Universal Market Access (UMA) is a protocol for the creation, maintenance, and settlement of derivatives for any underlying asset. At a high level, the UMA protocol allows users to create smart contract-regulated variable tokens representing an arbitrary derivative. Variable token traders can then express their market views without holding the underlying asset.
Variable components of UMA
Public addresses of all partners.
Margin account for each partner.
Logic for calculating derivative economic terms (such as NPV or volatility).
An oracle is designated to report the data (i.e. price) of the underlying asset.
The contract has the function of adjusting the margin balance and adjusting the payment procedures; Each partner is required to maintain a margin balance.
Since each UMA variable tag refers to an off-chain feed (usually a price) for the underlying asset, the main design challenge is to securely encourage reporting that data in a correct manner. consistent with the UMA contract. To achieve this goal, the development team came up with a magical design called the Data Verification Mechanism. At a high level, the system tries to provide economic guarantees that incentivize accurate data reporting, through a Schelling-point voting system, for the smart derivatives contract by making it work. . Losses from supply become more expensive than profits from false contracts. This system has three main characteristics:
Misalignment costs is the total market value of tokens needed to corrupt more than 50% of the votes, reported to the network using the Schelling-point system. This cost could be a price a bad guy has to pay to take control of these voting tokens himself or a price that bribes existing token holders.
Profit from deviation is a measure of the possible financial gain that an actor can gain by circumventing smart contracts through false data. Each smart contract must report its own profit from bias and the sum of these values is taken into account when adjusting the Certificate accordingly.
An enforcement mechanism ensure that the cost of bias is greater than the profit from bias through the token offering.
UMA . Contract Utilities
Tokenization of financial risk
Since UMA contracts are backed by smart contracts whose terms are defined by the contract partners, these smart contracts can use tokens to represent each counterparty’s exposure to risk. work. If these tokens are fungible and follow a standard, such as ERC-20, they will be easily traded and transferred on exchanges. This extends the token’s transparency, allowing individuals access to financial risk without directly interfering with the UMA contract. This is especially important for investors with less capital who do not need to commit to a UMA contract due to the divisibility of the tokens. Decentralized financial products such as hedge funds DAO (decentralized autonomous organization) or others, can also tokenize their clarity. This allows the object’s smart contract to do the work of maintaining transparency through the UMA contract, while the object’s investors simply trade tokens in their own wallets.
Price stabilization is in place
The price volatility of BTC and other cryptocurrencies is often cited as the biggest barrier to crypto adoption. Stablecoins backed by fiat currency or commodities, like Tether or Digix Gold, rely on a centralized party or fact-checkers to guarantee their value. Decentralized solutions, such as Dai and Basis, aim to solve this problem but are not yet widely adopted. In general, if an investor holding currency A wishes to invest in an asset denominated in currency B, the investor’s exposure to that asset will fluctuate accordingly. Because any return in assets must be converted to currency A. Similarly, once the aggregate asset ratio is obtained, the calculation and margin deposits are in the equivalent currency. similar to the underlying property is most natural. Because UMA contracts allow counterparties to determine all economies their level of risk, counterparties can define financial contracts that allow for an aggregate level of risk regardless of variability. in the exchange rate between the margin currency and the currency of the underlying asset.
Simplify institutional custody requirements for cryptocurrencies
Investing in cryptocurrencies and other crypto assets can be difficult for institutional investors. This is largely for custody and accounting reasons: each new asset requires new systems and processes to be built, tested, and approved, creating significant barriers to any token. , press or any new cryptographic system. Institutions can simplify this process by investing through financial contracts and standardizing their risk, custody and accounting systems to a single standard – the UMA Protocol.
The UMA protocol is a decentralized specification that allows the transfer of trustless financial risk of any underlying asset to any individual worldwide. The protocol uses new systems and economic incentives to transparently and efficiently maintain collateral, and settle transactions accurately while giving users complete control. their economic impact. Together, these attributes enable and empower individuals to transfer financial risk regardless of geographic location.
You can see UMA prices here.
According to AZCoin News
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