*obligatory not financial advice*
UMA is a DeFi protocol running on Ethereum that can be used to make financial contracts like options and it allows users to mint collateralized synthetic tokens that track the value of the assets they are pegged to. This enables people from everywhere around the world to invest into all kinds of assets without depending on a centralized entity. There are plenty of people that cannot invest into stocks or options in their countries due to a lack of financial infrastructure, this is a problem that UMA is trying to solve. It also makes it possible to create and invest into new financial instruments that track things like the domination of BTC across the crypto market or the performance of ETH in BTC.
UMA is short for Universal Market Access and it provides a framework that allows two or more parties to create their own financial contract that is being handled by an unbiased and trustworthy smart contract. For example, if Alice thinks MATIC will have a big pump until the end of the month and Bob thinks it will dip then they can set up a contract on UMA that works like an option. They both leave a ETH collateral that can be lost if they misbehave and agree for the exact parameters for the contract. If MATIC goes up in value Bob will have to deposit more ETH into the contract and Alice will have to do that if MATIC dips. At the end of the month the winner gets the ETH the loser had to deposit.
Such contracts can also be utilized by other dApps and DAOs. Developers of new projects can use UMA to create and sell "Success Tokens" that work as call options for their new token. This options can have a vesting schedule and if the project does well and the price of the new token increased until the option is unlocked, then the call option will have and even higher value and can be redeemed to get more of their new token. This makes it possible for new projects to raise funds without losing more of their new token supply initially and it gives their users an even higher incentive to help the project grow.
UMAs framework can also be used to deposit a collateral and mint synthetic tokens that can mirror the value of any asset. This makes it possible to mint any kind of asset like stocks, indexes, commodities and other coins and tokens. This allows users to hedge the asset they used as collateral or for leverage trading or to short the minted asset. The main advantage here is that everyone has access to it, even people that don't have a trustworthy bank available, and everything is decentralized and therefore indiscriminately. There is no need for KYC or anything like that either.
The synthetics can not only copy the value of an asset but even things like Ethereum gas fees or how well one asset performs in comparison to another one. You could even create assets that have never existed before in traditional finance like a token that is pegged to the number of Twitter followers somebody has and it will go up in value if they get more followers. UMA itself once airdropped an option token that increased in value if more funds were locked in the UMA smart contracts to incentivise users to help the project grow. Here are some projects that utilize UMAs synthetics infrastructure:
- Domination Finance, it offers a synthetic that tracks the market share that Bitcoin has over the entire crypto market
- , a token that grows in value if ETH outperforms BTC and falls in value if BTC performs better
- , a token that allows you to speculate on Ethereum gas prices
- uSTONKS, a synthetic token that works as an index for the most popular meme stocks of the legendary WallStreetBets subreddit
The UMA Token
UMA has a native governance token with the same name. It gives its holders the right to vote on proposals to change the protocol, the holders can also vote on what types of contracts can access the system and which asset types should be supported.
UMA uses its own oracle to get its necessary data and token holders have to vote correctly on price requests to solve disputes that the oracle could have. This is to ensure that the oracle does well because somebody would have to buy 51% of all tokens to manipulate the oracle which would hurt the value of their investment in UMA tokens. Participants that help with the oracle earn a 0.05% inflationary reward for voting.
There was an initial supply of 100,000,000 tokens. 33.5% of this supply was kept by the founders and developers, 15% was sold to investors, 35% will be distributed to UMA users and adopters, 2% was put in an initial liquidity pool on Uniswap and 14,5% were reserved for future sales. So a lot of the supply is controlled by the Risk Labs Foundation that founded UMA.
The value of UMA will increase if more people and projects utilize the infrastructure that UMA provides. Financial contracts and synthetics have a lot of potential and many more applications that use them could be built with UMA. The token also has an extremely low inflation rate. However, there are a lot of powerful and popular competing projects for synthetic assets like the Terra LUNA blockchain or the Shade Protocol that will offer synthetics with default privacy. The supply is also largely controlled by the Risk Labs Foundation.
You can buy the token on , DEXes like Uniswap, Sushiswap and Balancer also have trading pairs for it and you can store it in any Ehtereum wallet.
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