A new collaboration has been cemented between Injective and UMA to launch innovative synthetic products.
By integrating with Injective’s decentralized derivatives exchange, synthetic assets on UMA can be made available to users moving forward. Notable synthetics that will be introduced include uGas, a solution for hedging against Ethereum gas fees. In addition, the plan is to integrate an ETH/BTC index which would provide an avenue for traders to attain a token that tracks the ETH/BTC price ratio.
A second key point of the collaboration with UMA will focus on an integration with UMA’s Optimistic Oracle which is custom-built to support synthetic asset collateralization.
Background: UMA and Synthetics
Founded in 2018 by two ex-Goldman Sachs traders, UMA is a decentralized financial contracts platform designed to facilitate Universal Market Access (UMA). UMA is backed by industry titans like Placeholder, Two Sigma, Coinbase Ventures, Bain Capital, and Blockchain Capital.
In essence, UMA enables DeFi developers to build synthetic assets which act as collateral-backed tokens whose value fluctuates depending on the tokens’ reference index. UMA allows counterparties to digitize and automate any real-world financial derivatives, such as futures, contracts for differences (CFDs) or total return swaps. It also enables the creation of self-fulfilling derivative contracts based on digital assets, like other cryptocurrencies.
Synthetics on Injective
Although synthetic assets have become popularized in the crypto universe, they largely remain out of reach given the complexity and exorbitant fees associated with synthetics. This is why Injective contributors have built a truly novel decentralized derivatives exchange protocol that is able to circumvent a number of these salient issues. Injective features not only an intuitive user interface but also an exchange protocol that has zero gas fees.
This collaboration with UMA will center on bringing newfound access to synthetic products for masses across the globe. UMA has created a number of new synthetics that are useful for both novice and sophisticated traders. This article will focus on two particular assets in order to showcase their potential utilization within the Injective ecosystem.
uGAS: Synthetic Gas Futures
Below is a deeper explanation of uGas, which serves as a synthetic gas futures token.
Anyone who has interacted with Ethereum based assets or dApps can attest to coming across gas fees. Gas prices can vary substantially during peak usage periods with can negatively impact users especially those who may be dealing with small sums of money.
On Injective users will never have to face gas fees since the layer-2 exchange structure is devoid of any and all gas fees. uGAS is a DeFi-first in that it provides a futures contract that can be easily bought and sold to hedge against future gas price fluctuations. By providing Injective users access to uGAS, they will be able to hedge against gas fees they might face on other dApps within the Ethereum ecosystem.
“We’ve known the Injective team since the early days of their journey, and we’re beyond excited to bring UMA synthetics to the Injective platform. uGAS is just one example of the sort of innovative synthetic assets we intend to make accessible to Injective users. The future will be wild,” said Hart Lambur, UMA CEO.
ETH/BTC: Priceless Synthetic Token
ETH/BTC will act as a new synthetic token that is designed to track the ETH/BTC price ratio. If ETH outperforms BTC the token value will go up; if ETH underperforms, the token value will decrease.
Generally, the only way for traders to gain exposure to ETH/BTC would be through swapping ETH for BTC or vice versa. The ETH/BTC synthetic token allows users to trade ETH/BTC without needing to take on any underlying ETH or BTC exposure.
Interestingly, the ETH/BTC token is priceless which means that the token’s value is allowed to fluctuate without requiring any sort of on-chain price feed to determine if the contract is correctly collateralized. The priceless design minimizes oracle usage by only using an oracle to resolve disputed liquidations, which are designed to be very rare.
The priceless design is made possible by UMA’s Optimistic Oracle which will be further explored in the following section.
Injective Data Alliance: UMA’s Optimistic Oracle
UMA has launched an Optimistic Oracle solution that significantly diverges from the normative oracle design parameters.
UMA’s priceless contracts leverage an optimistic oracle known as the Data Verification Mechanism (DVM). The DVM provides the price of an asset at a requested timestamp only when network participants dispute the value of collateral backing a synthetic token. This differs from non-optimistic oracle solutions which constantly write prices on-chain to ensure contracts are properly collateralized. In theory, minimizing oracle usage can help to elevate both the security and the scalability of decentralized financial contracts.
Adding UMA’s Optimistic Oracle to the Injective Data Alliance also helps to further bolster the growing oracle network which already counts the likes of Chainlink and Band Protocol. The optimistic Oracle in particular can be invaluable as the community looks to add new synthetic assets to Injective.
“UMA’s optimistic oracle employs an innovative design for the world of synthetics. Our mission at Injective has always been to provide users with limitless access to DeFi markets, so integrating UMA can help us to get closer to this very goal,” said Eric Chen, CEO of Injective Labs.
Closing Remarks: Bringing Synthetics to the Mainstream
UMA and Injective share a common mission to make financial markets accessible to all. In pursuit of this goal, both communities are working together to bring new synthetic assets such as uGas and ETH/BTC to the masses.
Using Injective’s unparalleled combination of an intuitive user interface and zero gas fees, users can for the first time take part in trading new forms of synthetics that would otherwise have remained out of reach.
UMA, or Universal Market Access, is a protocol for the creation of synthetic assets based on Ethereum. In essence, UMA allows counterparties to digitize and automate any real-world financial derivatives, such as futures, contracts for differences (CFDs) or total return swaps. It also enables the creation of self-fulfilling derivative contracts based on digital assets, like other cryptocurrencies. UMA is backed by industry titans like Placeholder, Two Sigma, Coinbase Ventures, Bain Capital, and Blockchain Capital.
Injective is a custom interoperable layer one protocol for building powerful exchange, DeFi, derivatives & Web3 applications. Injective was created using the Cosmos SDK and is able to achieve instant transaction finality while sustaining lightning fast speeds. INJ is the native deflationary scarce asset that powers the Injective Protocol and its rapidly growing ecosystem. Injective is incubated by Binance and is backed by Pantera Capital.