Tldr; There are many costs associated with running DAOs, and governance can take up valuable resources. As oSnap optimizes for efficiency and transparency, it helps DAOs operate in a cost-effective manner.
Key takeaways:
oSnap helps DAOs save on gas costs by using Snapshot’s gasless voting then trustlessly executing the results onchain.
oSnap removes the need for multisigs to initiate governance transactions, allowing treasury payments and contract deployments to be made much faster.
oSnap helps DAOs operate smarter and deliver more value for their members.
DAOs offer many advantages over traditional centralized structures, but running them can be challenging. Coordinating at scale while maintaining decentralization is difficult — and often costly. Both DAO members and the organizations themselves can get burdened with these costs.
oSnap, the UMA-powered solution that enables Optimistic Snapshot Execution, helps DAOs lower costs. oSnap uses Snapshot’s gasless voting mechanism with Safe wallets to help DAOs govern themselves without relying on centralized treasury management. It allows DAOs to get governance done efficiently in a trustless manner, something that ultimately makes them more cost-effective.
oSnap helps DAOs maintain trustlessness and efficiency. It also makes DAOs more cost-efficient.
Leveraging Snapshot’s offchain voting
When DAOs need to make a decision, they have a few options. Ideas are typically put forward as proposals, and the best proposals go to a governance vote. In the past, votes would usually happen onchain, which meant community members had to spend gas to participate. Individuals would have to part with their ETH, which increased centralization as it favored wealthier voters. In some cases, DAOs would reimburse individuals for their participation.
Snapshot changed this when it arrived on the scene, and today its offchain voting mechanism helps thousands of DAOs vote on governance decisions without running up exorbitant gas costs. As Snapshot voting is gasless, it allows more DAO members to participate. This means DAO voting can be more democratic and decentralized.
But while Snapshot addresses the gas issue, it doesn’t enable trustless governance. Once the community votes on a proposal offchain, someone still needs to execute the decision onchain. oSnap leverages Snapshot’s offchain voting mechanism and enables trustless execution. This means a community of tokenholders can vote on a proposal without spending their gas, and any community member can execute the proposal once a vote passes.
In short, as oSnap uses Snapshot’s decentralized voting tool with optimistic execution, it offers DAOs savings on gas costs while ensuring transactions get pushed onchain.
Efficient governance = cost-effective governance
One of the greatest challenges DAOs face is getting governance done efficiently. When proposals go to a vote, it often takes time for the vote to pass. Once it passes, DAOs can be subjected to long waiting times for executing transactions. If execution depends on a central team and they don’t happen to check the proposal, weeks may pass before anything happens.
As oSnap enables optimistic governance where any wallet address can initiate transactions once they have been securely validated onchain, it helps DAOs operate faster. With oSnap, there are no central blockers since the solution empowers all community members to take care of governance.
DAOs that operate efficiently are also better positioned to save on costs. Let’s say a DAO member puts forward a proposal to deposit $10 million worth of ETH from the treasury into LSDs to accrue yield. If implemented, this proposal could bring in $800,000 annually. For every day the proposal does not pass and the ETH sits in cold storage, the DAO loses out on potential yield.
oSnap’s efficiency optimization also helps DAOs save on resources. When the community is responsible for governance and execution, the DAO is less dependent on a central team. This frees up bandwidth, meaning the team can focus on building.
With oSnap, team members needn’t even be involved in a governance vote from proposal through to execution. Once oSnap is deployed, the DAO can run autonomously without falling back to a central team.
oSnap doesn’t just make DAOs more efficient — it can also save them money and other resources.
Trustless treasury management
The biggest DAOs may oversee tens or even hundreds of millions of dollars in treasury funds. To distribute funds across multiple locations, some DAOs store a portion of their treasuries with custodian services like Coinbase Prime. This has benefits, but it creates an additional central point of failure.
Let’s say a DAO’s treasury holds $50 million, and the team can access the funds through a multisig. If the DAO decides to store 40% of the treasury with a custodian service, it still has to trust two parties: the multisig controllers with $30 million and the custodian with $20 million.
Custodian services can also be extremely expensive. oSnap enables trustless treasury management, empowering communities to manage treasuries rather than having to rely on central teams or shell out on costly services.
While oSnap can be implemented with a multisig, the community can oversee treasuries without any team intervention once it’s deployed.
