The synthetic assets developed based on the UMA protocol take into account the fun or user needs. This may be what the “synthetic assets” should look like, rather than being constrained by the “oracles”.
Written by: Pan Zhixiong
Although the concept of synthetic assets has grown rapidly in the field of decentralized finance (DeFi) in the past two years, the current DeFi synthetic asset agreement is still generally limited to simple synthetic assets such as “stocks” and “cryptocurrencies.”
In fact, “synthetic assets” can move a variety of transaction-valued data to the chain to support users with transaction needs in risk hedging, speculation, investment, and even building a marketing tool similar to an option structure. The DeFi protocol UMA explores to completely open up the imagination of DeFi synthetic assets under the premise of ” minimizing the oracle “.
As the original concept of cryptocurrency and blockchain , the most widely known “synthetic asset” protocol is Synthetix , with a total market value of more than 4 billion U.S. dollars at one time. It uses an oracle to move the data of off-chain assets to the chain, and then achieve price anchoring through an ultra-high mortgage rate. UMA, on the other hand, has designed a completely different synthetic asset mechanism. By introducing games , the use of “oracles” is minimized. Perhaps this is one of the reasons why UMA can design more diversified synthetic assets.
Synthetix currently locks up more than US$2.3 billion
On the other hand, UMA is a protocol, and the creation of various synthetic assets can be achieved by other third-party teams. Therefore, there are more and more partners in the UMA ecosystem, and at the same time things such as “Bitcoin market value ratio” , “Structured Financial Products”, “KPI Option” and other strange synthetic assets.
UMA’s synthetic asset mechanism
The full name of UMA is Universal Market Access (Universal Market Access), originally positioned as a “synthetic asset agreement”, and later added a ” decentralized financial contract platform. ” So from the perspective of UMA’s vision, it is to solve the problem that users can access various other markets or assets on the blockchain .
The UMA co-founder once said that UMA achieves financial contract security through three points: financial contracts without price feed, a data verification mechanism based on governance tokens to achieve economic guarantees, and an asynchronous oracle delay mechanism.
UMA basic philosophy of design is no feed prices, in order to minimize the chain of prophecy use machines to reduce the frequency of attacks and oracle attack surface, mainly through the introduction of “Reckoner” and “disputants” Both players achieved, It is essentially a game mechanism.
Minimize the use of oracle
This mechanism assumes that the mortgage rate of the collateralized position of the synthetic tokens is sufficient and repayable. Once the collateral price fluctuates and the mortgage rate is insufficient, anyone can realize liquidation based on the off-chain price and obtain income. This is the ” liquidator ” . If there is a dispute in the liquidation, another role ” disputeant ” needs to be introduced.
If there is an objection to the liquidation, the disputing party may raise a dispute.
Since the “liquidator” must pledge a certain amount of funds before initiating the liquidation, and the “disputeant” also needs to pledge a certain amount of margin, therefore, if the final ruling proves that the “disputeant” is correct, the “disputeant” can obtain The fine paid by the liquidator. The reverse is also true. If the “disputeant” is proved to be incorrect, the security deposit will be forfeited.
The game mechanism ensures that participants have sufficient economic motivation to participate in the game, and ultimately ensure that the price is reliable and trustworthy.
This is a bit similar to the real court, which only works when there is a dispute. As long as the two parties to the contract are legally abiding by the law, the court system will never be used, and the court’s ruling is only required for disputes.
UMA redefines the “oracles” as a court dispute resolution system . It believes that if these disputes cannot be resolved through the mechanism written by the contract itself, then the oracles should be used as a backing for dispute resolution.
Lianwen introduced the operating principle of UMA in detail last year. You can refer to this article:
” A game design that conforms to human nature is the safest? The founder of UMA elaborated on how to defend against flash loan attacks “
Attracted more than 7 ecological partners in 4 months
When UMA creates a new type of synthetic asset, the most different from Synthetix is that Synthetix only needs an oracle to provide prices, while UMA requires a professional team to develop specific smart contracts under the framework of the UMA agreement in order to launch new ones. Synthetic assets.
