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UMA (UMA)

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An Optimistic Oracle Built for Web3.

UMA (UMA) Fact Sheet

  1. UMA Protocol is a decentralized finance (DeFi) optimistic oracle built on Ethereum (ETH) to allow any two counterparties to create their financial contracts and synthetic assets.
  2. ​​An optimistic oracle serves data to smart contracts using a "true unless disputed" escalation game, enabling Decentralized Participation, Dispute Resolution, and Economic Guarantees.
  3. The UMA protocol allows users to create different financial contracts for different use-cases and purposes. As a result, they can digitize any valuables such as futures, contracts for differences (CFDs), crypto assets, or any other financial derivatives.
  4. Synthetic assets are a specific class of assets aimed at mimicking the value of another asset created through the tokenization of valuables.
  5. UMA allows the easy creation of synthetic assets and relies on two core components, Priceless Financial Contract Designs, and a Decentralized Oracle Service.
  6. UMA is the native cryptocurrency utilized on the platform with a high level of utility, such as being used for protocol governance and granting the token holder rights towards voting on new synthetic assets or even disputing liquidated collateral.
  7. UMA, UMA Protocol, and UMAProject are managed by a private company headquartered in Greater Chicago Area, Great Lakes, Midwestern US.

UMA Historical Data Price Chart in the U.S. Dollars (USD)


UMA (UMA) Historical Data Price Chart in the U.S. Dollars (USD). Source: TradingView

What is UMA (UMA)?

UMA is short for Universal Market Access and is a permissionless derivatives product aiming to establish a generalized framework that can facilitate the creation of synthetic assets on the Ethereum (ETH) blockchain.


Accessibility was the key issue the derivatives market faced before the launch of UMA. There were limits as to who could participate. These limits came in the form of an accredited investor rule, where the products were only available to those with over $1 million or more, and an identity rule, where if a user could not verify their identity, they could not sign up for trading.


The main goal of UMA is to make the derivatives market open to just about anyone, where all someone needed to do to trade a derivative on UMA was another person who wanted to take the other side of the trade. This deal flow became accessible through blockchain technology.


To truly understand how UMA works, we must first look at derivatives. Derivatives are contracts that derive their value from the performance of an underlying entity. The asset can track the price of another asset, such as gold.


Furthermore, these derivatives also allow users to track an asset's price without directly needing actual exposure to the asset. As a result of this, the derivative market has seen an exponential level of growth. However, it was generally not seen as accessible in the minds of lower-profile investors. UMA, on the other hand, provides the opportunity to bring a variety of derivatives to the Ethereum blockchain and, as a result, makes it accessible to anyone.


To summarize, a derivative is a contract between two or even more parties, where the value is based on an agreed-upon, underlying asset. However, this can also be an index or even a security. These derivatives can be utilized to mitigate or assume risk with the expectation of a reward.


UMA enables the trading of derivatives on the blockchain. Due to the trustless way UMA functions, all of the positions within the network are collateralized in advance, so neither party can default without paying a high fee, which makes the DeFi space unique.


For example, when we compare it to traditional finance, contracts are backstopped by a court, so if only one party reneges on a contract, the other party can sue them, which creates issues in different jurisdictions.


However, with smart contracts enabled by blockchain technology and overcollateralized positions, UMA will let the derivative contract be governed by code. A default on that contract is not possible without a substantial financial loss.


Any two people or organizations can trade with one another from anywhere in the world, everyone has equal access, and the contracts are settled instantly.


Since smart contracts are programs that are stored on the blockchain and only run when predetermined conditions are met, they are utilized to automate the agreements' execution, where all the participants are immediately certain about the outcome without the involvement of any intermediary.

How is UMA (UMA) Used?

Alongside derivatives trading, UMA has another feature that makes it stand out when compared to other projects, and this is the fact that it allows users to create a synthetic token, one that can track the price of anything.


If something has a price, in that case, it can be tokenized through the usage of UMA.


When it comes to the utility surrounding the UMA cryptocurrency specifically, it is split across a total of three main usage types, and these include:

  • Governance - the UMA cryptocurrency allows users to earn inflationary rewards by participating in the governance process.
  • Disputes - the tokens are used to incentivize the price requests throughout disputes.
  • Burns - any financial contracts utilizing UMA need to pay a tax to buy and burn the cryptocurrency, which drives the value of UMA and scaling economics guarantees as protocol activity increases.

Through the utilization of the UMA Improvement Proposal (UMIP), all UMA tokens can be used for system-wide changes, including the process of approving new price identifiers, activating any emergency shutdowns, or even modifying code on the protocol.

Use-Cases of UMA (UMA)

A key use case within the UMA ecosystem is the Synthetic Token Builder, where anyone can create tokens that track the price of just about anything.


This decentralized application (dApp) built on UMA creates a token facility by launching a smart contract. After a person deposits DAI into their token facility, they can mint synthetic tokens fully backed by the DAI deposited.


Furthermore, through over-collateralization of the token facility, users ensure that the synthetic tokens are fully backed at all times, which helps reassure anyone buying the synthetic tokens that they are indeed fully backed.


There are numerous things that users can, later on, do with synthetic tokens, such as building tokens that can track the price of CNY in DAI and use it to power a specific wallet focused on that region. Users can also create a version of PoolTogether, which pays the performance of the S&P 500 rather than the interest on the DAI.


