Uma (UMA) – All you need to know

What is UMA?

UMA stands for universal market access, and it is a project built on Ethereum that is designed to allow any user to trade whatever asset they want to, regardless of their geographical location. The platform’s native token, UMA, is key to achieving its aim of providing market freedom to all and is used to fulfill price requests.

The focus is on derivatives: contracts between two or more parties about a particular assets price movements, which are advantageous because investors can gain exposure to the price of an asset without having to own it outright. Due to complex legal regulations and frameworks, derivatives have traditionally been inaccessible to retail investors, instead being restricted to institutional investors. However, UMA opens up the over $500 trillion derivatives market to the decentralised world.

Users are able to create synthetic assets that represent real-world assets like commodities, fiat currencies, and stocks. Investors can gain exposure to centralised assets with a decentralised investment: an innovative way of approaching market access that attempts to level the investment playing field for all parties. This gives UMA a distinct first-mover advantage.

How does UMA work?

UMA works by using Ethereum’s blockchain technology to allow synthetic tokens that represent real-world assets to be created and validated by any user once they have posted collateral. Though UMA has not yet achieved this in its entirely, the end goal is for users to be able to create synthetic assets that represent absolutely anything. Users can then use these tokens to create a smart contract, taking up long and short positions against relevant real-world assets and gaining exposure to the asset without owning it outright.

The platform is similar to Synthetix but varies in a few key ways. UMA validates its smart contracts by incentivising its users with UMA tokens to ensure that token issuers are sufficiently collateralised, whereas Synthetix relies on something called price oracles to track prices in real-time. In addition, UMA allows users to post collateral in almost any cryptocurrency, whereas Synthetix requires users to post SNX tokens. However, despite these differences, both platforms have the same primary aim: using crypto to make investing equally accessible for all.

Because of its innovative approach to investing and first-mover advantage, many new developers have focused their attention on UMA as a go-to platform. It will be interesting to see how the total supply of 100 million UMA tokens is used to influence governance decisions, especially after the over 48 million UMA tokens allocated to founders are used for voting in 2021. Users who got in early have already returned over 100 times their initial investment with UMA, and further growth could see this trend continue.

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