Therefore, the advantage of UMA is that it can create more customized and interesting synthetic assets , while the advantage of Synthetix is that it is less technically difficult to launch new assets. Because of this, UMA has launched activities to encourage developers to create synthetic assets (financial products) to encourage faster development of the protocol ecosystem.
Now more and more DeFi protocols have begun to cooperate with UMA in depth, and there are also teams dedicated to developing new synthetic assets for UMA’s ecology.
uLABS: Provides best practices for UMA agreements
The first team is uLABS , a new organization set up by UMA to design financial products in November last year. It provides some basic ideas and best practices for the ecosystem, and can be migrated to other teams for iteration and development in the future.
UMA Technical Promoter Sean Brown and Finance Director Kevin Chan will push uLABS to deploy new products on the mainnet. uLABS will first launch the token uGAS to track the price of Ethereum Gas and allow hedging and speculation. After that, uGAS was transferred to other teams.
BadgerDAO: Use UMA to build BTC-based synthetic assets
BadgerDAO is a decentralized organization that focuses on bringing Bitcoin into DeFi. They cooperate with UMA to achieve revenue-dollar products . They even propose to work with SushiSwap and UMA to implement specific machine gun pool functions, or to conduct joint incentives.
Yam: Co-launched derivatives trading platform
The original goal of the DeFi project Yam Finance was to develop a set of stablecoins based on an improved flexible supply mechanism based on the algorithmic stablecoin protocol Ampleforth, which can be used for inflation or deflation at any time according to market conditions, aiming to maintain the price of each YAM token at $1.
As Yam gradually faded out of the DeFi community, they decided to cooperate with UMA to launch Degenerative Finance , a DeFi derivatives trading platform, and hand over the futures contract uGAS developed by uLABS that can track and hedge Ethereum Gas fees as the first product.
Domination Finance: Focus on Bitcoin market value
Domination Finance is also a brand new start-up team. Its name “Domination” comes from a related term in their products: BTC Domination (BTC dominance, usually translated as “Bitcoin market capitalization ratio”). Therefore, the products they built using UMA are the token BTCDOM , which is used to track the market value of Bitcoin, and the corresponding altcoin market value, ALTDOM . A series of related products will be gradually launched in the future.
OpenDAO: Minting stable coins with project tokens
Based on UMA and the cross-chain protocol Ren Protocol, OpenDAO focuses on minting any token into a stable currency, starting with the US dollar stable currency USDO. According to the official website, OpenDAO investors include Signum Capital, MoonWhale, TRG Capital and X21 Digital.
Jarvis: Wallet and exchange entrance
Jarvis plans to launch a cryptocurrency exchange and wallet, so that end users can directly purchase various assets, and part of the assets can be implemented by the UMA protocol.
Perlin: User Interface and Entry
The V3 version of PerlinX will cooperate in-depth with UMA and will serve as the front-end entrance of the UMA protocol to realize a series of functions such as asset casting, trading, and pledge.
What are the possibilities of synthetic assets?
In addition to the increasing number of ecological partners, what is more worthy of attention is what real-life data UMA can turn into synthetic assets on the chain .
For example, financial products such as “Tesla” stock prices, “BTC” prices, and “Euro” prices have been supported by many synthetic asset agreements. UMA can also support them. But in order to reflect the uniqueness of the UMA protocol, the team has been experimenting with weird synthetic assets from the very beginning, such as having issued Poopcoin, and tracking 3,000 stools in the Bay Area within one month.
Of course, this is only a purely entertaining marketing activity, but the current synthetic assets developed based on the UMA protocol do take into account the fun or user needs. This may be what a “synthetic asset” should look like, rather than being constrained by the “oracle”. force.
uGAS: It can hedge the risk of rising transaction costs caused by the congestion of the Ethereum network
uGAS anchors the gas price of the Ethereum network, and the gas price can reflect the current transaction congestion and transaction demand of the Ethereum network. In the early stage, it was directly developed and promoted by uLABS, and subsequently transferred to Degenerative Finance.
