What Is Universal Market Access (UMA)?

UTC by José Oramas · 6 min read
What Is Universal Market Access (UMA)?
Photo: Shutterstock

The guide deals with Universal Market Access (UMA) protocol – an open-source infrastructure that allows DeFi developers to create their synthetic tokens and derivatives in the Ethereum network that can keep track of any asset’s prices.

The decentralized finance (DeFi) boom has resulted in the value of the frozen assets frozen surpassing $9 billion. Many of these projects break the rules of traditional finance and implement technologies that were previously impossible. One of such projects worth attention is Universal Market Access (UMA).

Universal Market Access (UMA) is a DeFi open-source protocol created by Risk Lab. UMA is a platform that works with Ethereum-based financial contracts and supports the creation of synthetic assets in the Ethereum network. These synthetic assets are a mix of cryptocurrency-based assets.

How Does UMA Work?

Universal Market Access (UMA) provides an open-source infrastructure that allows DeFi developers to create their synthetic tokens and derivatives in the Ethereum network that can keep track of any asset’s prices. Financial contracts on Ethereum are summarized in two aspects: synthetic assets creation and an Oracle service.

For these financial contracts, the UMA protocol provides two main components: Priceless Financial Contracts and UMA’s Oracle Design.

  • Priceless Financial Contracts: these are contract templates that can be used to develop Ethereum-based (ERC-20) synthetic assets. These contracts can function without an on-chain price feed. Meanwhile, they will reduce the frequency and surface area for oracle attacks.
  • UMA’s Oracle: the oracle, or Data Verification Mechanism (DVM), is a mechanism used by the protocol (as well as many other DeFi services) to report off-chain data to the network or smart contracts.

The main focus of the UMA protocol is on building an open-source infrastructure for developers and creating “priceless” derivatives on the Ethereum blockchain. The need for an on-chain price feed is low, as these financial contracts bring a secured and enhanced collateralization for counterparties.

Every time a user identifies an improperly collateralized position through a liquidation and dispute process, these contracts can determine them by relying on the “Data Verification Mechanism” (the oracle mentioned above). Likewise, counterparties get rewards when they spot these improper positions.

Oracles only work there is a liquidation dispute. A position is “properly collateralized” when it is solvent (unless is liquidated).

UMA Developers

UMA appeared when two traders met on the Goldman Sach trading floor: Hart Lambur and Allison Lu. Both are computer scientists with a great experience. They started working together in 2008 on the Goldman Sachs trading floor. Back in 2017, Lambur and Lu began exploring various ideas for blockchain-based solutions to problems within traditional financial products and services. After some research, they realized that blockchain-based financial contracts could help people all over the world attain Universal Market Access – similar to how HTTP allows information to move across borders. Since then, the full-time team, as well as the community, has continued to expand.

What is UMA Token?

UMA token is the native asset of the protocol that keeps the oracle functioning and powers it by providing developers with governance and price requests. The protocol allows UMA holders to decide what kind of contracts can access the platform, what assets can be supported, as well as choose the vital parameters and future upgrades of the system. Besides, token holders can address price requests through the Data Verification Mechanism when counterparties are disputing a contract. This methodology reduces on-chain price requests but does not eliminate them.

Further, UMA holders can earn rewards by voting when a user submits a price request from financial contracts. By doing so, they contribute to price information to the DVM and gain more participation in the protocol’s governance.

0.05% of the total network supply is distributed as an inflationary reward in the staking pools for voters. The system will penalize voters who do not participate and become inactive for a certain period. Moreover, the value of UMA increases as the total value of locked UMAs grows.

Token Distribution

Although the distribution mechanism may be subject to changes, the current plan is as follows:

  • 2 million tokens will go into Uniswap’s liquidity pool;
  • around 100 million tokens will be circulating in the market;
  • 14 million are reserved for future token sales;
  • users and developers of the protocol will get around 35 million tokens;
  • Risk Lab founders, investors, and contributors will keep around 14.5 million UMA tokens.

The platform will outline proposals and plans for the community in the future so that they can decide what mechanism could work best.

UMA Uniswap Listing

Risky Labs will deposit 2 million UMA tokens for traders in one of Uniswap’s liquidity pools on April 29. Likewise, the company will deposit $535,000 of ETH into another liquidity pool. The starting market price will be $0.26 per token, with a market capitalization of $26,670,000 for UMA’s network.

Pros and Cons of UMA Protocol

The main advantage of the UMA protocol is the constant innovation. Last month, Risky Labs announced the introduction of KPI Options – an incentive to grow communities in DeFi platforms. Essentially, KPI options are essentially synthetic tokens that have an expiration date. If the KPI grows to a certain target, these assets will pay higher rewards to users. As a result, KPI options will work as an incentive to grow communities, because the asset will be more valuable as time passes.

