Learn About UMA: A DeFi Platform for Synthetic Assets
The UMA protocol is an Optimistic Oracle (OO) designed to allow any verifiable fact to be securely and reliably recorded onto a blockchain. Different from traditional oracles, which are entities that bridge off-chain data with the underlying blockchain, an Optimistic Oracle is a means of porting real-world data into a decentralized system, with the assumption that data is accurate and valid unless disputes prove otherwise.
UMA’s “human-powered truth machine” is intended to introduce more flexibility and further Open Web3's potential with the intention of making global markets fairer, more accessible, more secure, and more decentralized.
Founded in 2017 by Hart Lambur, UMA began a monumental event in December 2018 when it unveiled its project white paper. Afterward, the developers called for an official launch of the UMA project and brought forth the USStocks token as the first product on the core network. In April 2021, UMA made history when it held its first-ever Initial Liquidity Offering on Uniswap, the first decentralized exchange to feature such an offering.
Universal Market Access (UMA) is an optimistic oracle that provides security for markets and smart contracts in Web3. Smart contracts often require off-chain data to meet specific conditions, but this data can be incomplete or inaccurate. Traditional oracles are limited in providing singular values and cannot consider other data types. To address this issue, UMA offers OOs that incentivize individuals to verify data accuracy. This approach promotes advanced data verification, incorporating a human element to handle imperfect information.
How Does UMA Work?
UMA's Optimistic Oracle system has three participants: the contract requester, the data provider, and a potential challenger who can contest data if they find it inaccurate.
In order to maintain accurate on-chain data, UMA's OO implements a system of incentives for its network of token holders. By leveraging the collective power of its token-holder community, the OO introduces a human touch to the data verification process. Through this approach, the OO is able to facilitate the provision of any necessary data.
When initiating a contract, it is customary for data to be requested, and a specific dispute duration is established, ranging from a few minutes to several days. The proposer of the contract assumes the responsibility of furnishing a data point while also posting a disputable bond. After the designated dispute period elapses, the data is considered valid, recorded on the blockchain, and the proposer's bond is refunded. It should be noted that throughout the dispute period, any individual is entitled to contest the accuracy of the data.
Occasionally, a disputer may emerge, expressing disagreement with the data provided by the proposer. The disputer is then required to submit a bond, and the dispute proceeds to a voting stage. Within a timeframe of 48 hours, UMA token holders collectively resolve the dispute. In the event that the disputer's claim is deemed correct, they receive a portion of the proposer's deposit as a reward. Conversely, if the disputer is proven wrong, they forfeit their deposit, with a fraction of it being allocated to the proposer. The oracle's voting process consists of three phases:
- Open voting: A 24-hour period during which votes are recorded.
- Voting confirmation: A phase wherein users' votes are disclosed and the results are tallied.
- Reward claim: A designated period enabling users who have voted "correctly" to claim their rewards in the form of UMA tokens generated by the protocol.
As rewards are claimed, they have the potential to compound over time. By initiating the reward-claiming process, the tokens become active in users' wallets, transforming into voting tokens that enhance the user's voting influence with each successful vote.
While UMA's smart contracts are predominantly tailored for developers engaged in decentralized application development, all UMA token holders have the opportunity to partake in UMA's optimistic oracle. UMA is an ERC-20 token developed on the Ethereum blockchain, and it can be securely stored in wallets such as Metamask, Trezor, or Ledger. To enable voting, these wallets must be connected to the UMA DApp.
What Sets UMA Apart From Others?
Within the UMA ecosystem, the OO serves as a mechanism for resolving data disputes in smart contracts driven by human intervention. In contrast to traditional price-feed oracles that offer inflexible and repetitive values on the blockchain, OOs present a unique solution for reconciling imperfect or ambiguous data within smart contracts. Their versatility surpasses that of other oracles, as they possess the capability to supply a wide range of verifiable off-chain information, such as sports scores, weather conditions, or election results. This attribute empowers such systems with limitless potential in the realm of Web3.
What Is the UMA Token?
UMA serves as the foundational ERC-20 token underpinning the UMA security model. Holders of this token possess the ability to actively engage in community voting processes related to disputed data. By participating in voting, UMA holders earn rewards in the form of an inflationary reward equivalent to 0.05% of the existing UMA supply, which is distributed among active voters during each voting cycle.
Token holders also play a vital role in governing the network, overseeing protocol upgrades, and facilitating system changes.
The original token supply amounted to 100 million units. In April 2021, UMA pioneered the first-ever decentralized exchange offering on Uniswap, commencing with an initial price of 0.26 USD. Out of the remaining 98 million tokens, 48.5 million were reserved for the project's founders, 35 million tokens were allocated to network developers, and 14.5 million tokens were set aside for future sales.
In 2021, Risk Labs, the foundation behind the inception of UMA, transferred 35 million tokens to the UMA DAO. This strategic move empowered UMA token holders to democratically vote on the deployment of these funds, effectively driving the ecosystem's growth.
What Are the Upcoming Plans for UMA?
UMA's business development team is actively targeting two specific sectors within the industry: prediction markets and insurance.
At present, Sherlock, a risk management platform, incorporates UMA's oracle to serve as a safeguard for their insurance policy dispute resolution system.
Moreover, UMA anticipates significant expansion in the realm of DAO tooling, particularly for governance and incentives. Powered by UMA, Outcome.Finance extends solutions to DAOs, enabling them to execute trustless incentive programs.
Risk Labs, together with its partner organizations, Across Protocol and Outcome.Finance, form the team and foundation behind UMA. Notably, UMA and its OO are actively involved in supporting the Across cross-chain bridge.
Since its launch in 2018, UMA's Optimistic Oracle has raised hundreds of millions of dollars. As developers become more familiar with the concept of optimistic oracles, OOs
may eventually become integral to a range of protocols, DAOs, integrations, and products.