Hey folks, in today’s article we’re going to be talking about , one of the first optimistic oracles that helps ensure proper validation of data in relation to smart contracts — a must-have to prevent voter fraud and conflicts in on-chain markets.
Why it’s important to secure governance
Among many of the hacks and exploits we’ve seen in crypto, one of the most damaging are exploits in governance. If you’ve been around the cryptospace for a while, you’ll be familiar with some of the big ones that have occurred including:
?April 2022 when an attacker flashloaned Beanstalk accumulating enough votes to create a malicious improvement proposal that allowed him to drain $181 million dollars in mostly stablecoins.
?May 2023 when an attacker created upwards of 10k fake votes on Tornado Cash which helped him pass a malicious proposal that allowed him to drain the treasury by $750k worth of assets.
Exploits not only hurt the integrity of the votes, but can cause retailers to get hurt, let alone entire protocols shutting down.
Why most DAO-voting systems are flawed
If you take into account major protocols with DAO-based voting, there’s usually only a small fraction of eligible voters who actually vote. This exposes the big issue that you generally get low voter turnout because there’s often very little incentive for people to vote. Take a recent Uniswap proposal for instance:
As you can see in the ‘Results’ section, there’s barely 29 million $UNI represented in this proposal, meaning out of the more than 577 million in $UNI circulating supply, that’s about only 5% being represented by votes. The main reason for this is most likely because many eligible voters simply don’t see the point, as there’s no benefit/penalty either way towards how they vote or whether or not they vote at all.
In comes UMA
UMA allows its stakers to earn rewards by making successful disputes, or in other words, stakers are incentivized by majority to resolve any issues if there is a malicious or erroneous statement found in any data that it’s reviewing. This voting system gives a hUMAn component towards record keeping, where rewards are paid out to the stakers who vote with the majority, thus reinforcing people to choose the most optimal resolution on disputes or queries.
$UMA is distributed to $UMA stakers who not only vote, but to those who vote correctly — currently by more than 20% APR:
Due to these incentives, you routinely see voter participation on UMA at more than 5x’s that of Uniswap’s 5%, routinely showing 25% or greater in $UMA tokens represented of circulating supply with each vote. With increased active voter participation, UMA allows for a final human check on what data is being reviewed, and whether or not that data is correct.
UMA isn’t perfect, but I think you’d be hardpressed to find 100% voter anywhere (unless you’re living in North Korea). But what UMA is striving for is for more security for what happens on the blockchain, which is a much needed public good in my book.
If you have questions and/or if you’re new to this space, I highly recommend that you get on the UMA discord to start asking questions — it’s an inviting space that involves a bunch of guys trying to do good by the ethos of what crypto stands for. And as an added bonus, if you’re a poker fan, they’re doing weekly poker games following their weekly community calls held every Tuesday evening!
Thanks for taking the time to read this and be sure to follow me on twitter (https://twitter.com/CryptosWith) to get all my latest updates. Also, looking for a gift for your Crypto-loving/hating friend? Give them a REKT journal to cheer them up!
Disclaimer: And as a final reminder, this is not financial advice and this is for educational and entertainment purposes only. Please as always, do your own research and find what investments are best for you. Cheers everyone!
