Decentralized Financial Contracts Platform – UMA Protocol

UMA Project is designed for powering the financial innovations which are possible by publicly available blockchains such as Ethereum. By using such concepts gained from fiat Financial derivatives – UMA is known as the open-source protocol which enables two counterparties to develop and design their financial contracts. Not like traditional derivatives, UMA project contracts are protected with the economic incentives alone which makes them universally accessible as well as self-enforcing.

What is the UMA Project?

UMA stands for Universal Market access which is the protocol for the creation, maintenance, and settlement of derivatives for any assets. It is the protocol to create synthetic assets. At the higher level, the UMA protocol enables all users to create the smart contract-governed meta tokens which show an arbitrary derivative; traders of the meta token which can express the market view without any need to hold the underlying asset.

Derivative markets play a huge role in the traditional financial system – UMA estimates it as around $540 trillion notional value of outstanding OTC derivatives. Due to the existing risk for the derivative issuers and significant volatility for traders, these markets are generally limited to the institutional investors. Crypto Asset derivative markets are the fastest growing aspect of the market for both institutional and retail investors where they provide participants more granularity in the trading sector in comparison to spot markets. 

UMA aims to widen the access to derivative markets beyond institutional investors who would like to decrease reliance on centralized exchanges with the associated risk. 

Every UMA project comprises of five elements – 

• Public addresses of all the counterparties
• Marginal accounts for every counterparty
• Logical to evaluate the economic terms of the derivatives like volatility or NPV
• The designated oracle for reporting data of the asset
• The project works for modifying the margin balances and governs the settlement process – every counterparty is needed to maintain the balance marginally.

The developer of every UMA project locks collateral – first DAI in the margin contract. This collateralized the value of the derivative meta token. The collateral amount needed is the function of the historical volatility of the asset.

The UMA project aims for addressing the oracle issue within the blockchain-based systems for which projects like Augur, chainlink, and Oraclize are also good solutions. The first instantiation of UMA is the US stocks token which shows the S&P 500 stock index.

This system has below main features – 

• The corruption cost is the total market value of the token needed for corrupting 50% of the vote which is reported to the network by using the Schelling point system. It can be either the cost a malicious would pay for controlling such voting tokens themselves or as the bribing price of existing token holders.
• The corruption benefits that measures the possible profit which an actor can achieve by disrupting the smart agreements via erroneous data. Every smart contract must report its own profit from corruption and the total of all such values is known when adjusting CoC.

The team of UMA project – 

The UMA project is ruled by CEO Hart Lambur, COO Allison Lu, and the team with a large experience in trading and financial engineering. Many meta tokens may be connected with the protocol, it does not have the native token and cannot conduct the token sale. Equity investors in UMA projects involve blockchain capital, coinbase, two sigma ventures, and placeholder.

Investors of UMA Project

There are many investors in the UMA protocol – 

• Placeholder
• bain capital ventures
• Blockchain capital
• Two Sigma ventures
• Box Group
• Coinbase 
• Dragonfly capital partners
• Fintech collective

The pricing of the UMA protocol project – 

The current price of the UMA protocol project is around 7.44 USD where its market cap rank is #46. The value of the market cap is around $391,895,988

Other details – 

• Circulating Supply – 53,804,121 
• Max Supply – 100,684,61

How does the UMA project work?

UMA Project works in a few steps – 

1. Custom party contract 

Alice thinks Apple’s price will reduce over the next six months. Bob thinks that apples are cheap and wish to go for the long term. Bob and Alice formalize their trade by using the UMA smart contract. Both these sides deposit the margin requirement of around 10% which will be lost if they misbehave.

2. Automatic enforcement

For around the next six months, the apple price shifts up-down. As the price goes down, then Bob contributes money for covering the margin requirement. The more it goes down the more he contributes.

3. Instant settlement

After six months, the apple price has decreased to 30%. Alice’s bet was perfect. Because Bob was contributing funds to remain his position and not risk losing his margin needs by around 10% – the contract can be instantly settled.