Notably, these assets will come together with an airdrop (a free distribution of tokens, cryptos, or coins) of $2 million worth of UMA tokens. The main idea is to unite the entire network by aligning the interests of individual token holders and the community. One of the key targets of these KPI options is to reach a Total Value Locked (TVL) of $2 billion before June 30 by airdropping options worth up to $20 per UMA.

Further, UMA tokens are easy to store. Above all, unlike the rest of DeFi protocols, UMA delivers an incentive to unite the community and helps it to develop a better system.

As for the protocol’s cons, the major of them is that only 2% of the supply is available for trading. Besides, some users have criticized the project for Uniswap’s participants, calling it unfair.

UMA’s Future

UMA is trying to connect traditional financial markets with the technology and benefits of DeFi. The team behind UMA came from the same institutional background. Therefore, UMA could become the bridge between institutional investors and decentralized finance, finally giving DeFi a proper stage in the mainstream with greater embracement.

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FAQ

What is UMA?

Universal Market Access (UMA) is a DeFi щpen-source protocol created by Risk Lab, the company currently working on the protocol’s development. UMA is a platform that works with Ethereum-based financial contracts and supports the creation of synthetic assets in the Ethereum network. These synthetic assets are a mix of cryptocurrency-based assets.

Who is standing behind UMA?

UMA appeared when two traders met on the Goldman Sach trading floor: Hart Lambur and Allison Lu. Both are computer scientists with a great experience. They started working together in 2008 on the Goldman Sachs trading floor. Back in 2017, Lambur and Lu began exploring various ideas for blockchain-based solutions to problems within traditional financial products and services. After some research, they realized that blockchain-based financial contracts could help people all over the world attain Universal Market Access – similar to how HTTP allows information to move across borders. Since then, the full-time team, as well as the community, has continued to expand.

What is UMA token?

UMA token is the native asset of the protocol that keeps the oracle functioning and powers it by providing developers with governance and price requests. The protocol allows UMA holders to decide what kind of contracts can access the platform, what assets can be supported, as well as choose the vital parameters and future upgrades of the system. Besides, token holders can address price requests through the Data Verification Mechanism when counterparties are disputing a contract. This methodology reduces on-chain price requests but does not eliminate them.

Further, UMA holders can earn rewards by voting when a user submits a price request from financial contracts. By doing so, they contribute to price information to the DVM and gain more participation in the protocol’s governance.

0.05% of the total network supply is distributed as an inflationary reward in the staking pools for voters. The system will penalize voters who do not participate and become inactive for a certain period. Moreover, the value of UMA increases as the total value of locked UMAs grows.

What is the potential of UMA’s trustless tokenization?

With UMA’s trustless tokenization process, investors can tokenize anything from synthetic crypto-assets to classic assets in the traditional financial market to gain exposure, similar to an Exchanged-traded Fund (ETF). UMA enables tokenization by combining the power of its financial contracts templates (where developers can create ERC-20 tokens and derivatives), and DVM, Uma’s oracle for data verification.

This way, developers not only create their smart contracts compatible with the Ethereum blockchain but also create their ERC-20 versions of any asset from the traditional markets and gain exposure to them, without actually having to hold it.

This is the key element in bringing traditional and decentralized finance closer, in order to catapult DeFi into a broader space for investors.

Where can you buy UMA?

UMA can be bought at almost any crypto exchange, such as Coinbase, Binance, OKEx.

What are UMA’s pros and cons?

The main advantage of the UMA protocol is the constant innovation. Last month, Risky Labs announced the introduction of KPI Options — an incentive to grow communities in DeFi platforms. Essentially, KPI options are essentially synthetic tokens that have an expiration date. If the KPI grows to a certain target, these assets will pay higher rewards to users. As a result, KPI options will work as an incentive to grow communities, because the asset will be more valuable as time passes.

Notably, these assets will come together with an airdrop (a free distribution of tokens, cryptos, or coins) of $2 million worth of UMA tokens. The main idea is to unite the entire network by aligning the interests of individual token holders and the community. One of the key targets of these KPI options is to reach a Total Value Locked (TVL) of $2 billion before June 30 by airdropping options worth up to $20 per UMA. 

Further, UMA tokens are easy to store. Above all, unlike the rest of DeFi protocols, UMA delivers an incentive to unite the community and helps it to develop a better system.

As for the protocol’s cons, the major of them is that only 2% of the supply is available for trading. Besides, some users have criticized the project for Uniswap’s participants, calling it unfair.

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