Hey guys :) I’m back with another comprehensive Q&A piece, this time for the decentralized financial contracts platform – UMA (UMA).
UMA – short for Universal Market Access – is a decentralized protocol and financial contracts platform that enables globally accessible financial markets on Ethereum. It’s one of the latest DeFi projects to hit the scene and it might be one to keep an eye on.
Now, before we dive in, the following piece is similar to my latest articles on Gnosis (GNO), Ethereum (ETH), and Jarvis Network (JRT), so if you haven’t already seen those, be sure to check them out as well.
Hope you enjoy!
The list of Q&A is kind of long so first comes the list of questions that I have prepared the answers to:
- What is UMA Protocol?
- Who and When Created UMA?
- What is the purpose of the $UMA Token?
- What is the main problem UMA wants to solve?
- What can you create with UMA?
- Does UMA Have a Liquidity Mining Program?
- Where to store $UMA?
- Where to Buy & Sell $UMA?
1. What is UMA Protocol?
UMA website homepage
UMA is a protocol that allows any two counterparties to design and create their own self-enforcing financial smart contracts with economic guarantees.
In other words, UMA powers financial innovations made possible by permissionless, public blockchains, like Ethereum. It also enables developers to recreate traditional financial products and services such as derivatives, futures, exchanges, marketplaces, equities, insurance, etc.
UMA’s Framework for Self-Enforcing Financial Contracts
In traditional finance, derivatives and other financial contracts are enforced through two mechanisms; margin and legal recourse.
For example; a counterparty will post collateral as the value of the contract, and if they fail to uphold their contractual agreement the other counterparty can take legal recourse and sue the counterparty.
This legal recourse aspect of financial contracts is fairly difficult and can be very capital intensive, making these types of contracts inclusive to only large players.
UMA’s framework combined with Ethereum smart contracts, on the other hand, creates a trustless, permissionless mechanism that secures the contract by economic incentives alone. This is important because it significantly reduces the barriers to entry and provides Universal Market Access – UMA.
As outlined in the UMA whitepaper, UMA financial contracts consist of 5 components:
- Public addresses of all counterparties
- Margin accounts for each counterparty
- Economic terms to calculate the value of the contract
- Functions to maintain margin balances
- An oracle to act as a verified data source
UMA Protocol for Building Synthetic Assets
The UMA protocol can be used to build a wide array of innovative financial products from perpetual token swaps, tokenized yield curves, futures to private pension plans, insurance annuity products, and so much more.
However, UMA has thus far been prioritizing the launch of priceless synthetic assets – which are ERC-20 tokens representing an asset with its backing collateral determined by the value of a price identifier rather than relying on on-chain data from price oracles.
To explain further, priceless synthetic assets are designed with mechanisms to incentivize counterparties to properly collateralize their positions without requiring any on-chain price feed. A more detailed explanation can be found on UMA’s website here.
2. Who and When Created UMA?
UMA founders Hart Lambur and Allison Lu
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.
By early 2018, Lambur and Lu began developing the UMA protocol and got financial support from Risk Labs who raised a $4M seed round led by Placeholder with participation from Bain Capital Ventures, Blockchain Capital, Box Group, Coinbase Ventures, Dragonfly Capital, FinTech Collective, and Two Sigma Ventures.
Joining UMA’s co-founders in the development of the UMA protocol is a team of eight individuals with previous experience at Google, Goldman Sachs, five venture-backed startups, and three economics doctoral programs.
UMA (UMA) Token Launch
The native cryptocurrency of the UMA Protocol – UMA launched on April 28, 2020, via the first-ever initial DEX offering. The UMA token sale took place on the Uniswap DEX, selling tokens at a price of $0.26 per UMA.
As for UMA token’s distribution, it is as follows:
- Initial Uniswap Listing - 2,000,000 (2.0%)
- Future Token Sales - 14,500,000 (14.5%)
- Developers and Users - 35,000,000 (35.0%)
- Founders, Early Contributors, and Investors - 48,500,000 (48.5%)
3. What is the purpose of the $UMA Token?
UMA token logo
The native cryptocurrency of the UMA Protocol is called UMA and its primary purpose is for governance and voting on UMA improvement proposals.
UMA Token Utility:
- Governance - UMA token holders can vote on UMA improvement proposals
- Disputes - UMA tokens are used to incentivize price requests during disputes
- Burns - All financial contracts using UMA pay a tax paid for in UMA which is then burned
UMA token holders can choose to be active governance participants of the UMA Protocol and vote on various UMA improvement proposals. Users who vote with the majority on these proposals will receive inflationary rewards in the form of UMA.
