First Priceless Synthetic Token Built Using UMA is on Mainnet
TL;DR: A Synthetic Token to track ETHBTC—collateralized with DAI—has been built using UMA’s Priceless infrastructure. It is available on Uniswap v2.
At approximately 15:58 UTC today the first ETHBTC synthetic token was created on the Ethereum mainnet. This is the first token to be built using UMA’s priceless synthetic token infrastructure. The token code and contract code have been verified on Etherscan.
The token is currently available on Uniswap v2 🦄.
Warning: this is an experimental, alpha release. Although the code has been audited in detail by OpenZeppelin, this is a decentralized product that no one — including the core development team — can control. The mechanisms behind this design have not been proven in the wild. Users should proceed with extreme caution.
What does this ETHBTC synthetic token do?
This token tracks the ETHBTC price ratio. If ETH outperforms BTC the token value will go up; if ETH underperforms, the token value will decrease. The token expires on 1 August 2020.
Currently 1 ETHBTC token is worth approximately 0.02 DAI on Uniswap. The token is collateralized with DAI and will settle to the ETHBTC value as reported by the UMA DVM on the expiry date of 1 August 2020. For example, if the ETHBTC price ratio is 0.03 at expiry, each token will be redeemable for 0.03 DAI.
Who can create ETHBTC tokens?
The ETHBTC contract is permissionless and accessible to anyone on the Ethereum blockchain. This means anyone can act as a token sponsor and mint new ETHBTC tokens by depositing DAI as collateral. Token sponsors can use UMA’s open source command line tooling to interact with the contract, or they can write their own tooling.
Token sponsors are responsible for maintaining adequate collateralization in the ETHBTC contract to avoid liquidation. A token sponsor who mints and then sells an ETHBTC token is short ETHBTC (they have the opposite economic risk as a ETHBTC token holder). The contract requires an 120% collateralization ratio.
Where can you get ETHBTC tokens?
A liquidity pool for the ETHBTC token has been created on Uniswap v2 🦄.
What is a “priceless” synthetic token?
Synthetic tokens are collateral-backed tokens whose value fluctuates depending on the tokens’ reference index. Priceless synthetic tokens do this 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. More details on the priceless design are available here.
This ETHBTC token is the first DeFi product to use a priceless design on mainnet. It is an experiment to learn if oracle usage can truly be minimized, and to what extent. For example, it is possible that zero oracle calls will be needed at all during the lifetime of this token. We will learn a lot in the coming weeks, and will discuss our results and analysis publicly.
Why is ETHBTC the first synthetic?
ETHBTC was selected by the UMA community as the first test for the priceless synthetic design because it’s DeFi-centric but not too serious. This first token is still experimental, so it feels wise to choose a product that appeals to hardcore DeFi natives — the type of people that might want to bet on ETH outperforming — and who best understand the risks of “new” things. This one is for the nerds.
The token also offers access to a type of risk that wasn’t easily accessible before. Historically, people have traded ETHBTC by swapping ETH for BTC or vice versa. Never before have people been able to trade the value of the index itself. This token allows users to trade ETHBTC without needing to take on any underlying ETH or BTC exposure.
Can this ETHBTC token be shut down?
There are no admin keys or proxy contracts that offer centralized control of this token.
UMA tokens holders can initiate an EmergencyShutdown of token contracts through an on-chain vote if they believe that the token contracts pose a security or economic risk to the system. Once initiated, these votes require at least 48hrs to pass, allowing token contract participants to wind down their positions.
In addition to refining the infrastructure used to create priceless synthetic tokens, the UMA team is working on building perpetual tokens with our friends at Balancer Labs. A preview of that thinking is available here.
Where can I learn more?
Note on UMA tokens: 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.
Note on ETHBTC tokens: The products described in this material are intended for purchase and sale only in jurisdictions where such purchase and sale is permissible under applicable law. These products should not be purchased or sold by any person located or any entity organized in the United States.
Other risks: The products described in this material involve substantial risk and this material should not be the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. This material does not constitute the provision of advisory services regarding investment, tax, legal, financial, accounting, consulting or any other related services, nor is a recommendation being provided to buy, sell or purchase any product. The information provided herein has not been verified and we make no representation or warranty as to its accuracy, completeness or correctness. This information reflects the information available as of the date of this material and is subject to change at any time without notice. Risk Labs will not be liable whatsoever for any direct or consequential loss arising from the use of this material or its contents.