Topics Altcoins
Bybit Learn
Bybit Learn
Intermediate
26 февр. 2022 г.

What Is Universal Market Access (UMA)?

Ever heard of the term “derivatives?” These are essentially a type of asset which tracks the price of any popular underlying asset. For instance, silver derivatives accurately track the actual price of silver. When you trade derivatives, you’re betting on silver’s price without actually owning any. 

The global derivatives market is much larger than you might imagine — as of this writing, its value is estimated at over $600 trillion. Unfortunately, retail investors aren’t able to access most lucrative derivatives, which are instead accessible only to institutional investors who are a part of major institutions such as banks. These institutions create, manage and enforce contracts which make any existing derivatives possible.

Several regulations are imposed to determine who can trade the derivatives market. For instance, many derivatives can only be traded in certain jurisdictions. A relatively new blockchain protocol, Universal Market Access, intends to solve this issue by making derivatives available for retail traders across the world. In this article, we’ll discuss the Universal Market Access protocol and the UMA token. Let’s dive right in.

What Is Universal Market Access?

Founded by Hart Lambur and Allison Lu in Q4 2018, the UMA protocol enables users to build decentralized financial protocols. Using UMA’s infrastructure, developers can create and manage their own derivatives and other DeFi products on the Ethereum network. The protocol offers customizable contract templates which allow developers to create a derivative for almost any asset, even ones which everyday investors can’t access.

As the protocol’s name suggests, the goal of UMA is to make derivatives available to the public. Unlike traditional derivatives, contracts created on the UMA protocol are self-governing. That means they don’t require the interference of expensive legal enforcements from courts and lawyers. By utilizing blockchain technology and smart contracts, the UMA protocol allows investors to participate in the global derivatives market, no matter their financial situation, background or jurisdiction. 

What Is UMA?

UMA is the governance-cum-utility token of the Universal Market Access project. This token plays a crucial role in the workings of the UMA protocol, and has many use cases within its ecosystem. As a UMA holder, you have the right to partake in the protocol’s governance (more about this below).

How Does Universal Market Access Work?

As a crypto investor, you can access the UMA protocol in order to buy or sell various derivatives created on the platform. First, the project requires you to provide some form of crypto collateral within the platform, such as BTCETH or stablecoins. This collateral is then locked in a smart contract on the UMA protocol, after which you’ll receive corresponding synthetic tokens in return. 

Synthetic tokens are designed to track any piece of reliable and valid data — e.g., the value of a particular stock, currency, or any other cryptocurrency. You can then trade these synthetic assets as you would any asset. The real value of the synthetic assets you create depends on the collateral value of your deposits on the UMA protocol.

It’s crucial to maintain the value of your collateral after creating your desired derivative. As a precaution against the value of your collateral falling, you may need to add more collateral (to protect your position). You may be wondering: How does the smart contract on the UMA protocol know the value of my collateral? Many DeFi platforms address this question — typically known as the Oracle Problem — by constantly tracking the underlying asset’s price using price oracles. Unfortunately, this solution isn’t ideal.

A common complaint while using price oracles is the network congestion they cause. These oracles charge a certain fee for continuously tracking the underlying asset’s price, and tend to stop working during periods of high network activity. The UMA protocol avoids the usage of oracles for price tracking, as they consume a large amount of network resources. Instead, the responsibility of maintaining enough collateral to protect your position falls on you, the investor. 

Participants in the UMA protocol are known as “liquidators.” Liquidators monitor all positions on the UMA protocol using their own price feeds, and ensure each investor has enough collateral to back the synthetic tokens they create. If a liquidator finds a position that doesn’t have enough collateral backing it, they get to liquidate the position by repaying the debt and claiming the collateral for themselves. 

What Is UMA Used For?

Holders of the UMA token can participate in the network’s governance. They get to vote on various project proposals and contribute to the protocol’s security. As a UMA token holder, you have the right to vote on various improvement proposals for the protocol, such as new project features and types of contracts that could be included on the platform. 

Holders can also help resolve asset pricing disputes that occur during liquidation. By participating in the UMA governance process honestly and accurately, token holders are entitled to UMA tokens as rewards. Decisions related to the UMA protocol are subject to governance and are solely managed by UMA token holders themselves.