By limiting dependence on central points of failure, oSnap removes the need to spend on expensive custody solutions.
Aligning incentives
In theory, if a DAO operates in a decentralized manner, DAO members should always be able to oversee the way funds are used. However, in practice, this is not always the case. Some DAOs do not operate with full transparency, and decisions may get made without going through governance. In some cases, bad proposals can pass and result in misallocation of resources.
oSnap solves these issues. When deploying oSnap, DAOs must submit proposal rules such as the bond amount and liveness period. This makes it more difficult for bad proposals to pass. oSnap also helps DAOs maintain transparency as governance proposals are open and the rules can be verified via UMA’s oracle dApp.
oSnap also helps tokenholders establish alignment and make decisions on how funds should be used. When tokenholders are empowered to take care of DAO governance, they are all incentivized to make economically sound decisions on behalf of the DAO. This is true for all DAOs that adopt a governance structure, but oSnap goes a step further in aligning incentives by making governance trustless.
DAOs that adopt oSnap can create greater transparency and govern themselves efficiently. With oSnap, tokenholders don’t need to trust anyone — it’s up to them to align and allocate resources in the most effective way.
Trustlessness, efficiency, and cost-effectiveness
oSnap is already helping some of Web3’s foremost DAOs get governance done efficiently without foregoing decentralization. But it also offers DAOs a less obvious benefit: greater cost-effectiveness.
oSnap removes expensive gas costs, delays, and fund misallocation. More than a tool for making DAO governance run smoother, it ensures governance runs smarter.
We believe that Optimistic Snapshot Execution can push the DAO ecosystem forward. In the future, we expect many more DAOs to use optimistic governance to make decisions efficiently and trustlessly, and they’ll save money as they’re doing it.
If you’re ready to integrate oSnap into your project or you’re interested in learning more about the solution, reach out via integrations@uma.xyz, say hi via Twitter or Discord, or fill out our partnerships form here.
Tldr; DeFi composability breaks in a multi-chain world, and crypto is yet to find a perfect fix to the cross-chain interoperability problem. However, using intents to emulate atomic execution via third parties could be a solution.
Key takeaways:
As crypto moves towards a world of multiple chains and Layer 2 scaling solutions, DeFi is becoming less composable since every chain has its own state.
Arbitrary Messaging Bridges do not solve the cross-chain interoperability problem because they do not allow atomicity like single chain DeFi does.
Using relayers to commit intents could make execution more atomic for the end user, but there are trade-offs.
Editor’s note: This piece was written as an expanded version of a tweet storm authored by UMA co-founder Hart Lambur. In it, Lambur applies his experience in the traditional finance space to make the case that using third parties to fulfill intents could make multi-chain DeFi more composable. Read the original piece here.
The crypto ecosystem is evolving fast. As DeFi expands and sophisticated MEV bots dominate Ethereum’s dark forest, many folks in the space have begun to embrace a new mental model: intents.
In Ethereum’s early years, users would execute transactions. Whether you were sending ETH to your friend on mainnet, taking out a DAI loan, or trading DeFi tokens on Uniswap, you were always making a transaction.
But as the ecosystem has grown, the way we think about execution has started to change. This is largely thanks to the evolution of DeFi. If you’re borrowing DAI or trading ETH for AAVE, you’re not necessarily making just one transaction. You might take that DAI and swap it for a new token on Layer 2, or there could be an opportunity to get yield on AAVE that makes selling your ETH worthwhile. Thanks to DeFi’s composability, users can stack their activities across “money legos” by generating multiple transactions atomically in one action. Now eight years into Ethereum’s story, the ecosystem has become much more complex.
For multi-step DeFi transactions, users can let the blockchain know what they want to happen, and slippage limits will protect them from overpaying on their order. Though the process is more complex than a simple transfer, the generation can still be thought of as a transaction.
In recent months, a growing number of researchers have begun exploring how intents alter Ethereum’s landscape. Intents slightly differ from transactions. When you submit an intent, you’re not ordering the blockchain to do something. You’re letting it know what you want to achieve once the transaction executes. Put another way, you ask for something to happen rather than telling it what to do. Justin Drake (Ethereum Foundation), Katie Chiou (Archetype VC), and Benjamin Funk (Archetype VC) have explored this conceptin depth in recent months.
To date, intents have mostly been discussed with respect to MEV. But they could also solve one of crypto’s biggest challenges: the cross-chain interoperability problem.
