UMA Token Sale Also Launches New Fundraising Mechanism for Startups
Also, Bancor releases details of its V2, MakerDAO is shutting down Sai, Instadapp launches DeFi smart accounts
Hello Defiers! Here’s what’s going on in decentralized finance:
- UMA is selling tokens via an “Initial DEX Offering”
- Bancor tackles most common automated market makers’ flaws in its V2
- The process to shut down MakerDAO’s Sai is underway
and more :)
Excited to have Lucas Campbell of Fitzner Blockchain Consulting writing today’s main post. Please reach out if you’re interested in becoming a contributor.
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UMA Issues Tokens in First Ever Initial DEX Offering
UMA Protocol, an Ethereum-based platform for issuing and trading synthetic assets, is launching a token sale via a decentralized exchange, the first time this fundraising mechanism has been attempted.
The derivatives protocol will deposit 2% of its token supply along with ~$535k in ETH into Uniswap available for the public to purchase. The sale, known as an “Initial Uniswap Offering” will officially begin at 15:00 UTC on Wednesday, April 28th.
With the launch of UMA’s Initial Uniswap Offering, we’re seeing the emergence of a new liquidity framework for privately funded DeFi projects. By using a permissionless liquidity protocol like Uniswap, projects can allocate a portion of their raise to bootstrap liquidity and anyone can participate in the sale. This helps projects distribute tokens to their community members. The only thing required for launching a new token on Uniswap is the capital to back it.
With 100M UMA in total supply, the initial offering will value UMA at $0.26 per token with a diluted market cap of ~$26.67M –– UMA, short for Universal Market Access, is living up to its name with the low price point. As noted by Placeholder Partner and UMA investor, Chris Burniske, the offering is priced at the same valuation given to seed investors.
Chris Burniske @cburniske.@UMAprotocol has decided to publicly release $UMA starting at the same network valuation that seed investors paid.
UMA @UMAprotocolThe UMA project token ($UMA) will be listed on Uniswap at ~15:00 UTC on Wednesday, April 29th. https://t.co/Tk42BDEkkZ8:12 PM ∙ Apr 22, 202062Likes7Retweets
UMA tokens will be allocated as follows:
- Initial Uniswap Listing: 2,000,000 (2.0%)
- Future Token Sales: 14,500,000 (14.5%)
- Developers and Users: 35,000,000 (35.0%)
- Founders, Early Contributors, and Investors: 48,500,000 (48.5%)
What is UMA?
UMA Protocol is a permissionless derivatives protocol establishing a generalized framework for creating synthetic assets on Ethereum.
Image source: umaproject.org
The first product available with UMA will be priceless synthetic tokens on Ethereum, which will launch in the coming weeks. UMA’s goal is to enable developers to build any financial asset or contract imaginable in the form of an ERC20 token while simultaneously having minimal reliance on oracles.
The platform features two core components: a decentralized oracle (DVM) and a financial contract template.
UMA’s oracle solution
As we’ve seen with Maker and Black Thursday, oracles can fail in extreme or unexpected market conditions (like severe volatility). UMA tackles the oracle problem by minimizing the reliance on on-chain price feeds and incentivizing participants to properly collateralize their positions at all times. If there’s ever a dispute on what the proper collateralization ratio is, UMA token holders are incentivized to step in and accurately resolve the dispute. More on this in the next section.
If you’d like to get a deeper understanding of the DVM, you can read up on the DVM whitepaper here. If you’re interested in learning more about self-enforcing financial contract templates, read the whitepaper here.
What’s the point of the token?
UMA token utility falls into three main buckets:
- Governance: Users can earn inflationary rewards by participating in governance
- Disputes: Tokens are used to properly incentivize price requests during disputes
- Burns: All financial contracts using UMA pay a tax that’s used to buy and then burn the token, driving value to UMA and scaling economic guarantees as protocol activity increases
The primary purpose of the UMA token is for governance and voting on UMA Improvement Proposals. Users who elect to be active governance participants and vote with the majority will receive inflationary rewards in the form of UMA. More details on the UMAIP Process can be found here.
Another important use is for price disputes. To ensure the safety and security of oracle-minimized financial contracts, the profit from “attacking” the contract (known as profit from corruption, PfC) must be less than the cost of the attack (known as cost of corruption, CoC). Given UMA tokens are used for voting on price disputes, the cost of corruption of an UMA contract is calculated as the value of 51% of all UMA tokens.
