introduction of the cost of lawyers and financial advisers has always represented a high barrier to entry to the financial markets. With the help of smart contracts and oracles, the UMA project aims to break this barrier.
Unlike the meme coins created for the sole purpose of riding the strange waves of social media, DeFi protocols are trying to leave lasting value behind. As permissionless and decentralized finance continues to evolve, they can take advantage of existing financial markets.
UMA represents the latest evolution of the DeFi space, creating tools to participate in the derivatives market worth more than $ 540 billion.
UMA explained
According to Universal Market Access, UMA’s mission is to eliminate intermediaries from the financial derivatives markets.
Based on open source coding, the UMA protocol runs on the Ethereum blockchain to create synthetic assets. As a derivatives protocol, it tokenizes such assets in the traditional financial arena outside of the blockchain space.
UMA protocol makes this possible by providing a framework for creating ERC-20 tokens. In turn, these collateralized crypto tokens keep track of existing derivative assets. In this way, investors can use UMA to trade derivatives without directly accessing them.
More importantly, UMA allows investors to do so without centralized points of failure and authority. basic components for trading financial contracts on Ethereum are two:
- Invaluable Financial Contract Templates – Create synthetic tokens, or synthesizers, to run automatically based on the oracles data source.
- Decentralized oracles: used to evaluate contracts and enforce their execution.
se two components create an environment in which financial contracts can be natively traded on Ethereum:
«[In traditional finance] If the contractual terms are not respected, the legal system is called upon to arbitrate the process, which is costly and slow. UMA allows this to happen natively DeFi, without the need for individual attorneys or intermediary entities to control the system.
As with other DeFi protocols, the UMA token of the same name is the protocol’s governance tool. But first, let’s see how UMA really works.
How does the UMA protocol work?
To understand how the UMA protocol works, you must first understand what it is trying to mimic. In traditional finance, the execution of financial contracts is based on two components:
- Margins: the commercial parties bet on the guarantee to take into account the displacement of the value of the derivatives.
- Legal Mechanism: Arbitration and other costly and cumbersome legal procedures if one of the business parties does not comply with the contract.
In DeFi, the first component is relatively easy to materialize, thanks to smart contracts. However, the main obstacle is law enforcement. One that can scale worldwide among millions of pseudonymous investors. UMA protocol addresses this problem by creating a trustless and permissionless mechanism based on financial incentives.
refore, UMA breaks the barrier to entry to the world of financial derivatives by providing an open source framework for developing financial contracts. y consist of five components:
- Public addresses of business parties.
- Self-management of the margin balance.
- Economic parameters for the evaluation of contracts.
- Oracles for data verification.
- Settlement, resolution, readjustment, addition and withdrawal functions.
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Contracts and oracles
UMA has a number of financial contract templates that anyone can use to create derivative tokens.
Oracle Optimistic handles the price request for these contracts. This acts as a way for the contracts to initiate price inquiries. As a result, Oracle Optimistic is called for each price request.
This optimistic Oracle is supported by the systems dispute mechanism, the data verification mechanism: DVM. In case of problems with the price request, it is sent to the DVM for voting. Compared to Oracle Optimistic, DVM is not called as often by design.
Those interested in the UMA token can use DVM to resolve contract disputes or add new crypto assets. More importantly, if the liquidators provide incorrect information, they are penalized, and the DVM oracle confirms the correct collateral price.
y can even participate in the development of UMA to generate consensus for UMIP, the UMA enhancement protocols, similar to EIP for Ethereum.
Synthetics versus priceless synthetic tokens
As mentioned above, the price of synthetic tokens fluctuates relative to their benchmark.
As guaranteed tokens, they include various parameters to maintain their price: futures markets, forecast markets, and guaranteed loans.
Synthetic tokens can track precious metal commodities or cross-chain crypto assets. y can also be used to track the success of trading strategies on the WallStreetBets subreddit. Similarly, synthetic tokens can be used to monitor the performance of other DeFi protocols, such as Uniswap.
Its application does not end there. In addition, synthetic tokens can be used for insurance products, perpetual swaps, futures, private retirement plans, yield curves, DEX market shares, etc. Consequently, if a financial product exists, the UMA protocol can convert it to a token.
On the other hand, priceless synthetic tokens are guaranteed without having a price feed on the chain. Instead, through resolution and litigation mechanisms, the purpose of these tokens is to incentivize the tokens of the sponsors (creators of synthetic tokens) to adequately secure their contractual positions.