DeFi and the cross-chain interoperability problem
For as long as DeFi has existed, its killer feature has been composability. We first saw evidence of this in the DeFi summer era, when hungry yield farmers would put together complex strategies to maximize returns on their holdings. These strategies involved multiple steps, but they always settled on mainnet.
DeFi composability is what allowed the proverbial 14-year-old kid to take out a $100 million flash loan on Aave, use the funds in a bunch of newer protocols, then pay back the loan and pocket the returns. Similar to the yield farmers, whizz kids like this would typically stay exclusively on mainnet.
That’s because in DeFi’s early years, there was Ethereum mainnet, and that was it. Now, Ethereum is making a shift towards Layer 2 rollups, and other networks have nurtured their own DeFi ecosystems.
In today’s multi-chain environment, DeFi composability starts to break. The yield farmers can’t easily take their yield and deploy it on Layer 2, and there’s no way for the 14-year-old to take out the $100 million loan and then use it on Cosmos or Solana.
When you’re interacting with a single chain, you get atomic execution. But as every chain has a different state, they can’t communicate with each other and preserve composability. If we are going to live in a multi-chain world, DeFi stands to become increasingly fragmented and less composable.
As it stands, the cross-chain interoperability problem is a threat to DeFi composability.
Relayers, rollups, AMBs, and sequencers
As the multi-chain ecosystem has expanded, different solutions have emerged to offer users a way to freely move their assets across multiple networks. Bridges have started to play a crucial role in the ecosystem as new networks have grown, but none of the current options are perfect. Vitalik Buterin and others have been vocal in pointing out bridge security risks in the past.
Across Protocol, a Layer 2 bridge powered by UMA’s optimistic oracle, offers interoperability across EVM-compatible networks. Across beats competing bridges on speed, cost, and security because it uses relayers to bear the bridgers’ risk. Still, you can’t use Across to get onto non-EVM networks, and even bridging from mainnet to Layer 2 involves navigating several steps.
Other projects use Arbitrary Messaging Bridges to communicate between chains. With AMBs, Alice sends a message indicating that she wants to move her tokens. The message gets validated by other parties securing the network, and then Alice can collect her funds on the other side. With LayerZero, for example, an oracle relays the message data and a relayer sends a transaction proof. The message arrives at the destination if the two match, and Alice collects the funds.
While AMBs improve connectivity between blockchains, they do not allow for atomicity. In Alice’s case, the only solution would be to block the state on the origin chain until the destination responds, but that’s clearly not going to work.
As Layer 2 rollups have started to gain pace, shared sequencers have shown promise for aggregating transactions across multiple networks. Shared sequencers can see the history for two chains. So if Bob wants to move his ETH from Arbitrum to Optimism, he can do so with relative ease.
But as James Prestwich explains in this research piece, shared sequencers do not solve the cross-chain interoperability problem. Shared sequencers do not produce a relationship between multiple transactions.
This means that while they can interact with contracts and force transactions like moving ETH or making a withdrawal, they cannot guarantee more complex activities that rely on smart contract interactions, such as swapping tokens, minting NFTs, or taking out loans. Another way of saying this is that they offer atomic inclusion, but not execution.
In short, while shared sequencing increases interoperability, it does not offer us multi-chain composable DeFi.
Using intents to emulate atomicity
Though atomicity starts to break in a cross-chain environment, we can use intents to emulate it so the process feels atomic to the end user.
Let’s say Alice wants to swap 100,000 USDC on Ethereum for ATOM at the best possible price. As the best price for ATOM is on Cosmos, she has to move the funds across networks. This process has significant friction, and atomicity breaks as she moves off mainnet.
Alice’s goal here is to get as much ATOM as possible with as little friction as possible. What if she could do this by specifying her intent?
Instead of telling the blockchain “I’ll give you 100,000 USDC for the maximum amount of ATOM I can get,” she says “I have 100,000 USDC and I’m prepared to give you it for this much ATOM.”
Alice can signal her intent to Bob, who executes the transactions on her behalf. Bob takes on the risk and does most of the heavy lifting — from Alice’s perspective, she just places a request for the amount of ATOM she wants and then waits for the intent to be fulfilled.
In this example, Bob is a third-party actor that executes intents on Alice’s behalf. He can be thought of as a relayer or market maker. Using relayers in this way is exactly how we can emulate atomicity with intents.
