UMA Protocol, an Ethereum-based platform for issuing and trading synthetic assets, is launching a token sale via a decentralized exchange, the first time this fundraising mechanism has been attempted.
The derivatives protocol will deposit 2% of its token supply along with ~$535k in ETH into Uniswap available for the public to purchase. The sale, known as an “Initial Uniswap Offering” will officially begin at 15:00 UTC on Wednesday, April 28th.
With the launch of UMA’s Initial Uniswap Offering, we’re seeing the emergence of a new liquidity framework for privately funded DeFi projects. By using a permissionless liquidity protocol like Uniswap, projects can allocate a portion of their raise to bootstrap liquidity and anyone can participate in the sale. This helps projects distribute tokens to their community members. The only thing required for launching a new token on Uniswap is the capital to back it.
With 100M UMA in total supply, the initial offering will value UMA at $0.26 per token with a diluted market cap of ~$26.67M –– UMA, short for Universal Market Access, is living up to its name with the low price point. As noted by Placeholder Partner and UMA investor, Chris Burniske, the offering is priced at the same valuation given to seed investors.
UMA tokens will be allocated as follows:
- Initial Uniswap Listing: 2,000,000 (2.0%)
- Future Token Sales: 14,500,000 (14.5%)
- Developers and Users: 35,000,000 (35.0%)
- Founders, Early Contributors, and Investors: 48,500,000 (48.5%)
UMA token utility falls into three main buckets:
- Governance: Users can earn inflationary rewards by participating in governance
- Disputes: Tokens are used to properly incentivize price requests during disputes
- Burns: All financial contracts using UMA pay a tax that’s used to buy and then burn the token, driving value to UMA and scaling economic guarantees as protocol activity increases
As for the Initial Uniswap Offering, it’ll be interesting to see what other prominent projects adopt this liquidity framework for bootstrapping their token in the future.
For anyone interested in participating in the UMA sale, you can purchase tokens by adding this contract address into Uniswap starting at 15:00 UTC on Wednesday, April 28th.
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.
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.
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.
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.
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.
Legal Note: UMA tokens are not investments or investment contracts, nor should they be construed as such. Rather, UMA protocol tokens are a means of participating in a community-owned, -operated and -governed network protocol. Because the success of the protocol described in this post depends on the efforts of a disparate group of actors, the products and services described herein involve substantial risk. Materials published by Risk Labs do not constitute the provision of advisory services regarding investment, tax, legal, financial, accounting, consulting or any other related services, nor are they a recommendation being provided to buy, sell or purchase any product or service. Further, materials published by Risk Labs reflect the information available as of the time of publishing and are subject to change at any time without notice. Risk Labs will not be liable for any direct or consequential loss arising out of the use of this material or its contents.
Bancor, which raised $150 million during the ICO craze, was founded to make it easy to trade even illiquid ethereum tokens. That’s the same mission as Uniswap, which launched in November and is funded solely by a $100,000 grant from the non-profit Ethereum Foundation.
Yet, despite the fact that Bancor has been live for over a year, and that it has more resources, new data from blockchain analytics firm Blocklytics reveals the two protocols are now locked in a tight competition to programmatically facilitate ethereum trades.
Uniswap is a protocol for automated token exchange on Ethereum. It is designed around ease-of-use, gas efficiency, censorship resistance, and zero rent extraction. It is useful for traders and functions particularily well as a component of other smart contracts which require guaranteed on-chain liquidity.
Most exchanges maintain an order book and facilitate matches between buyers and sellers. Uniswap smart contracts hold liquidity reserves of various tokens, and trades are executed directly against these reserves. Prices are set automatically using the constant product (
x*y=k) market maker mechanism, which keeps overall reserves in relative equilibrium. Reserves are pooled between a network of liquidity providers who supply the system with tokens in exchange for a proportional share of transaction fees.
An important feature of Uniswap is the utilization of a factory/registry contract that deploys a separate exchange contract for each ERC20 token. These exchange contracts each hold a reserve of ETH and their associated ERC20. This allows trades between the two based on relative supply. Exchange contracts are linked through the registry, allowing for direct ERC20 to ERC20 trades between any tokens using ETH as an itermediary.
The full source code is available on GitHub.
The more interesting discussion is obviously in a light larger than just Uniswap. If we want free, open source, low-level platforms to be sustainable, they need money. However, if there is a fear of these open source platforms being forked and that fear prevents monetization, what do we do? This is the age-old public goods conversation but looking at it specifically with a highly used, muched lived, much relied upon platform like Uniswap makes it all the more real.
What do you think free, open source platforms should do? How should they take their desire for a sustainable life or business and put against the reality that people don't want to pay fees?
Anyone can start earning trading fees on exchange platforms like Uniswap today by being a liquidity provider. Pools fully distribute trading fees to liquidity providers.