UMA

What is UMA (UMA)?

UMA is an Optimistic Oracle (OO) built specifically for Web3. Serving data to smart contracts by using a “true unless disputed” escalation game, UMA features decentralized participation, dispute resolution, and economic guarantees.

Anyone can secure the oracle irrespective of where in the world they are located, and the protocol also assures full recourse for inaccurate or manipulated data. Contracts secured by UMA have economic guarantees equal to the value of the entire UMA ecosystem.

While all of that may sound complicated, the Uma team summarized the concept succinctly at launch, saying: “Anyone can push an answer on-chain, and there will only be a dispute if it’s wrong.”

UMA stands for Universal Market Access and has already built out a significant ecosystem. The UMA OO is already being used by multiple blockchain-based protocols, including Boba Network, Sherlock, Bankless DAO, Perpetual Protocol, Badger DAO, PieDAO, Jarvis, and Aragon.

Who are the Founders of UMA?

Uma was co-founded by Hart Lambur and Allison Lu in 2018. They began with a team of just eight members who boasted significant credentials, including stints at Google, Goldman Sachs, and multiple start-ups, as well as economics doctoral programs.

Lambur and Lu both began their professional careers on the Goldman Sachs interest rate products trading desks and left to pursue interests in technology. The company behind UMA, Risk Labs, is led by Lambur, while Lu no longer appears to be involved with the project.

The Soho-based company began its operations by bootstrapping but carried out a financing round in 2018 led by Placeholder VC. This round raised $4 million and saw participation from Bain Capital Ventures, Blockchain Capital, Dragonfly Capital, and Coinbase Ventures.

How Does UMA Work?

Oracles are crucial for the blockchain industry because they allow off-chain data to be brought on-chain by various means, allowing smart contracts to perform various functions that they otherwise wouldn’t.

UMA is an oracle for arbitrary off-chain data, which is secured by economic incentives and leverages an interactive escalation game between requesters, proposers, and disputers.

The dispute resolution system, known as the Data Verification Mechanism (DVM), is key to this. Prices proposed by the Optimistic Oracle will not be sent to the DVM unless disputed. This enables contracts to obtain price information within a predefined length of time without the need to have the price of an asset written on-chain.

If a dispute is raised, a request is sent to the DVM. All contracts built on UMA use the DVM as a backstop to resolve disputes. Disputes sent to the DVM will be resolved 48 hours after UMA tokenholders vote on the price of the asset at a given time.

The process can be simplified into five steps. Requesters kick things off by asking for the price of an asset at a given time, submitting key information such as the identifier being requested, the timestamp, ancillary data, a DVM-approved ERC-20 reward currency, and the reward amount (which can be zero).

Proposers then respond to price requests by referencing off-chain price feeds. In return for this work, they are rewarded. To propose prices, though, these proposers need to stake a proposal bond. If they submit the information that is disputed and deemed incorrect, the proposer will lose their bond.

That’s where disputers come in. They can refute prices submitted by proposers within the proposal liveness period by referencing their own off-chain price feeds. If disputers do not refute the price submitted by the proposer within the proposal during the liveness period, the price is sent to the requester. If they do, however, the price is submitted to the DVM, as mentioned.

What Makes UMA Unique?

UMA is unique in that its tokenholders play such an important role in resolving disputes that can result in the loss of proposers’ bonds and far more when it comes to protocols that use the OO.

It could be suggested that this introduces an element of trust into an industry that otherwise tends to favor trustless alternatives whenever possible. While holding the UMA token is permissionless and unrestricted, token distribution becomes an even more critical factor here than it usually is.

However, UMA’s DVM has been designed with an economic guarantee around the cost it would take to corrupt the oracle and the profit an attacker would receive. The DVM ensures the price to obtain 51% of UMA tokens is greater than the profit to be had from corrupting it, as measured by the collateral stored in UMA’s financial contracts.

This is achieved through an inflationary reward distributed pro-rata by stake to voters who participate and vote correctly.

The optimistic oracle concept has been in development ever since a publication on the matter by Vitalik Buterin. Also, the value of human intelligence when it comes to arbitrary data cannot be discounted.

How is the UMA Network Secured?

UMA is secured by the Ethereum blockchain, and the UMA token is an ERC-20 standard token. Its smart contracts have been audited by OpenZeppelin and Bug Bounty rewards are in place.

What is the Use of UMA?

The UMA token is primarily a governance token used to contribute to UMA protocol decisions, such as voting on UMA Improvement Proposals (UMIPs), price requests, and disputes made to UMA’s Data Verification Mechanism.

The token is an integral part of the ecosystem since it guarantees the economic security of UMA smart contracts and its OO in a decentralized, permissionless manner.

How Much UMA is In Circulation?

The UMA token currently has a total supply of just over 112 million tokens, with over 68 million currently in circulation. In April 2020, UMA attempted an IDO (Initial DEX Offering). In the IDO announcement, the project announced that 48.5 million UMA tokens are held by Risk Labs’s founders, early contributors and investors, and they are transfer-restricted until 2021.

This arrangement was revised, with the project founders and early investors agreeing to an additional two-year vesting schedule. All parties signed binding contracts to that effect, meaning that these tokens will unlock in early 2023.

How Do You Buy UMA?

You can buy UMA on several top Ethereum-based decentralized exchanges, such as Uniswap and Balancer. The project also has significant VC backing, so it’s no surprise that UMA is also listed on just about every major centralized exchange as well.

How Do You Store UMA?

UMA can be stored using any Ethereum-compatible cryptocurrency wallet. Metamask is often the number one choice because browser-based hot wallets are extremely convenient when it comes to actually using cryptocurrency. UMA’s main utility is voting, and you need to connect your wallet to the project’s voting portal to do that.

Is UMA a Good Investment?

UMA is a project that has been on the market for quite a while and has seen adoption from several major Web3 projects to date. Decentralization and the use of human intelligence are powerful draws, and even though it’s a VC-backed project and early investor and founder token unlocks are on the horizon, it’s still a compelling prospect.