platform sector continues to heat up. Also this week, Republic, a New York-based investment platform enabling users to invest in private deals, including startups, real estate, video games and crypto, closed on $36 million in a Series A led by Galaxy Interactive with a strategic investment by Prosus Ventures. The company said it will continue work toward democratizing access to investing for everyone.
In addition, TechCrunch reported that London-based Invstr closed on a $20 million Series A in the form of a convertible offering from backers including Finberg. The company said it would use the new funding to launch new brokerage and analytics tools, and a portfolio builder.
Illustration: Li-Anne Dias
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