Request-for-Quotes and hidden costs
While third-party relayers have not yet been explored to fulfill cross-chain intents, a similar format already exists in single-chain DeFi.
Users often use Request-for-Quotes (“RFQs”) to execute AMM swaps, and it’s a popularly held view that RFQs can benefit swappers. Ambient Finance founder Doug Colkitt penned a tweet storm outlining why this viewpoint is a fallacy, using an example of CEX:DEX arbitrage.
In summary, RFQ providers only have to improve on the AMM’s asset price as of the last block. If the price increases on the CEX, the RFQ provider will not fill the order. The transaction gets routed to the AMM, MEV bots then get into the top of the block and arb the price difference up to the CEX price. If the price decreases on the CEX, the RFQ providers will rush to sell. Any user who routes directly to the AMM will get into the block after MEV bots, who arb the price down to the CEX price. In this example, the user benefits from using the AMM over the RFQ provider.
When MEV bots dominate AMM pools, regular users take on a cost for using RFQ providers. This is worth noting with respect to using relayers to fulfill intents; one possible solution is to ask relayers to bid for the right to execute orders.
A centralization trade-off
There are other trade-offs to consider. An environment that allows relayers to profit from executing intents on behalf of smaller users increases centralization risk, as relayers would need significant capital to take on risk and fulfill every intent they receive.
Perhaps the best example of single-chain DeFi composability is the flash loan. The 14-year-old kid we met earlier can borrow unlimited capital and make a killing in one transaction. But if cross-chain DeFi starts using relayers, that 14-year-old kid won’t likely be able to fulfill intents unless they happen to be sitting on a big pile of ETH.
We go back to a world of finance where only big capital can play the game.
As with CEX:DEX arbitrage today, an intents-based atomic execution system could become dominated by big players, increasing centralization in the ecosystem.
What’s the future of cross-chain composability?
While the multi-chain ecosystem is expanding and scalability is coming on Layer 2, it’s clear that the cross-chain interoperability problem remains unsolved. Embracing intents to enable cross-chain DeFi composability could be the answer.
Across and UMA could have a fitting role in this story. Across relayers effectively fulfill intents on behalf of bridge users, which could be extended into a framework that enables multi-chain DeFi. UMA’s optimistic oracle can also validate intent fulfillments, just as it validates Across’ relayer repayments today.
Throughout 2021 and beyond, crypto evangelists spoke of how the future would be multi-chain. It’s obvious that this thesis is already playing out, but we’re also seeing that the cross-chain interoperability problem is yet to be solved. In a multi-chain world, DeFi becomes less composable. Despite the drawbacks, using intents could bring us closer to a truly composable multi-chain DeFi ecosystem.
Tldr; oSnap is a solution to help DAOs optimistically execute governance proposals. A proposed transaction can be disputed before it gets executed on-chain. oSnap requires proposers and disputers to post bonds, which are used to ensure aligned behavior. This mechanism protects DAOs using oSnap from any invalid transactions going through.
Key takeaways:
oSnap is an UMA-powered solution for DAOs to push the results of gasless Snapshot votes on-chain in a decentralized manner.
DAO tokenholders can submit proposals by posting a bond, and anyone can raise a dispute by posting a bond. Disputes are resolved by $UMA tokenholder vote.
oSnap is secured by game theory, with $UMA tokenholders incentivized to vote accurately.
An intro to oSnap
oSnap is an UMA-powered solution that enables “Optimistic Snapshot Execution.” It uses Snapshot’s voting tool with Safe wallets to help DAOs execute governance proposals in a trustless manner.
When DAOs use oSnap, any tokenholder can execute transactions on-chain once a proposal passes. This removes the need to trust privileged signers.
When a DAO member makes an oSnap proposal, they must post a bond. Similarly, anyone who wants to dispute a proposal must post a bond. UMA’s game theory drives oSnap, as participants in the system are incentivized to act honestly when they make a proposal or dispute. If someone makes a bad proposal, they’ll lose their bond.
How the optimistic oracle secures oSnap
UMA, an optimistic oracle, acts as a decentralized validation machine, allowing for any kind of verifiable data to be recorded on the blockchain. With oSnap, the optimistic oracle verifies proposed transactions to confirm that they have passed a vote on Snapshot. All proposals are subject to a challenge window where anyone can dispute the transaction by posting a bond. In dispute cases, $UMA tokenholders are responsible for deciding who loses their bond: the proposer or the disputer.
oSnap disputes work the same way as other disputes raised in the oracle system. UMA uses game theoretical principles to incentivize honest participation in the system, which ensures dispute cases are rare.
