UMA: Decentralized Financial Contracts

UMA stands for universal market access, and UMA’s co-founder Hart Lambur, along with the rest of the team, wanted a name that reflected their bigger vision and what they’re trying to do, which is create universal market access for financial products.

##A decentralized financial contracts platform

UMA is a decentralized financial contracts platform that believes financial markets should be universally accessible. UMA is designed to power the financial innovations made possible by permissionless, public blockchains like Ethereum.

They just launched their first product, USStocks, an S&P 500 tracking token, which is being traded and listed on a decentralized exchange, DDEX.

This product is not accessible to people in the US, nor is it marketable to them. It’s for users without access to the US equity markets, but who want exposure to the broader S&P.

It’s designed as an ERC20 token that will, behind the scenes, track the S&P 500 performance. You buy it on an exchange, you own it, and you get that performance. There’s no dApp you need to interface with, nothing you need to do, you just get this asset exposure.

##Synthetic derivative

The underlying concept of UMA is a synthetic derivative. A classic synthetic derivative in the fiat world is effectively a legal agreement between two counterparties.

For example, you might want to go long the S&P 500 and I might want to go short it, and so we enter into a legal agreement where I pay you the upside and you pay me the downside, and we settle up in a year’s time.

This is a useful financial innovation because it lets the two parties trade the S&P 500 synthetically, with nothing more than this legal agreement.

But classic synthetic derivatives aren’t a globally accessible option; you would have to be very wealthy or an institution to have access to this type of over-the-counter derivative.

UMA has taken this concept and embedded it into this token structure to make it globally accessible.

##An important infrastructure layer

UMA is an important piece of infrastructure. The products they want to see created in the short term would look like an S&P 500 token that’s long, an inverse token—one that lets you bet on the stock market going down—and leveraged versions of that.

They’d like to see the same thing exist for all the other major market indices, like NASDAQ, FTSE 100, different countries’ exchanges, gold and oil, and any other real world assets that people show demand for.

UMA can also use the exact same infrastructure and do the same thing with crypto products, such as Bitcoin and all the other major crypto coins, so these are the initial products they’d like to see get to market quickly.

Key takeaways:

UMA is a decentralized financial contracts platform, built to enable Universal Market Access, hence the name;
Synthetic assets are incredibly important for the evolution of open finance, because they make financial markets more accessible. Now anyone in - the world can be exposed to the US stock market. That’s profound for citizens of developing countries;
UMA is the infrastructure layer that will allow anyone to both create and trade synthetic assets. It will be exciting to see what people create now that you can trustlessly tokenize long, short, or leveraged exposure to real world assets.