— UMA (@UMAprotocol) April 29, 2020
Seeing as this offering was the first of its kind, we wanted to fill our readers in on what happened, along with the thrilling rollercoaster ride that unveiled along the way.
What is UMA?
UMA is a platform to create synthetic assets in a permissionless fashion. In short, anyone can create a token pegged to an underlying data point so long as that data point is reliable and that token is sufficiently overcollateralized using ERC20 tokens like ETH, DAI and USDC.
To paint a clear picture, someone could use UMA to create a token that reacts to DeFi’s TVL – effectively allowing some to go long or short on Total Value Locked over a fixed period of time.
Furthermore, UMA allows for the creation of priceless synthetic assets – or those which mitigate oracle risk by either being sufficiently collateralized or not. More on priceless synthetic tokens can be read here.
1/ Today we’re sharing a new DeFi financial contract designed to *minimize* oracle usage. This design allows for:
1. Priceless (no on-chain price feed!) ❌🔮
2. Multi-sponsor (pooled risk!) 🏊♂️🏊♀️
3. Synthetic tokens
More in thread 👇https://t.co/TrwRszPCNY
— UMA (@UMAprotocol) March 25, 2020
Today, we saw the mainnet launch of the UMA Voting Token – a governance token that grants stakeholders the right to dictate important aspects of the platform including the types of contracts that can access the system, supported assets, key system parameters, and upgrades. Similarly, UMA can be used to resolve contract disputes that can arise from the priceless synthetic system.
Perhaps most important is the clear statement from the original article stating that “(UMA) tokens are not an investment opportunity.”
Here’s where things get interesting…
Initial Uniswap Listing
Just a few hours ago, UMA kicked off their Initial Uniswap Offering in which 2% of the total supply was being sold to the public – starting at the rate seed investors participated at of $0.267/UMA.
However, many were quick to note that the price of UMA is actually sold on a bonding curve, meaning there are very strong means for price appreciation in a short matter of time. Matteo Leibowitz – a research analyst at the Block, pointed this out perfectly with the following chart.
just to clear up some misconceptions…
yes, @UMAprotocol *listing* price = seed round price. but, token also being sold on a curve
$30k UMA purchase, buyers paying 10% premium
$56k = $20% premium
$237k = 77.% premium
$513k = 156% premium
$1m = 300% premium pic.twitter.com/mTNbCkxi8L
— Matteo Leibowitz (@teo_leibowitz) April 29, 2020
What happened next went to demonstrate this principle in spades.
Within 5 minutes of the start of the sale, the price of UMA spiked from $0.267 to over $2 – representing a 10x gain. As people tried to FOMO in, the price of UMA shifted drastically, increasing by as much as 10-25% percentage every minute.
Seeing as this was the first sale of this nature to be hosted on Uniswap, the sector leading DEX had it’s UI put to the test when it came to dealing with such high amounts of volume in rapid succession.
In practice, users needed to submit a transaction that accepted high slippage in tandem with exorbitant gas fees to get into the curve. This was definitely counter-intuitive as Uniswap directly warns against these types of transactions, however, those who did not do so had their transaction fail due to the rapid change of token price. To see this firsthand, check out this nifty tool offered by Zerion to easily visualize the transactions submitted to the offering.
From what I've seen, $UMA traded to ~$2 and then sold off to the ~$1.40 range, which makes its fully diluted netval $140M & circulating netval ~$70M.
In the context of comparables on CMC, this is about what you'd expect & whales that jumped on it to $2 are now out of the $.
— Chris Burniske (@cburniske) April 29, 2020
Even at the time of writing, UMA has soared to the top of the DeFi Market Cap chart – showing that this sale was receiving an insane amount of demand from DeFi power users.
The New ICO?
If anything, this sale was an excellent example of the power of decentralized exchanges like Uniswap. While there is obviously much to learn from a sale of this nature, it’s clear that permissionless DEX offerings largely resemble the global accessibility many touted as one of the main benefits of the ICO boom of 2017.
Prediction: The ICO is back.
In the form of the sufficiently decentralized Initial Dex Offering.
— Jake Brukhman (@jbrukh) April 29, 2020
From an issuers standpoint, being able to leverage trusted smart contracts from a project like Unsiwap offers vastly more confidence that tokens will be exchanges as intended, rather than having to build out a custom tokensale from scratch.
As a tokenholder, the fact that UMA is now trading on the open market and enjoying a period of price discovery in an entirely non-custodial manner is quite fascinating.
In the coming weeks, it’ll be extremely interesting to see how the market reacts to the sale, and if others decide to follow suit.
If one thing is for sure, we’re strong supports of UMA and applaud them for taking the initiative to test out such a novel mechanism of introducing decentralized governance through a native token.
To say up on all things UMA, follow their official Twitter.
Cooper is the Editor of DeFi Rate and an active contributor to leading DeFi media outlets like The Defiant, DeFi Pulse, and Bankless. He works with early-stage teams through Fire Eyes DAO to incubate governance models and grassroots community development. He is an ambassador to Set Protocol and an author of a weekly publication called Token Tuesdays. To stay up with Cooper, follow him on Twitter.