Resolving rare dispute cases
There are several possible outcomes of an oSnap proposal.
Someone may submit a proposal, but the vote doesn’t pass through Snapshot. It could be resubmitted or adjusted, or it could be forgotten about. This happens before any results are asserted to UMA.
Alternatively, someone may submit a proposal, the vote passes through Snapshot, and no one disputes the results. Any DAO tokenholder can then execute the transaction on-chain. The optimistic oracle enables trustless and efficient governance.
And in some rare cases, a proposal may get disputed. UMA’s Data Verification Mechanism takes care of resolving the dispute.
The DVM determines whether the proposer or disputer is correct and rewards the winner. Disputed proposals also get deleted, which prevents attacks on the system.
When using oSnap, the DVM does not make a decision on whether a transaction can be executed — its role is to ascertain whether the proposer or disputer is correct. Because it does this reliably, we have yet to see a spurious transaction submitted to oSnap.
If someone disputes an oSnap proposal within the challenge window, $UMA tokenholders vote on whether the proposer or disputer is correct. Disputed proposals get deleted.
$UMA tokenholders can not directly execute or block on-chain transactions. They vote on whether the disputer’s assertion is true, and their answer determines whether a disputed proposal gets accepted. If accepted, it’s then up to the DAO to act on the proposal.
oSnap is quick and easy to set up. Learn more about it here or fill out our partnerships form if you’re ready to start using Optimistic Snapshot Execution for your project today.
Why oSnap proposers and disputers must post a bond
Just as bonds help protect other UMA-powered projects such as Polymarket, they also play an important role in protecting DAOs that integrate oSnap.
Anyone who wants to submit a proposal through oSnap or dispute a proposal during the challenge window must post a bond. This means that participants in the system have skin in the game. DAO proposers and disputers are incentivized to act honestly, which helps make governance more efficient.
Bonds must be posted in USDC or WETH, and DAOs can choose the collateral when deploying oSnap. The oSnap module sets practical default parameters, including a sufficiently high bond size. This disincentivizes tokenholders from posting bad proposals, and incentivizes disputers to prevent bad proposals from passing (Note: DAOs can make customizations on proposal parameters, but they generally shouldn’t need to).
Anyone can raise a dispute on an oSnap proposal within the challenge period via the oracle dApp. In this example, the disputer must post a 10 WETH bond (Source: UMA)
In UMA’s oracle dApp, anyone can dispute a transaction within a challenge window. This includes all transactions put forward in oSnap proposals.
When transactions get disputed, $UMA tokenholders vote on whether assertions submitted to the oracle are true. Whomever has the correct position is rewarded with a portion of the other’s bond.
How UMA prevents griefing attacks
In the DAO ecosystem, some attackers may choose to submit bad proposals to a DAO or delay on-chain execution of valid proposals to harm or “grief attack” the organization.
When assertions are submitted to UMA, the DVM either accepts the proposal, or it accepts the dispute and deletes the proposal. This prevents attacks as bad actors cannot easily prevent honest proposals or disputes.
As proposers and disputers must post a bond after each transaction gets deleted, it’s difficult to repeatedly conduct attacks on the system.
If a good actor puts forward a valid proposal with a 10 WETH bond, a malicious actor has to post 10 WETH to dispute the proposal. The malicious actor faces losing the bond when the oracle resolves the dispute.
Similarly, if a malicious actor puts forward a bad proposal with a 10 WETH bond, a good actor has to post 10 WETH to dispute the proposal. The malicious actor faces losing the bond when the oracle resolves the dispute. The malicious actor can try to resubmit the proposal once it gets deleted, but it will cost them 10 WETH every time they post it.
A robust oracle for the DAO ecosystem
By leveraging UMA’s optimistic oracle, oSnap is already helping several DAOs that are ready to embrace Optimistic Snapshot Execution. oSnap is ready to welcome other DAOs that want to maintain trustlessness and efficiency. Our goal is to support a vast ecosystem of optimistic DAOs where trustless governance becomes the norm. Based on oSnap’s early progress, we are beginning to move towards this world today.
