The Past and Present of UMA: Can the Ancient Tokenization Project Have a Chance for a Comeback?
This week has been tough for readers who hold cryptocurrencies, as 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 increased by 136%.
UMA’s Past:
UMA is a protocol built on Ethereum and was founded by former Goldman Sachs employees in 2019. Its first product on the mainnet was USStocks, an ERC-20 token that tracks the S&P 500, allowing users to invest in the US stock market through cryptocurrencies.
UMA’s Present:
In 2020, UMA created the first priceless token called $ETHBTC, which tracks the performance of Ethereum and Bitcoin. If Ethereum outperforms Bitcoin, the token’s value increases, and vice versa. This allows market participants to participate in relative market conditions without holding both tokens.
UMA’s Optimistic Oracle Use Case:
Through UMA, users can also create cryptocurrencies that track the price of the Chinese yuan or initiate a cryptocurrency that tracks Tesla’s stock. The key feature of this product is “Priceless,” which means it does not require a price. Unlike synthetic tokens that rely on oracles to track collateral values, UMA’s synthetic tokens allow liquidators to interpret off-chain data to complete this task.
UMA’s Token Model:
UMA has developed a USD income token called $yUSD, which is a variant of stablecoins. It has an expiration date and a constant value of $1 at expiration. Users can mint $yUSD by pledging encrypted cryptocurrency assets, similar to what AAVE currently offers. Users can borrow a specific amount and return the corresponding amount (with increased value) of tokens.
UMA’s Market Performance:
UMA strives to settle transactions for any asset on Ethereum and provide a mechanism for tracking any commodity price or off-chain data, known as an Optimistic Oracle (OO). UMA’s Oracle system consists of two important parts: the Optimistic Oracle (OO) and the Data Verification Mechanism (DVM). The Optimistic Oracle assumes that the data provided by data providers is correct and verifies this assumption through the verification mechanism. This mechanism allows the Optimistic Oracle to be applied in a wider range of fields, not just limited to price transactions.
UMA’s Future:
UMA aims to expand in two main areas: prediction markets and insurance. Recently, the event prediction platform Polymarket, which has gained significant attention, used UMA’s Optimistic Oracle to determine event outcomes. Sherlock, a risk management platform, also relies on UMA’s Oracle as a backbone for its insurance dispute system.
UMA’s Recent Update – Oval:
UMA recently launched an update called Oval, which is considered an effective solution to the MEV problem. This collaboration between UMA and Flashbots has gained market favor and caused an increase in the price of UMA tokens. Oval aims to extract Oracle Extractable Value (OEV) and distribute it to protocol users and token holders.
UMA Token and Governance:
The UMA token ($UMA) is primarily used for governance. Token holders can vote on UMA Improvement Proposals (UMIPs) and price requests proposed by the DVM. During each voting process, a reward equivalent to 0.05% of the current UMA supply is distributed to stakers who vote for the correct option, leading to an increase in token supply.
UMA’s Market Performance:
During its Initial Coin Offering (ICO), UMA sold 2% of the tokens (2 million) while the founders retained 48.5% (48.5 million) and DAO received 35% (35 million). The remaining 14.5% (14.5 million) will be used for future sales. Currently, UMA is trading at $4.79, which is almost four times higher than its lowest point but still 89% away from its all-time high.
However, short-term market data shows that many smart investors who have been accumulating UMA have deposited it in centralized exchanges, possibly preparing to “sell the news.” Readers should be cautious about the risks if they want to participate in UMA trading.
