Universal Market Access (UMA) is a DeFi protocol created in 2018 by former Goldman Sachs employees Allison Lu and Hart Lamburt.
The protocol seeks to decentralize financial market access to retail investors and traders.
UMA tokens are ERC-20 tokens minted on the popular Ethereum smart contract platform.
These tokens serve two purposes on the UMA platform: enable token holders to participate in the protocol’s governance and as an economic incentive to facilitate fair price discovery and efficient contract execution amongst all parties involved.
This guide will focus on UMA token staking, how to do it, where to buy these tokens, and whether the protocol is truly decentralized. Read on to discover more.
Can you stake UMA?
Yes, you can stake UMA tokens, and you can do so profitably. UMA is considered an inflationary token because those who stake it have a chance of getting rewarded with new tokens at the rate of 0.05% of the total circulating supply.
Unlike several blockchain networks that also use staking as a consensus mechanism, UMA is not an independent protocol but instead inherits consensus from its host blockchain network Ethereum.
However, even though UMA is not independent, its protocol tries to work independently by providing the necessary incentives to market participants allowing them to stake their tokens as an economic incentive for all participants.
Staking on UMA may differ a little from the conventional sense of holding your tokens in a wallet and validating transactions.
On UMA, tokens can be used by various parties who wish to perform different roles in a typical contract execution process.
The different parties include token sponsors, price proposers, disputers, token holders, and contract liquidators.
All five participants in these roles have to stake UMA tokens to ensure that they are adequately incentivized to avoid malicious activities.
In the case of the proposers, disputers, and liquidators, their stakes are called bonds, whereby it is possible to lose their tokens if they have acted maliciously or lost the voting round through the Data Verification Mechanism (DVM).
Is UMA decentralized?
Yes, UMA can be considered decentralized as a blockchain protocol. If we consider the definition of decentralization which is the transfer of control from a central party to multivariate parties, then UMA is designed to be decentralized.
The protocol is dependent on five multi-variate parties with effective economic incentives to check their behavior and ensure the network works as expected.
Token sponsors are the counterparties to a contract, and they define the terms of their agreement.
A price proposer can be any party willing to stake their tokens to participate in the price discovery of the value of a contract. They often respond to a price inquiry from the token sponsors.
Disputers are tasked with checking the price proposed to make sure that it is accurate, and their task is to approve or disapprove the proposal. Anyone can be a disputer as long as they choose to stake their tokens.
Next are the contract liquidators who are tasked with liquidating a contract whose margin requirements have been violated.
The liquidators constantly hunt for contracts to liquidate to get a reward for their services. Just like the other parties, anyone can also become a liquidator. Their services are essential to ensure that contacts run as expected.
Finally, the last party that is essential to the UMA protocol is the token holder. UMA token holders are tasked with voting on prices of synthetic assets in liquidation disputes through the DVM mechanism.
Any dispute that goes to the DVM is resolved through voting by the token holders, who also have to stake their assets to participate.
The winning side of the vote, which includes the sponsors, liquidators/disputers, price proposers, and token holders, gets rewarded with the tokens from the losing side.
The interaction of all these parties and entities within the UMA ecosystem ensures that there is no single entity in control of the decision-making process and everyone has a role to play when it comes to the protocol’s governance and dispute resolution.
How to stake UMA?
UMA staking is available to the public. Anyone interested in participating shall be required to participate in one of the contract facilitation processes: price proposals, price disputes, contract liquidations or liquidation disputes, and dispute resolution voting.
The simplest and most accessible form of staking for most token holders would be the last option reserved for the token holders.
In this process, the data verification mechanism (DVM) will request votes from token holders to weigh in on a dispute involving a price proposer and a disputer or a liquidator and a disputer.
Token holders wishing to participate in the dispute resolution process will connect their wallet to the UMA Voter dApp through which they can cast their votes and claim any resultant rewards if available.
Here’s a quick guide on how to stake and vote on the UMA protocol:
Step 1 – Visit the UMA Voter dApp webpage at http://vote.umaproject.org/ and click on the [Connect Wallet] button.
The Voter dApp will scan your browser for available web wallets and prompt you to choose whichever wallet with which you want to vote.
Step 2 – Select your preferred wallet.
UMA will load a pop-up screen listing all your available wallets installed on your browser in the wallet selection step. Select your preferred choice.
Step 3 – Connect your wallet to the dApp.
Once you select a wallet from the previous step, the dApp will send a connection request to your wallet, which should pop up on your screen.
If you have several accounts on your wallet (such as Metamask, which allows you to create multiple accounts), select your preferred account.
Make sure it has some UMA tokens in the wallet before voting and click [Sign] to authorize the connection request.
You will see your wallet account listed on the voting page once you complete the connection process.
If your account does not have any UMA tokens, buy some and load them onto your wallet before you start voting or before revealing your commit.
The following section will list some popular platforms that allow users to buy and sell UMA tokens. You might want to check that to get some UMA to enable you to stake.
Step 4 – Commit to a vote.
The voting process lasts 24 hours, while the reveal period, which comes next, takes another 24 hours for a total of 48 hours.
At this stage, you can scroll through the available disputes or governance proposals (called UMIP or Universal Market Improvement Proposals) and choose whichever you wish to vote on, and cast your vote.
Click on the [Current Vote] tab to see the voting options. After selecting an option, click on the [Commit Vote] button.
Step 5 – Submit your committed votes.
Depending on the number of available disputes or governance proposals to vote on, you may have multiple votes that you have committed to, and at this stage, you are required to submit them before the 24 hours of submitting each commit lapses.
- You will need to reveal your votes later during the ‘Reveal’ period for them to be counted.
- Ensure you only use a wallet with enough UMA tokens through which you wish to stake because the UMA DVM takes a snapshot of the tokens at the start of the ‘Reveal’ period. The number of tokens you have staked will be used to determine how much of a reward you will get if your vote is part of the winning pool of votes.
- Remember to claim your reward after the voting exercise, typically once the 48-hour period has ended, and the DVM has determined the winning side.
Where can you buy and sell UMA?
UMA is a rather popular ERC-20 token that is available on some of the leading trading platforms. If you need to buy some tokens to stake or sell some of your rewards to cash out, here are some venues that allow you to buy and sell UMA tokens:
These are just some of the more popular places to get UMA; you can find tens more options if you search for them online but always consider the reputation of the platform and the fees involved in swapping or buying and selling tokens.
Other coins to stake
Staking is growing more popular as notable projects embrace it as a form of consensus over the more established Proof of Work (PoW) mining.
It is less resource-intensive, supports faster network speeds, and enables more decentralization compared to mining.
Even Ethereum, the leading smart contract platform and the second-largest blockchain network is switching to staking with the ongoing transition.
There are several alternatives to consider for staking over UMA if you wish for a more passive experience of participating in blockchain governance. Here are some of those alternatives that are highly recommended:
- Ethereum 2.0 (ETH2) – 5.2% APY rewards
- Solana (SOL) – ~7% APY rewards
- Cardano (ADA) – ~5.8% APY rewards
- Polkadot (DOT) – ~13.7% APY rewards
- Avalanche (AVAX) – ~9.9% APY rewards
With the growing popularity of decentralized finance (DeFi), UMA is among the few crypto projects heralding the technology towards mainstream adoption.
The project has several benefits and a lot to offer.
Unlike several projects that claim decentralization but are often centralized, UMA tries and succeeds in implementing the highly elusive blockchain quality.
Hopefully, after reading this guide, you will consider getting some UMA tokens and participating in the protocol’s governance.
It is a great way to help develop and mature the project and earn rewards while you are doing it.