UMA’s oracle is robust and versatile, and we believe it can accelerate many different areas of Web3. It borrows from game theoretical principles to ensure that participants in the system act as they should, and they get rewarded for their contributions to the system. With oSnap, the proposers and disputers must post bonds to make or dispute a proposal, and $UMA tokenholders get rewarded for voting correctly on disputed proposals. It’s an elegant design that makes optimistic governance work at scale. We’re excited to see its impact on the ecosystem over the years to come.
oSnap is easy to integrate. If you’re interested in joining the oSnap family or you want to learn more about Optimistic Snapshot Execution, get in touch with us here. Alternatively, you can always reach out at integrations@uma.xyz or say hi on Twitter or Discord. We look forward to hearing from you.
Tldr; ETHGlobal lands in Paris for another three-day hackathon from July 21–23, and UMA is sponsoring the event. UMA developers will be on the ground to assist builders and select the best entries for our $10,000 prize donation. Hackers can check our list of survival tips below.
Key takeaways:
The ETHGlobal Paris hackathon is taking place from July 21–23, with UMA donating $10,000 to a prize pool worth $450,000.
Hackers can prepare for the event by following our essential tips.
UMA developers will also be attending the event to help teams build on UMA.
It’s often said that hackathons are the lifeblood of the crypto ecosystem. For almost as long as Ethereum has existed, talented builders have come together around the world to connect with the community, grind out code, and present their ideas to the world.
The Ethereum ecosystem is known for its developer-first culture, and hackathons sit at its core. Many of the ecosystem’s most vital projects came to life during intensive hacking sessions, and hackathons remain the best place to share new projects with like minded builders.
Yet builders often run into the same issues when attending hackathons, or they simply don’t know how to get started. As an early Ethereum project and regular on the hackathon circuit, the UMA team is well positioned to offer a few handy tips.
Ahead of the ETHGlobal Paris hackathon running from July 21–23, we’ve compiled some of our top suggestions in a survival guide for builders. ETHGlobal’s events are regarded as key dates in the Ethereum calendar, and we’re proud to partner with the team once again to sponsor the upcoming event. Builders can get all of the details and prepare with our tips below, then find us on the ground in Paris later this month.
All set for ETHGlobal Paris
ETHGlobal hackathons have always served as a hotbed for innovation in the Ethereum ecosystem, and ETHGlobal Paris should be no different.
Attendees will have the opportunity to connect with a global community of crypto innovators, get feedback from some of the ecosystem’s leading developers, and bring their ideas to life.
As with previous ETHGlobal events, UMA developers will be on the ground in Paris to support builders. UMA core team members will offer guidance to all teams hacking on UMA throughout the event and then select the best entries to receive our prize.
UMA is donating $10,000 in $UMA to a prize pool worth $450,000. Our full prize breakdown is as follows:
First place: $5,000
Second place: $2,000
Pool prize: $3,000
Why build on UMA?
For any major hackathon like ETHGlobal Paris, hackers have an abundance of choice when it comes to selecting a project to build on. Before writing any code, it’s worth researching partnering projects to get a sense of what you want to achieve.
Teams building on UMA will be able to use the OO to support their ideas. UMA acts as a decentralized truth machine for serving data to smart contracts. It can take any verifiable truth about the world and then trustlessly record it on the blockchain. UMA uses game theoretical principles, incentivizing tokenholders to monitor the oracle and dispute false data. Any disputed data gets deleted. As the system ensures disputes are rare, the oracle is “optimistic.”
Get ready to build something amazing
If you’re looking to build on UMA, we’re here to help. Our developers will be ready to offer assistance and answer any questions you have in Paris. Ahead of the event, we’ve also put together a list of tips to help hackers based on our experience at previous hackathons. Use this as a checklist to prepare for hacking and get ready to build something amazing.
Assembling a team — all projects are required to build their teams before hackathons kick off, but the best entries tend to come from versatile teams that gel together nicely. Ideally, you want a group that have worked together previously, with each member bringing a different skill to the table. It’s no use having a group of backend wizards if you completely neglect the frontend work.
Picking a project — while you can’t start writing code before the event, it’s important to do some research, and that includes picking a project to build on. It might be tempting to scope out the biggest bounties, but it makes more sense to go with the projects you understand and genuinely want to build something cool with. To plan for ETHGlobal Paris, you can visit ETHGlobal’s Showcase page to check out previous projects built on UMA. It’s also a good idea to talk to the team you want to build with. The UMA team will be on hand to help builders throughout the event.
