Why we chose to build on UMA
Before we can delve into why we chose to build on UMA, it makes sense to rewind and think about why we got into blockchain and crypto in the first place. Most of us had grown frustrated with decision making regarding worldwide monetary policies and were looking for a hedge against the inevitable collapse of fiat currencies. Decentralization fascinated us because we no longer had to trust a handful of bozos with our money and crypto inevitably enabled a much more open and global economy.
Bitcoin was a great first step paving the way as decentralized, permissionless money. Enter Ethereum, translating Bitcoin’s same promise to the world of applications. Excitement peaked in 2017 with the ICO boom but it wasn’t perfect. It was littered with unregulated securities offerings, pump-and-dumps and scam projects raising millions of dollars. Nonetheless, it was a powerful demonstration. Anyone, anywhere can capture value thanks to blockchain technology. It was a glimpse into what our world would look like with universal market access.
UMA is an open-source protocol that allows any two counterparties to design and create their own financial contracts. But unlike traditional derivatives, UMA contracts are secured with economic incentives alone, making them self-enforcing and universally accessible.
Two things in particular really excited us about UMA. Their unique approach to solving the oracle problem completely flipped the existing solutions upside down. As opposed to adopting a push model, which requires gas fees and further congests Ethereum, UMA opted for a pull model, which only utilizes an oracle upon expiration or when a position is liquidated or disputed. This is not only a net positive for the Ethereum network itself, but also presents financial opportunities within the UMA ecosystem by encouraging the community to run liquidation and dispute bots.
And although it can be said that the $UMA token distribution did not necessarily qualify as a “fair launch”, we believe they decentralized and democratized something much more valuable: the direction of the project. From the get go, the UMA team delegated two core protocol considerations to their community: currencies eligible to be used as collateral and the price feeds which make up the UMA oracle. As proposals from builders in the ecosystem are pushed forward, $UMA holders vote to approve each and every collateralizable currency as well as price feed.
This decentralized decision making process is a foundational building block of what we believe will become the crux of DeFi in the coming years. Many crypto purists believe that eventually everything will be tokenized. UMA is paving the way to make this vision a reality and we’re honored to accompany them this early on in the journey.