UMA DeFi Metric Derivatives

UMA Derivatives

UMA Overview:
General Explainer of Synth process: https://docs.umaproject.org/synthetic-tokens/explainer
In short, UMA provides permissionless infrastructure for the creation of synthetic tokens with customizable logic and functionality.

Onchain Metric Derivatives:
Currently the only way to speculate on the performance of DeFi protocols is to invest in the various tokens of the underlying platform. While in the long run, it is likely that the price of a protocol’s token is correlated with its onchain fundamentals, there are a multitude of factors that can impact a token’s price. On-chain metric derivatives offer an opportunity to speculate directly on DeFi’s usage, rather than token price.

Feedback from degens in the space has confirmed the desire for these types of products, which currently do not exist in the market. Yam has an opportunity to work with a top protocol and team at Uma while offering a novel product suite filling a real market need. Additionally, this product would have monetization directly built into the product through UMA’s developer mining rewards and utilize their existing audited financial contracts, lowering development time and resources.

The below links provide an overview of the Synthetic Token creation process –– each step is already clearly defined and actionable.

The first offering by Yam will be a 1-Month Median Gas Price future, which will resolve to the median gas price for the month-long period multiplied by 1,000,000 (to make it resolve to around .01-.05 ETH)

The UMA team has launched the uGas-JAN21 contract, and we are in discussions to take over the contracts for FEB21 and into the future. You can read about the uGas token here: https://medium.com/uma-project/ulabs-gas-futures-token-9f51682778dd

Relevant Price Identifier UMIPs below:
Initial Spec: https://github.com/UMAprotocol/UMIPs/blob/master/UMIPs/umip-16.md

Adding 1M Multiplier: https://github.com/UMAprotocol/UMIPs/blob/master/UMIPs/umip-20.md

Adding TWAP pricing prior to expiry: https://github.com/UMAprotocol/UMIPs/pull/81/files

Viewing the below process, steps for Yam to launch the gas future contract include:

  • Getting liquidation and dispute bots up and running
  • Building a Front End Interface
  • Determining Liquidity and Developer Mining structure
    • UMA currently distributing 50k UMA per week, with $20M of synthetics currently minted. UMA’s programs thus far have indicated that 1.2k UMA rewards will generate about $1M in liquidity as a very conservative estimate. With current synths totalling $20M, for each $1M in liquidity minted in Yam’s contracts, Yam will receive approximately 2k UMA, meaning we could bootstrap strong liquidity while keeping 40% of UMA rewards for the DAO. At $5M minted value, this would be 6k UMA to LPs and 4k UMA to the DAO, which at current prices would be $32k in value per week, $1.6M annualized.
    • This would largely be a temporary measure. In the long run, we can build fees directly into the financial contracts to monetize in a more sustainable manner.

Development Process:

UMIP: https://docs.umaproject.org/governance/adding-price-id#adding-a-price-identifier-to-the-kovan-testnet

Financial Contracts:

Liquidation + Dispute Bots: https://docs.umaproject.org/tutorials/bots

Front End Interface for Minting and Trading:

Liquidity and Developer Incentives: https://medium.com/@claytonroche/uma-announces-developer-mining-6f6fe15d5604

Dapp mining tagging: https://github.com/UMAprotocol/protocol/pull/2074/commits/5f24840b4df9c052d8f6456684215af50892ccca

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