What is UMA? Your ultimate guide

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Confused about UMA coins? We are here to help by explaining what they are…

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UMA is a decentralised financial contracts platform that was built to enable Universal Market Access – hence the name – by creating synthetic assets based on the Ethereum blockchain. Uma was launched in December 2018.

Before getting into the ins and outs of Uma, there is some jargon you need to understand to make your journey easier. So-called synthetic assets are similar to traditional financial derivatives, which derive their value from other underlying assets, such as commodities, currencies, precious metals, stocks or bonds. They aim to achieve the same objectives as would be achieved by owning an asset, without the necessity of holding the actual asset itself.

What is Uma (UMA)?

Uma allows users to design and create self-executing, self-enforcing financial contracts secured by economic incentives, running them on Ethereum’s blockchain.

It allows counterparties to digitise and automate any real-world financial derivatives, such as futures, contracts for differences (CFDs) or total return swaps. It also enables the creation of self-fulfilling derivative contracts based on digital assets, like other cryptocurrencies.

Uma builds open-source infrastructure for ‘priceless’ financial contracts on Ethereum. Specifically, this refers to two things: priceless financial contract templates used to create synthetic tokens, and a so-called ‘decentralised oracle service’, the Optimistic Oracle, which is used to manage and enforce contracts on UMA and to help settle disputes.

How does Uma work?

Uma offers priceless financial contracts: in other words, smart contracts that only require an on-chain price feed in the event of a dispute.

Economic guarantees and network incentives ensure those using the system – ‘network actors’, in the jargon – will act honestly most of the time, but in the event of a malicious actor or a so-called ‘ad hoc market event’, a dispute can be raised via Uma’s dispute resolution system, known as the data verification mechanism (DVM).

The five main ‘network actors’ on Uma are called:

  • Token sponsors
  • Liquidators
  • Disputers
  • The data verification mechanism (DVM)
  • UMA token holders.

How synthetic assets are secured on Uma

Token sponsors are individuals who lock collateral in a smart contract to mint synthetic tokens. They are responsible for making sure their positions always remain over-collateralised, or else their positions will get liquidated.

The value of the collateral in the smart contract is continually monitored off-chain by a robust network of ‘liquidators’ who continuously monitor if a position is properly collateralised, by referring to what are called ‘off-chain price feeds’.

Disputers are incentivised to monitor contracts using UMA’s priceless financial contracts, while the DVM resolves the dispute by proposing a vote to UMA cryptocurrency tokenholders to determine what the price of the asset was at a given timestamp.

If the ‘disputer’ is voted to be correct, the DVM will reward the disputer and the token sponsor of the affected position. If the ‘liquidator’ is agreed to be correct, the DVM will reward the liquidator, penalise the disputer, and the token sponsor will lose the funds in their position.

The five main network players on UMA

What is Uma Protocol?

The UMA Protocol gives smart contracts and decentralised autonomous organisations (DAOs) the same access to all forms of financial risk, opening up dramatic new applications for decentralised finance (DeFi) products.

The UMA Protocol promotes fair and open markets by removing all barriers to access for every financial market, allowing any individual, entity or DAO to access any type of financial risk, without any centralisation or single point of failure. It provides unrestricted access to short-selling, leverage, and what is termed ‘customised and bespoke risk’ – that is, levels of acceptable risk tailored to individual users’ needs.

The protocol uses novel systems and economic incentives to maintain collateral transparently and efficiently and settle transactions accurately, while giving users complete control over the terms of their economic exposure.

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The UMA Protocol uses smart contracts on the decentralised Ethereum VM, or virtual machine, to implement what are called ‘self-policing margin accounts’. This, its designers say, allows the UMA Protocol to be fully trustless – that is, no trust is required in the other players, as any disputes will be fairly policed and decentralised.

Combined, these properties “enable and empower individuals to transfer financial risk, regardless of geographic location,” say UMA’s founders.

Who is behind Uma?

Uma was co-founded by Hart Lambur and Allison Lu. They met at Goldman Sachs, where Lu worked as a vice-president between 2009 and 2015 and Lambur worked as a government bond trader.

In December 2018, they released a draft of the Uma project whitepaper. The developers announced the full UMA project days later, with the launching of USStocks as its first mainnet product – that is, the first product to run on the main blockchain after testing on the testnet.

USStocks is an ERC-20 special token that tracks the top 500 stocks in the US. These top stocks allow crypto owners to invest in the US stock market. 

After launching the protocol in 2019, the project gained more credence. But in 2020, UMA became popular when it created the first ‘priceless synthetic’ token. UMA called the token ETHBTC, and it was to track the performances of ETH versus BTC.

