UMA, which stands for Universal Market Access which is a decentralized financial contracts platform built on the Ethereum blockchain. It aims to provide a way for users to create and trade synthetic assets, which are financial instruments that derive their value from underlying assets such as stocks, commodities, or fiat currencies, without requiring direct ownership of those assets.
UMA operates as an optimistic oracle and dispute arbitration system, facilitating secure on-chain integration of diverse data types. UMA's oracle system offers data services to various projects, such as cross-chain bridges, insurance protocols, customized derivatives, and prediction markets.
UMA and its Optimistic Oracle (OO), which serves as a mechanism for recording verifiable truths onto a blockchain. The OO is designed to be flexible and capable of handling ambiguity, allowing it to expand the design space for web3 applications. By leveraging human input, the OO can process and validate information that may not be easily determinable by code alone.
The UMA platform enables the creation of various financial products and applications within the web3 ecosystem. These include cross-chain bridges, insurance protocols, prediction markets, and customizable DAO (Decentralized Autonomous Organization) tooling products. UMA's goal is to provide Universal Market Access by empowering developers and users to create and interact with innovative financial contracts and synthetic assets.
The UMA token is the governance token of the UMA Protocol. Token holders can vote on UMA Improvement Proposals and price requests through the decentralised voting application. Voting participants receive inflationary rewards for participating in governance.
UMA, was co-founded by Hart Lambur and Allison Lu, both of whom had extensive experience in the financial industry. They initially met during their tenure at Goldman Sachs, where Lu held the position of vice-president from 2009 to 2015, while Lambur worked as a government bond trader.
In 2018, Lambur and Lu collaborated to establish UMA with the ambitious goal of creating universally fair, accessible, secure, and decentralized global markets. Taking inspiration from traditional finance derivatives, they set out to develop an open-source protocol that would enable individuals worldwide to design and build trustless financial contracts.
In December 2018, UMA took a significant step forward by releasing a draft of the Uma project whitepaper, outlining their innovative approach. Shortly thereafter, they announced the full UMA project, introducing their first mainnet product, USStocks. This successful deployment on the main blockchain following rigorous testing on the testnet marked a notable milestone for UMA.
With Lambur and Lu's expertise and the dedicated efforts of the UMA team, the project has gained prominence as a frontrunner in transforming the financial landscape through the utilization of blockchain technology and decentralized principles.
UMA introduced a specialized ERC-20 token called USStocks, which is designed to replicate the performance of the top 500 stocks in the United States. This token provides an opportunity for cryptocurrency holders to participate in the US stock market by gaining exposure to these prominent stocks.
Since its protocol launch in 2019, UMA has steadily gained recognition and credibility within the industry. However, it experienced a notable surge in popularity during 2020 when it introduced the groundbreaking "priceless synthetic" token named ETHBTC. This token was specifically designed to track the comparative performance of Ethereum (ETH) and Bitcoin (BTC).
Expanding its offerings, UMA developed the yUSD yield token, enabling community members to actively participate in the creation of synthetic assets, particularly yield dollars. This has attracted a growing number of participants interested in engaging with synthetic asset creation within the UMA ecosystem.
The UMA cryptocurrency has exhibited positive development over the past few years, and further growth is anticipated. The protocol empowers users to generate and utilize collateralized synthetic tokens capable of tracking the prices of various assets. Consequently, UMA members can engage in asset trading using ERC-20 tokens, even without direct access to the underlying assets.
The Optimistic Oracle
Oracles have a crucial role in the infrastructure of blockchain by enabling secure and trustless communication between off-chain data sources and on-chain smart contracts. They are a vital component in various sectors of the blockchain industry, including decentralized finance (DeFi) and Web3 applications.
The term "optimistic" in Optimistic Oracle refers to the approach taken by UMA, which assumes that most actors in the system will behave honestly. This optimistic assumption allows for faster and more efficient processing of transactions, as verification is delayed until a later stage. However, in case of any disputes or inconsistencies, the system has mechanisms in place to address them and ensure accurate outcomes.
UMA's optimistic oracle employs a "true unless disputed" approach and incorporates a tokenholder voting mechanism for resolving disputes. Under this system, anyone can propose a response to a data request, which is considered valid unless contested during a designated verification period. This optimistic design diverges from conventional price-feed oracles that continuously stream on-chain prices, instantly considering them as final.
The concept of an optimistic oracle has been evolving since 2014, with early contributions by Vitalik Buterin and subsequent iterations to refine the design pattern. The optimistic approach introduces the valuable element of human intelligence, which is particularly relevant for Web3 projects requiring access to subjective or non-programmable data.
UMA's optimistic oracle currently offers a flexible and innovative mechanism for resolving disputes and addressing diverse data scenarios, incorporating human input. This distinguishes it from price feed oracles, which primarily focus on providing regular price updates to the blockchain. UMA's oracle solution is known for its versatility and ability to handle various data types, making it a valuable asset for Web3 projects seeking reliable and adaptable data oracles.
Security on the Optimistic Oracle.
UMA's Optimistic Oracle system involves three key participants: the data-requesting contract, the data-offering participant, and a potential disputant who can challenge the data if they disagree.