Then there’s also the Total Return Swap (TRS), a funding tool that secures financing for held assets.


Here, TRS allows the party to obtain funding for a pool of assets it already owns and the swap counterparty to earn interest on funds secured by the pool of assets.


When used this way, the TRS shares similarities with a secured loan because the party can sell the securities and agree to buy them back as it requires financing. That’s also the case since the party that buys the securities and then agrees to sell them back is the party that provides the financing.


UMA utilizes a model of Total Return Swap. In this bilateral contract, one counterparty needs to pay the total return of the underlying asset in question, including interest payments or dividends and any capital appreciation or depreciation. The opposing party, however, only pays a regular fixed cash flow.


Now we need to go over two key components of UMA:

  • Priceless Financial Contract Designs contain the templates for smart financial contracts on UMA, allowing users to design and develop synthetic assets.
  • Decentralized Oracle Service - the oracle service has two core components: the Optimistic Orale Service and the Data Verification Mechanism.

Here, the Data Verification Mechanism (DVM) is utilized to settle disputes and liquidation while also dealing with synthetic tokens at the point when the contract expires or when the settlement is required.


Note that the DVM process only gets activated if a liquidation dispute is filed on a sponsor’s behalf, and this means that if there is no dispute, the DVM will stay out of the process completely.


Furthermore, UMA also relies on Sponsors, Liquidators, and Disputers that play an integral role as actors on the network.

  • Sponsors - they create synthetic tokens.
  • Liquidators - are allowed to liquidate positions.
  • Disputers - can disagree with any decision made by the Liquidators

In addition to enabling tokenized financial derivatives to function on top of a blockchain network, Universal Market Access (UMA) is the standard model for oracles that provide off-chain data for blockchain transactions.


The UMA priceless contracts also incentivize the parties making a transaction with one another to conduct their price identification, and disputes get resolved through crowdsourced data verification mechanisms. UMA retains its data in an inclusive on-chain way, less prone to any data corruption that a malicious party can conduct off-chain.

Usability & Primary Features of UMA (UMA)

There are numerous usability options and primary features available in UMA.


Synthetic Asset Generation is at the top of this list, as they are designed to track the price of any underlying asset, which can be a stock within a company, a commodity, or even a cryptocurrency.


These assets, in turn, let investors gain exposure to various notable assets without acquiring them. As long as the price info of the underlying asset can be reliable and publicly available, in that case, developers can create any synthetic asset they want to.


Furthermore, there are governance rewards, where liquidators can claim an investor's collateral by liquidating their position and repaying the debt.

Protocol

UMA's protocol is open-source and based on the Ethereum (ETH) blockchain, allowing anyone to build financial contracts and synthetic assets.


The main goal here is for the project to facilitate a decentralized architecture that can grant universal market access to the Decentralized Finance (DeFi) markets.

Ledger

UMA (UMA) is built on top of the Ethereum (ETH) blockchain network, which means that it shares a similar ledger surrounding the way it records and stores transactions.


However, to enable users to create synthetic assets easily, UMA relies on a complex architecture model that features two core components: Priceless Financial Contract Designs and a Decentralized Oracle Service.

Smart-Contract Support

There is support for Smart Contract Templates on top of the UMA network. Here, developers are provided with the opportunity to access a set of audited, open-source smart contract templates on the UMA platform. These can help developers create synthetic tokens that are a lot more robust without needing to worry about architectural challenges.

Tokenomics & Supply Distribution

UMA is a cryptocurrency built on the Ethereum (ETH) blockchain, which follows the ERC-20 token standard.


The UMA token allocation was split as follows:

  • Initial Uniswap Listing: 2,000,000 or 2.0%
  • Future Token Sales: 14,500,000 or 14.5%
  • Developers and Users: 35,000,000 or 35.0%
  • Founders, Early Contributors, and Investors: 48,500,000 or 48.5%

Team & History

The UMA project was originally founded in 2018 by Hart Lambur and Allison Lu.


Both were traders at Goldman Sachs before creating UMA, creating the service to enable users to transfer risk across the internet without needing any central authority.

Activities & Community

When we go over its social media activity, the platform currently has a large following on Twitter, with over 71,600 followers on the UMA Protocol Twitter page.


When we go over the UMA GitHub, we can see that there are three main pinned repositories, including:

  • Protocol - UMA Protocol Running on Ethereum
  • Whitepaper - The Official UMA Whitepaper
  • UMIPs - UMA Improvement Proposal Repository

On-Chain Activity

According to data from Etherscan, UMA has a circulating supply market cap of $179,333,154.00 and a fully diluted market cap of $287,645,742.92, where the UMA token is trading at a value of $2.66.

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UMA project overview. Source: Etherscan


However, when we look at data from Ethplorer, we can see that the cryptocurrency has a trading volume of $17 million, a total supply of 108,137,497.33913708 UMA tokens, as well as 420,508 transfers, with 4,682 issuances and 18,600 holders.


UMA token information. Source: Ethplorer

Activities and Partners

UMA (UMA) has been active in the crypto space for quite a long time, and as such, it is clear that there have been numerous activities and partnerships established with the project.

References & Reports

References

Market Research

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