UMA, short for Universal Market Access, is a protocol built on Ethereum that allows users to create custom mortgage composition tokens that can track the price of almost anything. Simply put, UMA can use ERC-20 tokens to trade any asset without physically touching the asset itself. This allows anyone to gain exposure to assets that would otherwise be out of reach.

UMA aims to enable anyone to seamlessly and securely access or transfer any form of risk through the UMA protocol, enabling everyone to participate in a universally accessible financial system.

Traditionally, individuals and businesses could only buy and sell financial risks backed by local governments and infrastructure. Regulations and guardianship requirements can make it extremely difficult (or impossible) for an individual or entity to purchase any product that is not explicitly supported by their local financial system. Sophisticated institutional investors have been able to circumvent these entry challenges by using instruments such as OTC derivatives, which are not available to other non-specialist institutions, eliminating the need for physical or custodial assets. UMA contracts offer opportunities for all market participants. Create a unified, truly global financial market by introducing DAOs and smart contracts into financial markets, supporting unrestricted shorting opportunities, unrestricted leverage, and unrestricted access to homegrown financial products.

UMA defines a decentralized protocol that can create, purchase and settle financial contracts for any underlying asset, and introduces novel systems to maintain margin collateral to enable market participants to trade without counterparty or settlement risk. UMA consists of a specification for financial contracts that are automatically executed and an Oracle (Oracle) that evaluates and guarantees the integrity of those contracts.

UMA provides invaluable financial contracts. Priceless financial contracts are smart contracts that require on-chain price information only in case of dispute. Financial guarantees and network incentives ensure that network participants will act in good faith most of the time, but if a malicious participant or temporary market event occurs, disputes can be raised by invoking UMA's dispute resolution system, called data Validation Mechanism (DVM). There are five main network participants on UMA: Token sponsor, liquidator, Disputant, Data Verification Mechanism (DVM) How UMA Token Holders protect synthetic assets on UMA Token initiators are individuals who lock up collateral in smart contracts to mint synthetic tokens. It is the responsibility of the token originators to ensure that their positions are always overcollateralized, or their positions will be liquidated. The value of collateral in smart contracts is constantly monitored down the chain by a powerful network of liquidators. The liquidator constantly monitors whether the position is properly collateralized through an off-chain reference price source. Clearing can be configured to search automatically for positions to be liquidated (via a clearing robot) or manually by anyone holding synthetic assets and the collateral currency of their liquidated positions. Liquidators use incentives to identify and liquidate positions with insufficient collateral. If a position is cleared by a clearing robot, there is a 2-hour delay before the clearing is complete. During the 2-hour delay period, disputants are incentivized to monitor contracts using UMA's priceless financial contracts. Similar to Liquidators, Disputers can take the form of Dispute Bot or execute it manually. Disputants refer to their own off-chain price information to determine whether clearing is valid. If it does not work, the dispute robot will dispute the clearing, which invokes UMA's predictor, called data Validation Mechanism (DVM). The strong cover position will remain pending until DVM is resolved (48 hours later). Contracts that want to receive prices within 48 hours can use UMA's Optimistic Oracle. DVM will resolve disputes by proposing a vote to UMA token holders to get the asset price for a given timestamp. UMA token holders report the price information under the reference chain to the DVM. DVM will aggregate UMA token holder votes and report the price of the assets on the chain. If the disputer is correct, DVM will reward the disputer and the token sponsor of the affected location. If the liquidator is correct, DVM will reward the liquidator, penalize the disputer, and the token originator will lose the money in his position.

Price Request: When a contract interaction is disputed, the UMA token holder is responsible for voting on the price request through the Data Validation mechanism (DVM). Participants who vote correctly on a given dispute will currently receive a pro-rata inflation bonus of 0.05% of the total supply of the network. Governance: The governance owner of UMA tokens functions in two areas of the system: the dVM-dependent financial contract and the UMA DVM. Token holders have a say in the type of contract the system accesses, the types of assets it supports, and core system parameters and upgrades. All governance issues are addressed through the UMA Improvement Proposal (UMIP) process.

The protocol's first financial innovation revolved around the idea of detrust tokenization, the process of creating ERC-20 tokens using UMA contracts to create synthetic exposure to anything that has a price. This functionally allows users to exert their creativity to create novel financial products that have never been seen in traditional finance.

UMA's open source system consists of two parts: priceless financial contract design, used to create synthetic tokens, and Data Validation Mechanism (DVM), a decentralized predictor service. The team tried to minimize the use of prognosticators in the protocol by designing "priceless" contracts, as they believe prognosticators are the biggest problem facing DeFi today. These contracts are designed to encourage appropriate behaviour by implementing mechanisms that incentivise counterparties to appropriately pledge their positions when they enter into or deploy UMA contracts.

UMA makes almost any asset available as collateral, and you can use aDAI as collateral to mint synthetic tokens that "represent the price of gold". A synthetic token can then be created that not only tracks the price of gold, but also generates 10% interest per year through the locked aDAI.

When contract interactions are disputed, UMA token holders are responsible for voting on price requests through the Data Validation mechanism (DVM). Participants who vote correctly on a given dispute will currently receive a pro-rata inflation bonus of 0.05% of the total supply of the network.

The biggest difference between Synthetix and UMA is that Synthetix uses its SNX tokens as collateral to create synthetic assets, and UMA can theoretically use almost any cryptocurrency as collateral.

UMA is a truly unique DeFi project with unimaginable potential. In this respect, it is in the same league as Ampleforth. UMA also returned 100x to those early investors, and it seems that despite these impressive returns, UMA is still relatively unknown.

Smart contract risk: Smart contract vulnerabilities are completely possible to be exploited, synthetic assets are the key target of attack. Governance risk: Most platforms are governed by centralized participants and are relatively unproven at scale. Predictor risk: Many synthetic assets rely on predictor to function properly, which brings with it their own trust assumptions and failure modes. Platform risk: Other underlying blockchains, such as Ethereum, have a capacity problem, and the more efficiency is needed, the busier the network, the worse the situation. Fee markets are inefficient, and front-running or griefing attacks can be a problem.

The UMA platform theoretically allows anyone to create financial contracts on it, and projects are promising. However, the platform itself lacks an incentive system, and it is possible to build a complete derivative ecosystem after it starts the developer mining activity in November 2020 and plans to encourage developers to create derivative contracts on it for a long time. At present, the project is mainly dominated by the official team, and the community governance is insufficient. In the early stage, tokens are allocated to users only a few, and the team and investors account for 48.5% of tokens, and there may be some selling pressure in the later stage. The synthetic asset track is promising, and UMA as a head player deserves a long-term layout.