UMA tokens are used for voting on price disputes and the cost of corruption for any of UMA’s financial contracts is calculated as the value of 51% of all UMA tokens. Therefore, UMA tokens ensure the safety and security of oracle-minimized financial contracts.
That said, the value of UMA tokens must grow proportionately with the UMA network to ensure economic guarantees.
The UMA Protocol embeds a small tax on all of UMA’s financial contracts. To pay this tax, UMA is bought from the open market and then burned (removed from circulation forever).
As the UMA Protocol grows in adoption so will the revenues from the tax, and in turn, the value of the UMA token will grow as well.
4. What is the main problem UMA wants to solve?
In the traditional financial services industry, many financial products and services such as derivatives are not readily available to the average person – this is the problem UMA wants to solve.
UMA is using blockchain-based financial contracts to help people all over the world attain Universal Market Access through accessible and decentralized financial products and services.
They’re providing developers with blockchain-based financial infrastructure and a framework for building innovative decentralized finance (DeFi) products that enable people to leapfrog the existing fiat financial infrastructure and attain Universal Market Access.
The end goal for UMA is to provide the world with all kinds of different financial contracts in which anyone can access and participate in.
5. What can you create with UMA?
With UMA’s decentralized financial infrastructure and framework for creating trustless and permissionless financial innovations, anyone can create a wide array of open financial products and services.
Some conceptualized Financial Applications for UMA include:
- Synthetic Tokens to Track Anything
- Decentralized Crypto Futures
- Tokenized Yield Curves on Ethereum
- US & Global Equities
- Cryptocurrency Dominance
- DeFi Total Value Locked
- DEX Market Share
- Perpetual Swaps
- Private Pension Plans
- Insurance and Annuity Products
To touch on the synthetic token example listed above, you can use the UMA synthetic token builder to design ERC-20 tokens that can track the price of anything.
The types of applications UMA’s synthetic tokens enable is truly endless:
- You could create a token that tracks the price of JPY in DAI and use it to power a Japanese-focused wallet.
- You could create tokens that track the price of TSLA and go long or short by trading them on a DEX.
- You could create a version of PoolTogether that pays the performance of the S&P 500, rather than interest on DAI.
- You can create tokens that track the S&P 500 and Compound’s interest on DAI. And by making the token’s margin currency cDAI instead of DAI, you can get yield-enhanced exposure to the S&P 500.
Overall, the different types of financial applications that can be powered by UMA is truly endless.
6. Does UMA Have a Liquidity Mining Program?
The program rewards farmers with UMA rewards for contributing yUSD liquidity to the yUSD/USDC pool on Balancer. The program is set to go on for ~6 weeks with a distribution of 25k UMA each week.
The UMA rewards are distributed on a pro-rata basis, proportional to the amount of liquidity users provide, and rewards are distributed weekly via an airdrop without lockups or restrictions.
Where do the UMA rewards come from?
The UMA liquidity mining rewards are part of the original 100M UMA that were minted and a total of 35M UMA will be distributed to liquidity miners, developers, and users over several years.
Keep an eye out for more UMA liquidity mining programs as the one described here is just the first of more to come.
7. Where to store $UMA?
UMA (UMA) is an ERC-20 token residing on top of the public Ethereum blockchain. That said, you can store UMA in any ERC-20 token supported wallet.
However, the best wallets for storing UMA are non-custodial Web3 wallets that provide seamless access to the latest DeFi applications.
Popular UMA (UMA) DeFi Wallets:
- MyEtherWallet (MEW) (web)
- Metamask (web)
- Trust Wallet (mobile)
- Argent (mobile)
- Coinbase Wallet (mobile)
In addition to the above-listed wallets, UMA (UMA) can be stored on a wide variety of other reputable wallets supporting ERC-20 tokens.
8. Where to Buy & Sell $UMA?
UMA (UMA) can be bought and sold on a peer-to-peer (P2P) basis but the most popular way to buy, sell, or trade UMA is through cryptocurrency exchanges.
You can buy UMA with cryptocurrency or fiat currency at the following top exchanges. In most cases, you will be able to buy UMA with BTC, ETH, or fiat currency.
- Uniswap - ETH, WETH, USDC
- Balancer - WETH, WBTC, BAL, YFI, MKR, LRC, KNC, DAI, AKRO
- Bibox - ETH, USDT
In addition to the exchanges listed above, UMA (UMA) is also traded on a few other exchanges and platforms that enable people to buy, sell, or trade cryptocurrencies.
Hope you enjoyed that read :) Let me know if I have missed something in the comments.