Since the Ethereum network was “occupied” by various DeFi protocols in the middle of last year, Gas has been at the highest position in history. Although there have been some large fluctuations, the overall trend has been on the rise, which has caused many low-value transactions on the Ethereum network to be squeezed out.
Therefore, uGAS can help users hedge against the gradual increase in Gas and reduce the risk of gas rising in the future. At the same time, many people think that Gas will not continue to rise, and that it can provide liquidity to users who have hedging needs. uGAS can match the needs of these two groups of people.
Structured financial products: reproduce the product structure of traditional finance
uLABS recently proposed a method of using UMA to build a decentralized ” structured product ” and looking for a team to help implement it.
In traditional finance, retail investors can passively obtain the risks and returns of similar derivatives by purchasing structured financial products. Among them, dual currency products are one of the most concerned structured products.
uLABS stated that dual-currency products have been popularized in cryptocurrency exchanges. By depositing ETH or BTC, and selling call options to limit upside risks, high returns can be obtained. uLABS said that such a function can be replicated through UMA’s “Expired Synthetic Token Contract” (EMP), but the EMP contract needs to be modified before going live on the mainnet (currently it is not supported to deposit two collaterals in one contract), so it is necessary Development and audit, but also hope that the community can give more feedback based on this idea.
KPI options: a powerful tool for project incentives
Many agreements or DeFi projects have their own indicators (or KPIs) that reflect the scale or progress of the project, such as TVL (holding volume), number of independent users, transaction volume, and so on.
Therefore, UMA cleverly combines the project’s possible needs for KPIs, so it designs an incentive tool with an option structure, so that token holders can help the project achieve certain KPI indicators faster, if it expires at a given time You can get more rewards if you reach the target before the day.
As a simple example, UMA can design a ” KPI option ” for TVL indicators to stimulate the growth of UMA agreement holdings. UMA can airdrop such KPI options to whale users or DeFi core players. As long as at the expiration date, if TVL can meet the objectives set by the option, users who hold KPI options can unlock and exchange UMA tokens.
Bitcoin market capitalization ratio: a tradable macro indicator
Bitcoin’s market capitalization ratio has always been one of the most frequently mentioned indicators in the industry’s macro analysis, and many professional analysts use this indicator to establish various investment strategies.
If this kind of strategy is really effective, then users can use their own token investment strategy, plus the market value of Bitcoin as one of the important trading indicators, to hedge the fundamentals arising from changes in this indicator Risks caused by changes.
The start-up team Domination Finance is the research and development team of this indicator. They not only developed the token BTCDOM , which tracks the market value of Bitcoin, but also the corresponding altcoin market value, ALTDO M. A series of related products will be gradually launched in the future.
Stable currency assets: Any asset can mint stable currency
The stablecoins on the blockchain are generally generated based on the mortgage of specific encrypted assets, or generated through the mortgage of physical assets off the chain. OpenDAO hopes to expand the scope of this matter again, and any encrypted asset, stock or off-chain asset can be used as collateral for stablecoin on the chain .
So OpenDAO needs UMA and Ren Protocol as the most basic components to realize this function. UMA realizes synthetic asset business, and Ren Protocol realizes asset cross-chain business.
According to the official website, the first phase of the project plans to use the liquid assets on the chain as collateral to generate USD stablecoin USDO, and the second phase plans to use the liquid assets off the chain as collateral (such as Apple and Tesla stocks). The third and fourth stage plans to use real estate and equity under the chain as collateral.
Stable currency spread: can improve the stability of cross-chain assets
A project called Zelda.Cash builds synthetic assets based on stable currency spreads through the UMA protocol, allowing users to create STABLESPREAD positions. STABLESPREAD is a synthetic asset that can be used to track the price difference between stablecoins on a basket of ETH and stablecoins on other blockchains.
According to official documents, if users believe that the price of non-Ethereum stablecoins (such as UST, BUSD) is better than Ethereum’s stablecoins (such as USDC, USDT), they can make a profit by buying STABLESPREAD, otherwise they can sell.
The project is developed by an anonymous team called YouMyChicFilA, and they also have a project called Mario Cash that uses the UMA protocol to synthesize renBTC into BCH.