In the event of a dispute, UMA token holders are responsible for resolving it within a 48-hour timeframe. If the disputant is correct, they receive a portion of the proposer's deposit as a reward. Conversely, if the disputant is incorrect, they forfeit their deposit as a penalty, with a portion of it going to the proposer. The oracle's voting process consists of three phases: open voting, voting confirmation/reveal, and a rewards claim period.
The claimed rewards have the potential to compound over time. When rewards are claimed, the tokens become active voting tokens in the users' wallets, gradually increasing their voting power with each successful vote.
UMA's smart contracts primarily cater to developers constructing decentralized applications. All UMA token holders have the opportunity to participate in UMA's optimistic oracle system. The UMA token is built on the Ethereum blockchain and can be held in wallets like Metamask, Trezor, or Ledger. To enable voting, these wallets need to be connected to the UMA voting Dapp.
To ensure security and reliability, all of UMA's oracle contracts, as well as contracts for entities such as Across Protocol and Outcome's Optimistic Governor and Optimistic Distributor, have undergone auditing by OpenZeppelin.
ACTORS ON THE UMA NETWORK
1. Token sponsors: Token sponsors are individuals who lock collateral in a smart contract to mint synthetic tokens. They ensure that their positions are always over-collateralized, meaning the value of the collateral they lock is higher than the value of the synthetic tokens they mint. They are responsible for maintaining the proper collateralization ratio to avoid liquidation.
2. Liquidators: Liquidators are participants in the system who continuously monitor the collateralization status of token sponsor positions. They rely on off-chain price feeds to determine the value of the collateral. If they detect an under-collateralized position, they have the authority to trigger liquidation. Liquidators sell the collateral to cover the debt, ensuring the stability and integrity of the system.
3. Disputers: Disputers are incentivized participants who monitor the smart contracts using UMA's priceless financial contracts. They can raise disputes if they believe that the liquidators have acted incorrectly in triggering a liquidation or if they disagree with the reported off-chain price feed. Disputers have the opportunity to present evidence and arguments to support their case during the dispute resolution process.
4. Data Verification Mechanism (DVM): The Data Verification Mechanism (DVM) is a component of the UMA protocol that handles the resolution of disputes raised by the disputers. The DVM proposes a vote to UMA cryptocurrency token holders to determine the accurate price of the asset at a specific timestamp. The token holders vote on the outcome, and the majority consensus determines the resolution of the dispute.
5. UMA token holders: UMA token holders are individuals who hold the UMA cryptocurrency token. They have the power to participate in the voting process conducted by the DVM to determine the resolution of disputes. The votes of UMA token holders are used to reach a consensus on the correct price of the asset in dispute. Depending on the outcome of the vote, UMA token holders may receive rewards for correct voting or penalize disputers and liquidators if they are deemed to be incorrect.
A smart contract for prediction markets allows people to make predictions and place bets on the probability of various outcomes for future events. These contracts can be used for a wide range of events, including sports games, cryptocurrency price predictions, product launches, and political policy decisions. The contract allows the creation of prediction markets based on off-chain events with three possible outcomes. The market creator selects two outcomes, while the third represents any remaining outcomes like a tie or draw in a sports event. Participants in the market can generate outcome tokens (shares) and trade them based on their assessment of the likelihood of each outcome. The price of each share is determined by the market's supply and demand, allowing individuals to make a profit by buying shares that increase in value as the likelihood of a particular event rises. However, this contract only covers the creation of outcome tokens and does not include the sale of these tokens.
The Insurance contract in Optimistic Oracle V3 enables insurance claims to be verified and processed. Insurers can create insurance policies by depositing the insured amount, specifying the beneficiary, and describing the insured event. Any individual can submit a claim for the insured beneficiary at any time. The claim is resolved through the Optimistic Oracle V3 by confirming that the insured event has occurred, using the default identifier ASSERT_TRUTH as defined in UMIP-170. If the claim is validated and settled through the Optimistic Oracle V3, the contract automatically disburses the insurance coverage to the beneficiary. In case the claim is rejected, the insurance policy remains active and can be used for future claim attempts. There is no limit to the number of payout requests that can be made for the same policy. However, only the first request that is truthfully resolved will result in the insurance payment being settled, while the Optimistic Oracle V3 settles bonds for all requests.
The Data Asserter smart contract allows data providers to verify and bring the correctness of a specific data point onto the blockchain. This contract is designed to be highly flexible, accommodating any type of data that needs to be asserted. It's important to note that this contract can be adapted for various use cases, such as validating Beacon chain validator sets for creating a Liquid staking derivative or facilitating complex off-chain computations with on-chain results. The process of asserting data involves any participant being able to submit a data point along with its associated data identifier (dataId) to the Data Asserter contract. Independent third parties can then verify the accuracy of this data by comparing it against the provided dataId.
Covenant is a recently developed protocol that utilizes UMA's optimistic oracle to facilitate secure and reliable payments for KPI-based payouts without the need for trust. It offers various applications, such as enhancing the effectiveness of gauge vote incentives and facilitating governance decisions with binary outcomes. Covenant builds upon the innovative concepts introduced by UMA's KPI options and leverages the security provided by UMA's optimistic oracle. Its primary objective is to improve the efficiency of incentive systems and enable new use cases by enabling the definition of bribes based on actual results.Ethereum
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