What is UMA?
A fast, flexible, and secure way to create synthetic assets on Ethereum.
Why Use UMA?
Time to Launch
Quickly create synthetic assets with priceless contract templates.
No Limits on Design
Create tokens that track the price of anything.
Provably Secure
Economic guarantees ensure your contract cannot be manipulated.
Minimize Oracle Usage
Increase security and reduce costs with minimal on-chain transactions.
UMA stands for Universal Market Access. UMA is driven by a shared belief that financial markets should be free, open, and fair. The economic freedom created by a free and open market enables everyone equal opportunity to pursue prosperity and build financial independence.
UMA's goal is to enable anyone to attain or transfer any form of risk seamlessly and securely through UMA protocol to empower everyone to participate in a universally accessible financial system.
UMA is open-source infrastructure for deploying and enforcing synthetic assets on Ethereum. UMA enables developers to quickly and easily build synthetic tokens that track the price of anything! View here to learn more about synthetic tokens!
UMA enables developers to create synthetic assets via two core components:
Priceless financial contract templates
Decentralized Oracle Service
Together, these two components enable the creation of fast, efficient, and secure synthetic derivatives on the Ethereum blockchain.
Understanding UMA
If you would like to learn more about the concepts behind UMA's priceless financial contracts and oracle service, start by reading this overview of the UMA ecosystem.
UMA Overview
UMA builds open-source infrastructure for “priceless” financial contracts on Ethereum. Specifically, this is two things:
Priceless financial contract templates used to create synthetic tokens
Decentralized Oracle Service used to manage and enforce contracts on UMA
Together, these two technologies enable the creation of fast, efficient, and secure derivatives on Ethereum.
How UMA Works
UMA offers priceless financial contracts. Priceless financial contracts are smart contracts that only require an on-chain price feed in the event of a dispute.
Economic guarantees and network incentives ensure network actors will act honestly most of the time, but in the event of a malicious actor or an ad hoc market event, a dispute can be raised to call UMA’s dispute resolution system known as the Data Verification Mechanism (DVM).
There are five main network actors on UMA
1. Token sponsors
2. Liquidators
3. Disputers
4. Data Verification Mechanism (DVM)
5. UMA Tokenholders
How synthetic assets are secured on UMA
Token sponsors are individuals who lock collateral in a smart contract to mint synthetic tokens. Token sponsors are responsible for making sure their positions always remain overcollateralized or else their positions will get liquidated.
The value of the collateral in the smart contract is continually monitored off-chain by a robust network of Liquidators. Liquidators continuously monitor if a position is properly collateralized by referencing off-chain price feeds. Liquidations can be configured to automatically search for positions to liquidate (through Liquidation Bots) or manually by anyone holding the synthetic asset and collateral currency of the position they are liquidating. Liquidators are incentivized with rewards to identify and liquidate undercollateralized positions. If a position is liquidated by a liquidator bot there will be a 2-hour delay before the liquidation is finalized.
During the 2-hour delay, Disputers are incentivized to monitor contracts using UMA’s priceless financial contracts. Similar to Liquidators, Disputers can be in the form of a Dispute Bot or executed manually. Disputers reference their own off-chain price feeds to determine if a liquidation was valid or invalid. If invalid, the dispute bot will dispute the liquidation which will call UMA’s oracle known as the Data Verification Mechanism (DVM). The liquidated position will be pending until it is resolved by the DVM (48 hours later). Contracts that wish to receive a price faster than 48 hours can use UMA's Optimistic Oracle.
The DVM will resolve the dispute by proposing a vote to UMA Tokenholders to obtain the price of the asset at a given timestamp. UMA Tokenholders will reference off-chain price feeds to report price information to the DVM. The DVM will aggregate UMA tokenholder votes and report the price of the asset on-chain.
If the Disputer was correct, the DVM will reward the Disputer and the Token Sponsor of the effected position. If the Liquidator was correct the DVM will reward the Liquidator, penalize the Disputer, and the Token Sponsor will lose the funds in their position.