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UMA – Transforming the derivatives market

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UMA also known as Universal Market Access is considered an important agent in the mission towards an open financial ecosystem with its unique offering. Financial derivatives are – as the name suggests – derived from an asset’s value, say its price. They are an integral part of the financial ecosystem. For example, futures have a huge market but derivatives also intimidate some investors as they can be opaque and risky. Another issue with traditional derivatives is their susceptibility to financial crises. The global financial crisis was triggered by derivatives – subprime mortgages. UMA’s mission is to make derivates accessible and increase transparency in the derivate market. 

What is UMA? 

UMA is a protocol based on the blockchain of Ethereum. UMA offers the creation, collateralization and trading of financial derivatives for anyone using Ethereum. By utilizing the blockchain technology, it drastically increases the transparency as the major selling point of the blockchain technology is its decentralization and transparency. 

UMA automates the process of tokenization of derivative by employing Ethereum’s smart contracts. Smart contracts are essentially programs which cannot be altered. This technology eliminates the problem of debt default and non-payments. It also eliminates the complexities involved with centralized intermediaries like brokers. Anyone can create a tokenized derivative using UMA which can be traded on decentralized exchanges in the blockchain market. 

To ensure the security of tokenized derivatives, UMA utilizes over-collateralization as most lending and borrowing protocols do in the blockchain industry. By over-collateralization, the network ensures debt repayment in case the value of a digital asset falls. The balance also has to be maintained if users want to avoid liquidation. 

One of the aims of the network is to make derivatives accessible. For this reason, the process of tokenization has been simplified as much as possible by UMA. In order to create a token, users must deposit collateral in ETH, DAI or any other acceptable asset. Afterwards, contract details have to be filled like expiration and then the tokens can be minted. 

Future outlook

The cryptocurrency has shown phenomenal performance in the current year. UMA. Started off the year with a price level of $1 and is currently trading hands at $11. The all-time high was established by the cryptocurrency at a price level of $43 during the height of the bull run. In the daily timeframe, UMA is moving upwards. The price of the coin has increased by 10% in the past day while the daily trading volume has increased by 50%. 

According to predictions, the cryptocurrency is expected to cross its ATH in five years’ time. The current performance of the cryptocurrency with strong fundamentals also suggests the uptrend in the long-term window. 

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