As more value is locked in UMA contracts, the potential profit from corrupting the underlying contracts rises in tandem. That said, in order for UMA to scale, the network relies on proportional growth in the value of UMA tokens to ensure economic guarantees.
The protocol drives this dynamic by embedding a small protocol tax on all of UMA’s financial contracts. The tax is then used to buy-back and burn UMA on the open market. Therefore, the more value locked in UMA, the more revenues generated from the tax, and in turn, the more value accrues to the token.
For more information surrounding UMA and its design, feel free to reference the whitepaper here.
The use of UMA as a governance token also sheds some light on another emerging trend in DeFi - the role of governance. In the past few months, we’ve seen Kyber, Synthetix, and Compound (to name a few) all announce their upcoming transition towards decentralized governance.
By transferring the administrative control from single teams to a distributed network of token holders, DeFi projects can realize their value proposition as “decentralized” financial protocols and applications. The theme of decentralized governance will become increasingly important as these protocols become more robust and less reliant on the core teams.
Given that the derivatives sector is largely dominated by Synthetix today, the launch of UMA presents a unique (and promising) opportunity for another derivatives protocol to emerge in the DeFi ecosystem.
As for the Initial Uniswap Offering, it’ll be interesting to see what other prominent projects adopt this liquidity framework for bootstrapping their token in the future.
For anyone interested in participating in the UMA sale, you can purchase tokens by adding this contract address into Uniswap starting at 15:00 UTC on Wednesday, April 28th.
Bancor Upgrade Aims to Tackle Main Flaws of AMMs
Decentralized exchange Bancor released details of its second major version, aiming to tackle flaws which have plagued DeFi’s automated market makers.
Bancor V2, planned to launch in Q2, promises to eliminate impermanent loss, or the risk that providing token liquidity to the platform results in lower returns than simply holding the same tokens. The protocol achieves this via an integration with Chainlink oracles, which help maintain the relative value of tokens in its liquidity reserves. The upgrade also allows liquidity providers to get exposure to a single token in a liquidity pool.
Image source: Medium
Bancor’s upgrade is the latest in a series of improvements to automated market makers, with Uniswap also planning to launch its V2 in Q2, Balancer recently launching its ETF-like liquidity pools, while Curve focuses on stablecoin swaps.
AMMs, which Bancor pioneered in 2017, have been key in the growth of DeFi. Unlike traditional exchanges, which match traders via an order book, AMMs pool liquidity in such a way that traders are able to automatically swap between tokens. The entire process happens on-chain and without relying on humans. Still, the automated system often results in high price slippage, and the volatility between token pairs can result in poor performance for liquidity providers. This is what Bancor set out to fix in its new version.
Other features include an improved pricing mechanism to reduce slippage and integration with DeFi lending protocols so that deposits earn interest on top of trading fees. With still reduced volumes on Dexes and DeFi, competition between AMMs will be fierce. Still, these platforms are likely playing a longer game, betting the space as a whole will grow.
MakerDAO is Shutting Down Single Collateral Dai
The process to shut down MakerDAO’s Single Collateral Dai, or Sai, is underway, so that the system will only maintain the Dai stablecoin. Sai holders should migrate to Dai ASAP. MakerDAO started accepting collateral other than ether to back its Dai stablecoin last year, creating Multi-Collateral Dai. Sai, is the previous version of the stablecoin, backed only by ether.
Instadapp Launches DeFi Smart Accounts
Instadapp, which built a bridge connecting major DeFi lending protocols, deployed to mainnet DeFi Smart Account (DSA) contracts. Most users interact with DeFi through wallets, which were mainly designed for tokens. Instadapp wants to improve that experience with a platform which “provides a single point of integration to access all the DeFi elements.”
It is really hard to read Adam Cochran’s thread analyzing Ethereum’s top 10k addresses and not become at least a bit more bullish on ETH. His findings show ether and Ethereum have become extremely useful to holders, with many ways to put money to work, other than just “hodling.”
Adam Cochran @AdamScochran1/109 The 10k Audit. I manually audited the top 10,000 Ethereum addresses to learn about liquidity, profitability, market manipulation and what Whales are doing with their money. This is the first of many reports to come from this data set. (Blog version in last tweet)
3:05 AM ∙ Apr 29, 2020814Likes305Retweets
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The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money.
About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.