So far, the UMA protocol takes into account about 50 projects with $ 95.45 million in total blocked value (TVL). From that volume, investors extracted $ 40.97 million TVM (total minted value).
Who developed UMA?
Hart Lambur and Allison Lu are the co-developers of UMA.
Having been a Goldman Sachs bond trader with a basic computer science background at Columbia University, Lambur decided to leave the world of traditional finance and fully participate in DeFi. Developed the predecessor to UMA in 2017 through Risk Labs.
That first synthetic risk management protocol was a stepping stone to obtaining institutional funding. Risk Labs acquired $ 4 million from venture capitalists Bain Capital and Dragonfly.
This may not be so surprising, as both Lambur and Lu have ties to the world’s largest bank. Allison Lu was a vice president of Goldman Sachs with a business degree from MIT. In particular, Lu had previously worked as a consultant at One Daijo, an Ethereum P2P lending protocol.
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Lu began partnering with Lambur in 2018, including Regina Cai and other FinTech specialists. On December 3, 2018, the Oracle-based UMA protocol first saw the light of day with the release of its white paper. Soon after, they launched US Stocks as the first UMA Mainnet project.
Is the UMA token worth buying?
At the heart of the UMA protocol is its native UMA governance token (UMA). It was one of the first DeFi tokens to be launched on the decentralized exchange Uniswap. After publishing the whitepaper, Hart Lambur explained how the token works by tokenizing the price of all types of assets in a decentralized way.
UMA tokens are explicitly for voting on the DVM, making their value inherent in participation in the protocol and in the community.
All UMA token holders can vote on minimal protocol changes, along with more extensive updates. UMA distribution is as follows:
- Total supply of 100 million.
- Around 62 million in circulation.
- 2 million were sold during UMA’s ICO (Initial Coin Offering) via Uniswap.
- Approximately 35 million were distributed to users as rewards and developers.
- 14.5 million earmarked for future sales.
current position of the UMA
UMA’s current market capitalization is $ 547.2 million, with a daily trading volume of approximately $ 22 million. UMA token is available for purchase on all major exchanges such as Coinbase, Binance, OKEx, etc. ATH price was reached in February 2021 ~ $ 34, after dropping 74% to $ 8.47.
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In July, the MAC indicator indicated a bullish direction. When it comes to rewards for holding UMA tokens, users receive 0.05% of the current UMA offer, distributed among active voters, when they participate in the governance process. Otherwise, those who are in the reward system, but do not participate, receive penalties.
Every time you accurately rate a “price request” in the financial contract, you get a reward. Consequently, these are proportional to the number of UMA tokens that were used to vote. Generally, storing UMA tokens is easy with Exodus, Atomi or Trezor and Ledger for hardware wallets.
Based on the fact that UMA gained popularity when it first launched the priceless ETHBTC token in 2020 to track its performance, it is safe to assume that UMA is rated on its utility merit.
refore, the value of the token depends on the usefulness of these new projects and the spread of their popularity. refore, the development team has already created ground by launching a $ 60 million creative community airdrop among five other DeFi governance communities.
What does the future of the UMA hold for us?
With the Ethereum 2.0 update, the UMA protocol is also moving from proof of work (POW) to proof of mail (POS) as it is hosted on Ethereum. As this dramatically improves scalability, the UMA team expects a new wave of synthetic token adoption.
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“We see that different scaling solutions will have to keep pace with the innovation curve, as there are some key industry services that do not benefit from fragmentation. Examples such as DEX and splitting of liquidity funds are not beneficial to end users, ”the team explains.
As for the scourge of hacks in the DeFi space, expect more to happen. However, they should be overcome by adopting DeFi, frequent code checking, additional bugs, and increasing decentralized insurance protocols.
current interest of the UMA team is to distribute Success and Rank tokens. Success in the near future.
On the one hand, tokens allow venture capital funds to invest in DAOs (decentralized autonomous organizations) just like they own stocks.
On the other hand, Range Tokens are similar to debt instruments, which protects the DAO from downtrends but does not make as much profit. UMA had already raised $ 2.6 million with the pilot launch of the Range token last month.
In conclusion, you rarely see such a flexible and promising project in the DeFi space. With so many applications in the financial arena, UMA is ready to start a DeFi project that will take space by storm.
Disclaimer
All information on our website is published in good faith and for general information purposes only. Any action taken by the reader on the information found on our website is strictly at your own risk.
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