Key Features of the Universal Market Access Protocol

Synthetic Asset Generation

As mentioned, synthetic assets are designed to track the prices of any underlying asset, such as a company’s stock, commodity or crypto. These assets allow investors to obtain price exposure to various notable assets without actually acquiring them. As long as the price info of the underlying asset is reliable and available publicly, developers can create a synthetic asset using the UMA protocol.

The best part is that synthetic tokens can be generated to track any form of data. For instance, you can create a synthetic token that tracks the price of Ethereum Gas fees, or DOGE’s market capitalization. These tokens, just like cryptos, have a certain store of value, and are permissionless, accessible and decentralized. 

Governance Rewards

As discussed previously, liquidators can claim an investor’s collateral by liquidating their position and repaying the debt themselves. However, if someone thinks the position should not have been liquidated, they can raise a dispute within a certain time period. Then, network participants (disputers) check the validity of the liquidation by referring to their own price feeds. 

To solve this dispute, holders of the UMA token are asked to vote on what they believe the asset’s price was. Based on their input, the disputes are settled within the network. Token holders receive rewards for their participation. This process prevents various other issues that typically occur in networks such as UMA protocols — for instance, oracle manipulations and flash loan attacks

Smart Contract Templates

Developers can access a set of audited, open-source smart contract templates on the UMA platform. These templates help developers create robust synthetic tokens without having to worry about architectural challenges. 

UMA Tokenomics

Note: Figures below are accurate as of this writing, and are approximated up to two decimal places.

Total Supply — 106.2 million UMA tokens

Circulating Supply — 65.4 million (62% of the total supply)

Market Capitalization — $318 million 

Total Value Locked (TVL) — $33.1 million

24-Hour Trading Volume — $12 million

Price — $4.76 per UMA token

Pros and Cons of Universal Market Access (UMA)

Pros

  • Validators and liquidators manage contracts on the UMA protocol. This process is cost-effective, as it eliminates the need for expensive litigation fees spent on intermediaries.
  • The UMA protocol tackles network congestion issues by avoiding the usage of oracles to report prices.
  • The UMA protocol offers developers the freedom to create tokens which can track any metric with valid data.
  • UMA’s platform offers high-earning potential. You can run a liquidator or disputer for the UMA protocol to monitor positions on the network. By correctly identifying an invalid dispute or a contract that needs to be liquidated, you will receive rewards in the form of UMA tokens.

Cons

  • The UMA protocol finds itself in a highly competitive space alongside numerous other projects. They need to be on top of their game to establish themselves as a market leader among protocols that enable the creation of synthetic assets.
  • At the moment, only 62% of UMA’s total supply is available for trading.

Is Universal Market Access (UMA) a Good Investment? 

The UMA token recorded exponential growth at the beginning of this year. From $7 in January, the price shot up to over $33, registering a brand new ATH. However, the price has since corrected itself and is currently moving at $4.99 per UMA token. Experts are of the view that this token has a promising future … provided the UMA protocol is able to stave off future competition.

Buying UMA

UMA tokens are available for purchase on many popular exchanges like Bybit. Buying UMA on the Bybit exchange is a seamless process. First, you need to have an account with Bybit. If you don’t have one, you can sign up for it in a few simple steps. 

Next, you need to acquire USDT tokens to purchase UMA. If you own any USDT on a different wallet or exchange, transfer them to your Bybit wallet. Otherwise, you can purchase USDT by clicking on 

 on the exchange’s main page. Complete the purchase by paying through options such as your credit or debit card. 

After confirming the presence of USDT tokens in your Bybit wallet, visit the Spot Market section and search for the UMA token. Once you identify the 

pair, enter the number of UMA tokens you want to purchase in the Buy area, as highlighted in the below screenshot. 

Source: Bybit | UMA/USDT

Click on Buy UMA after confirming the value of USDT you need to spend and the exchange trading fee. Once the order is filled, corresponding UMA tokens will be transferred to your Bybit spot wallet. Note that you can use either a limit, market or conditional order to place the trade. We recommend using a limit order. 

We also recommend transferring your tokens to a secured wallet that’s not connected to the internet in any way. You can even use a hardware wallet — known to be more secure — for greater peace of mind.

Trade UMA on Bybit now!

Closing Thoughts

The UMA protocol allows the average investor to access some of the most lucrative derivatives in the world. Many community products already exist in the UMA ecosystem, with plenty more under development. Users don’t need a finance background or deep pockets to access these instruments. Today, with the help of the UMA platform, all you need is a smartphone and internet access in order to start trading crypto derivatives and participate in the global derivatives market.