Protocol for synthetic asset issuance
UMA, which stands for “Universal Market Access,” was founded in 2018 by two ex Goldman Sachs traders, who aimed to create a version of derivatives trading over blockchains. UMA users can build synthetic assets, or “synths,” that track the prices of all sorts of things—international currencies, offline commodities, as well as other cryptocurrencies—and use them to trade, hedge risks, and sell short, the same way large institutional investors do in the traditional financial market. The token UMA offers its holders the right to vote on changes to the protocol’s parameters.
UMA’s main innovation is reducing the reliance on external price reporters, commonly referred to as “oracles,” that are usually required to create synthetic assets (how else would you continually retrieve up-to-date prices?). The founders worried that decentralized finance’s anonymity could make it rewarding to manipulate or corrupt these oracles, which would make trading derivatives based on their information a dangerous practice. UMA has instead introduced a complex logical mechanism of price requests, counter-requests, and verification that ensures lying about prices is always more costly than it is rewarding.