This week has been tough for readers who hold a lot of cryptocurrencies. The total market value of cryptocurrencies has evaporated by 6.5% in the past seven days. However, a token called UMA (Universal Market Access) has defied the trend and risen by 136%.
Table of Contents
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UMA’s Background
UMA’s Present
Use Cases for Optimistic Oracles
What is UMA Rising Against? The MEV Killer – Oval
The Token Model of $UMA
UMA’s Market Performance
UMA (Universal Market Access) is a protocol built on Ethereum. It was founded by former Goldman Sachs employees in 2019. The first product on the mainnet is USStocks, which is an ERC-20 token that tracks the S&P 500, allowing users to invest in the US stock market using cryptocurrencies.
In 2020, UMA created the first priceless token on the blockchain, $ETHBTC. This token tracks the performance of $ETH and $BTC. If $ETH outperforms $BTC, the value of the token will increase, and vice versa. This allows market participants to participate in relative market conditions without holding both tokens.
Through UMA, you can also create a cryptocurrency that tracks the price of the Chinese yuan or launch a cryptocurrency that tracks the price of Tesla stock. The key feature of this product is “Priceless,” which means it does not require a price. Usually, synthetic tokens require the use of oracles to track the value of collateral. However, UMA’s synthetic tokens allow liquidators to determine the value based on off-chain data interpretation.
UMA has developed a variant of stablecoin called $yUSD. $yUSD is a stablecoin with an expiration date and a constant value of $1. Users can mint $yUSD by collateralizing their cryptocurrency assets, similar to what AAVE currently offers. They can borrow a specific amount and return the corresponding amount (with increased value) of tokens.
Looking at UMA’s past products, it is evident that they had a prototype of optimistic oracles. Through an effective minimum viable product (MVP) approach, they found a favorable position and development direction in the market. This demonstrates the strong financial background and development capabilities of UMA’s team, enabling them to continue creating valuable products in different fields.
UMA is now focused on completing the settlement of transactions for any asset on Ethereum and providing an oracle mechanism to track any commodity price or off-chain data, known as optimistic oracles (OO).
UMA’s oracle system consists of two important components: optimistic oracles (OO) and the data verification mechanism (DVM).
The key difference between optimistic oracles and traditional oracles is that optimistic oracles assume the data provided by data providers is correct and verify this assumption through a verification mechanism. Due to the mechanism of optimistic oracles, they can be applied in a wider range of fields, not just limited to price transactions.
The specific operation process of optimistic oracles is as follows:
1. The requester asks for the answer to a specific question at a specific time, such as asset prices, temperature, or sports match results.
2. The proposer can respond to the request by referencing off-chain data and must pledge a certain amount of $UMA as collateral.
3. Then, all $UMA pledgers vote, and the majority is considered correct.
4. There is a dispute period where anyone can challenge by pledging twice the amount of $UMA as the original proposer.
5. If the challenge is successful, meaning the challenger’s proposal is accepted after a re-vote, the original proposer’s pledge will be confiscated, and a portion will be given to the challenger as a reward.
6. If the challenge fails, the challenger’s funds will be confiscated, and a portion will be given to the proposer as a reward.
7. At the same time, pledgers who vote on the correct side can receive token rewards provided by the protocol, allowing users who make correct votes to have more voting power in the future.
UMA ensures that the cost of disrupting the DVM is higher than the potential profit someone could gain from disrupting the oracle. This confirms that the data input through these tools will be reliable. Therefore, optimistic oracles are referred to as “human-driven truth machines.”
UMA is currently focused on expanding in two major areas: prediction markets and insurance. Polymarket, a prediction platform that has recently gained attention, uses UMA’s optimistic oracles for event outcome determinations. Sherlock, a risk management platform, uses UMA’s optimistic oracles as the backbone of its insurance dispute system.
The emergence of oracle technology is due to the need for blockchain to obtain information from the off-chain world. UMA’s oracle provides this information. Unlike traditional data providers like MakerDAO and Chainlink, UMA provides a new liquidation mechanism that reduces reliance on a single data source, thereby reducing the risk of failure and increasing the diversity of data it can provide.
With the pricing mechanism of optimistic oracles and UMA’s past experience in designing price-less assets, this could become another solution for Real World Assets (RWA) in the future. It is worth continuing to pay attention to what magic UMA’s magicians can create.
UMA recently released an update called Oval, which the community sees as an effective solution to the MEV problem. The collaboration between UMA and Flashbots has won market favor and has led to an increase in the price of the UMA token.
In decentralized finance and lending protocols, oracles play a crucial role as they provide off-chain price data to smart contracts. However, oracle data has a time lag. In the blockchain mechanism, there is a form of arbitrage called MEV (Miner Extractable Value). Previous oracles have been vulnerable to MEV attacks, resulting in protocols having to bear a certain degree of losses. Through Oval, UMA hopes to effectively extract Oracle Extractable Value (OEV) and distribute it to protocol users and token holders.
$UMA is mainly used for governance, and token holders can vote on UMA Improvement Proposals (UMIPs) and price requests proposed by the DVM.
During the ICO, UMA sold 2 million tokens (2%). The founders retained 48.5 million tokens (48.5%), and the DAO received 35 million tokens (35%). The remaining 14.5 million tokens (14.5%) will be used for future sales. Additionally, during each voting process, a token inflation reward equivalent to 0.05% of the current $UMA supply is distributed to pledgers who vote for the correct option, resulting in an increase in token supply.
During the Initial Uniswap Listing (IUL), UMA’s initial price was approximately $0.2675. It reached an all-time high (ATH) of $43.37 in the trading market during DeFi Summer, but also dropped to $1.16, a decrease of 97.3% from the ATH.
Currently, UMA is trading at $4.79, which is nearly four times higher than the lowest point, but still 89% below the ATH.
However, according to on-chain data, many smart investors who have been accumulating UMA have been depositing it into centralized exchanges (CEX), indicating that they may be preparing to sell the news. Readers who want to participate in UMA trading should be aware of the risks.
Oval
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