After the synthetic token, the protocol developed its yield token, which the UMA team called yUSD. 

As the Uma project continues to develop, so do the number of community members seeking to participate in synthetic asset creation, or more specifically yield dollars. The UMA cryptocurrency has developed well over the past few years, and more growth is expected in the future.

UMA/USD price history

Date Close Change Change(%) Open High Low
Jul 4, 2022 2.6189 -0.0279 -1.05% 2.6468 2.6584 2.5675
Jul 3, 2022 2.6468 0.1085 4.27% 2.5383 3.0570 2.4579
Jul 2, 2022 2.5284 0.0293 1.17% 2.4991 2.6683 2.4378
Jul 1, 2022 2.4891 0.1203 5.08% 2.3688 2.7577 2.2392
Jun 30, 2022 2.3688 0.0903 3.96% 2.2785 2.3695 2.1057
Jun 29, 2022 2.2984 -0.2783 -10.80% 2.5767 2.6065 2.2788
Jun 28, 2022 2.5667 -0.1186 -4.42% 2.6853 2.8251 2.5465
Jun 27, 2022 2.6754 0.0399 1.51% 2.6355 2.7651 2.4950
Jun 26, 2022 2.6559 -0.1482 -5.29% 2.8041 2.9035 2.6350
Jun 25, 2022 2.7742 -0.0190 -0.68% 2.7932 2.9430 2.6347
Jun 24, 2022 2.7935 0.2982 11.95% 2.4953 3.1916 2.4750
Jun 23, 2022 2.4953 0.1197 5.04% 2.3756 2.5251 2.3656
Jun 22, 2022 2.3656 -0.1096 -4.43% 2.4752 2.5047 2.3557
Jun 21, 2022 2.4752 0.0306 1.25% 2.4446 2.6245 2.4061
Jun 20, 2022 2.4458 -0.0098 -0.40% 2.4556 2.5256 2.3660
Jun 19, 2022 2.4556 0.1004 4.26% 2.3552 2.4958 2.2662
Jun 18, 2022 2.3554 -0.2786 -10.58% 2.6340 2.7231 2.1856
Jun 17, 2022 2.6240 -0.0092 -0.35% 2.6332 2.8319 2.5733
Jun 16, 2022 2.6232 -0.1304 -4.74% 2.7536 3.1310 2.4749
Jun 15, 2022 2.7536 -0.0607 -2.16% 2.8143 3.1312 2.2856

How does UMA trading work? 

UMA enables users to use unique collateralised synthetic crypto tokens capable of tracking the prices of anything they want. In other words, members can trade assets of any kind using ERC-20 tokens, even without accessing the assets.

The total supply of UMA coins is a little over 107 million tokens. About 55 million UMA coins were in circulation in October 2020, but this has increased to 67 million as of June 2022.

From the total supply, two million UMA coins were sold during the project’s initial offering (ICO), 48.5 million were reserved for the founders of the project, 35 million were put aside as rewards for the developers of the protocol, and 14.5 million were designated for future sales.

In order to incentivise voter participation, every time a voting process takes place on the network, an inflationary reward, equal to 0.05% of the current UMA supply, is distributed among active voters, proportional to their current stake.

Anyone searching for UMA tokens to buy can do so on Currency.com or other exchanges, but check liquidity and gas fees costs.

What is UMA coin used for?

The UMA token is primarily a governance token, which allows token holders to vote on so-called UMA Improvement Proposals (UMIPs) and on price requests made to the DVM through the voter dApp, or decentralised application.

Those who vote with the majority consensus are granted 0.05% inflationary rewards for participating in governance and, the UMA team say, for “helping to keep our oracle secure”.

FAQs

As of 20 June 2022, there is a current circulating supply of 67,032,243.26 tokens out of a maximum supply of 101,172,570 (66%).

The protocol uses novel systems and economic incentives to transparently and efficiently maintain collateral and accurately settle transactions while giving users complete control over the terms of their economic exposure. It is an honest decentralised finance platform that is legitimate, and available on most major crypto exchanges. 

Anyone searching for UMA tokens to buy can do so on Currency.com or some other exchanges, but check liquidity and gas fees costs.

In simple terms, UMA allows you to trade any asset using ERC-20 tokens, without having actual exposure to the asset itself. 

Further reading

The material provided on this website is for information purposes only and should not be regarded as investment research or investment advice. Any opinion that may be provided on this page is a subjective point of view of the author and does not constitute a recommendation by Currency Com Bel LLC or its partners. We do not make any endorsements or warranty on the accuracy or completeness of the information that is provided on this page. By relying on the information on this page, you acknowledge that you are acting knowingly and independently and that you accept all the risks involved.
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