UMA is a protocol that was created on the basis of the Ethereum platform allowing users to create synthetic tokens which are collateral backed tokens with fluctuating value. Such tokens have a price identifier, collateralization requirement, and expiration date.
UMA tokens are governance tokens used for participation in a community-owned and community-operated network protocol. The asset entitles its holders to take part in voting when the decisions are made by the community.
The platform markets itself as a platform for financial innovation. UMA project borrowed the concept from fiat financial derivatives and came up with an open-source protocol enabling two counterparts to create their own contracts.
The company behind this digital asset is Risk Labs Foundation headquartered in the United States that was founded in 2017 by Hart Lambur, a Wall Street former executive. He has invited highly professional financial experts to his team to work over the UMA project. The team included Allison Lu who previously took the position of VC in Goldman Sachs, Regina Cai, analyst and financial engineer who studied in Princeton. The project was presented to the public in December 2018. The members of the team are driven by the passionate belief that financial markets should be universally accessible, clear from censorship, and enabling equal opportunities to pursue prosperity and create financial independence. The values pursued by the team include integrity, openness, education, and smart risk-taking.
The name ‘UMA’ is an abbreviation that stands for ‘Universal Market Success’. UMA doesn’t use a price oracle to establish that the issuer of tokens is undercollateralized. Instead, it delivers a financial incentive to its users to figure it out and liquidate the undercollateralized issuers. Such an approach is applied because, in the opinion of UMA founders, oracles are not trustworthy enough for this mission. They can be easily manipulated, or disabled during hackers’ attacks. UMA project doesn’t use oracles to function on a day-to-day basis.
There are three main components needed to create UMA. The synthetic token is founded on the framework for the creation of synthetic token contracts. It requires DVM which stands for data verification mechanism, and the governance protocol.
Any person can become a token facility owner and create a smart contract for synthetic tokens. It’s enough to deposit collateral to become a token sponsor and participate in the smart contract. The price feed is not needed to make the protocol work, therefore the mechanism that is launched by the protocol is called “priceless”. The token holders are urged by the mechanism to check the amount of collateral locked to make sure the contract is properly collateralized. Otherwise, the liquidation of the collateral can follow.
The liquidation claim can be disputed by the token facility owner. To do this, the person should stake a bond in UMA tokens or resort to the assistance of DVM oracle for resolving disputes and checking the price of the collateral. It’s important to mention that incorrect liquidation is penalized by the system, while the Disputer gets reward instead. In the opposite case, the Disputer loses the bond that was staked, while a Liquidator obtains collateral in the smart token.
The products of the UMA project
In May 2020, the platform launched a synthetic token ETHBTC, which is the first token built on a synthetic token infrastructure. The token ETHBTC is a decentralized product that no one can control, even the development team. The token was launched on Uniswap v2. The code was audited before the release by Open Zeppelin, but it wasn’t tested in the wild as the developer says, therefore, asks users to be cautious with it. This synthetic token tracks the ETHBTC ratio. Its value goes up when ETH outperforms BTC and decreases when the situation is the opposite. The token expired on August 1st, 2020.
On July 23, 2020, the team announced the launch of the first yield token built on UMA’s infrastructure. The asset resembles a stablecoin but it has an expiry day and each token is redeemable for 1 USD. In other words, the token with a ticker yUSD is a fixed-rate, fixed-term loan.
UMA is an ERC20 token that was created for governing the platform’s protocol. The initial supply was 100 million tokens. Uniswap was the first exchange that hosted UMA tokens. After the protocol issued the token on April, 29th, 2020, it sold 100 million UMA tokens on this platform.
However, the token features a soft cap and can be either inflationary or deflationary depending on its value. The foundation planned to deposit 2 million tokens into the Uniswap market, to allocate 35 million tokens to developers and users of the UMA network. 14.5 million tokens were reserved for future token sales. It’s worth mentioning that the plan was not finalized and is going to be discussed and approved by the community.
The founders, investors, and early contributors are holders of 48.5 million UMA tokens, and this raises some controversy in the crypto community. These tokens are transfer restricted until 2021. All individual token grants are distributed according to a 4-year vesting schedule.
The token can be acquired on several exchanges such as Uniswap, Balancer, Gate.io, OKEx, Coinbase, and others. It is convenient to store UMA on such hardware wallets as Trezor and Ledger. As for the other options, it is recommended to use Metamask, Atomic wallet, available in desktop and mobile versions, or Exodus that can also be used as a desktop or a mobile wallet.
UMA team and investors
Hart Lambur is a co-founder of the UMA protocol. He has a Bachelor’s Degree in Computer Science and used to be a professional trader at Goldman Sachs. There he got acquainted with Allison Lu who also worked for Goldman Sachs and became a co-founder of Risk Labs. It’s also worth mentioning Clayton Roche, Head of Community Development with UMA, and Adrian Li, Tech Evangelist of the project.
The list of investors contributing to the UMA project includes Coinbase Ventures, Box Group, Bain Capital Ventures, Blockchain Capital, Dragonfly Capital Partners, Fintech Collective, and others.