Planning your project — before you start to think about hacking, you need to develop a plan for building your project. The first step is to define your problem statement by answering the issue you want to fix. Work out how you’re going to do that and write up a wishlist of features you want to make it happen. Then decide on the projects you’ll leverage and allocate responsibilities to individual features. If possible, make sure every team member is working on a feature they’re passionate about.
Staying on track — three days may sound like a lot of time, but it passes quickly. You should be ready to get to work from day one and be prepared to stay focused through to the final whistle. The more planning you’ve done in the lead-up, the easier this will be. This includes knowing your features and workload — if it turns out that you’re running out of time, cut the wishlist down. Make one team member responsible for overseeing the team’s efficiency, but remember to pace yourselves. Resist the urge to go leveraged long on caffeine, and make sure you’re sleeping and eating properly outside of hacking.
Finishing your submission — we often get excited about ambitious ideas as hackathons start only to find the team has to cut corners and submit an incomplete entry when the event wraps. While the idea of adding a long list of features is nice, it’s better to submit a modest project at completion than an unfinished concept with poor implementation. Plus, remember that your entry does not stop at shipping code. Elect team members with the strongest presentation skills to sell your project to the judges — you want to convince them that this is an idea the world needs. Our team has judged many ETHGlobal hackathon entries and the best almost always include a slick website and presentation.
Most importantly, have fun. It’s easy to get swept up in the competitive nature of hackathons, but above all they’re an opportunity to get together with other hackers, learn, and have the chance to contribute valuable ideas to the ecosystem.
What can you build with UMA?
The flexibility of UMA’s optimistic oracle allows for a wide range of use cases. UMA can verify all kinds of data, so it can support many different kinds of decentralized projects.
Hackathons have long been a place where UMA builders can develop their bright ideas. Recent highlights from ETHGlobal hackathons include Roll a Mate, whose mempool hacking project offers drastically reduced Ethereum transaction fees. The team won a prize from us and also reached the ETHGlobal Waterloo finale.
Roll a Mate uses mempool-based payments to offer extremely low-cost transaction fees on Ethereum. UMA’s optimistic oracle relays data to enable transactions (Source: Roll a Mate)
ETHGlobal Waterloo also saw several pioneering ideas for using the OO to support AI-based LLMs. The event’s standout entry was UMAIA, an optimistic attestation tool for answering queries with the OO verifying the results.
Some of the coolest project submissions we’ve seen have used the OO to offer on-chain insurance. Previous ideas have included flight insurance and natural disaster insurance where the OO verifies whether an event happened and then triggers payouts, but the scope for offering other kinds of cover is limitless.
If you’re looking for fresh ideas to get your creative juices flowing, here are some other possible ways to build on UMA:
An on-chain fantasy league game.
Since the 2021 bull run, the sports industry has started to adopt blockchain at scale. Yet today’s use cases are mostly focused on NFTs and social tokens. Similar to how games like Fantasy Premier League use match statistics to determine winners, an on-chain equivalent could use the OO to verify real-world sports player data and issue rewards to winning gamers. Dynamic NFTs could be used to represent each player.
A platform for trading physical art for NFTs.
The traditional art world and NFT ecosystem are becoming increasingly intertwined. But there’s currently no way for, let’s say, a Banksy collector to securely exchange one of their pieces for a Fidenza. This idea could help fine art collectors enter the NFT space and vice versa by using the OO to verify the price of assets and resolve disputes.
A trading venue for gas futures.
Historically, whenever ETH rises in price, Ethereum becomes more congested. This causes gas clogs, and the price of using the network soars in dollar terms. An on-chain trading venue could let ETH holders make predictions on whether the gas price will rise or fall within a specific time horizon, similar to how call and put options work. ETH bulls could take out call options on fees rising from ETH bears, and the OO could verify the gas cost at expiry. This would allow for a variety of strategies where ETH holders can hedge against rising transaction costs.
À tout à Paris
Hackathons provide a chance to contribute to the future of Web3, and we’re excited to see the ideas that come out of ETHGlobal Paris. We hope that this guide will help inspire the next generation of all-star builders ahead of the event.
If you’ve already got an idea on how to hack with UMA or Across Protocol, visit our developer docs to get started and get in touch with us here. You can also say hi at integrations@uma.xyz, drop us a DM on Twitter, or head to our hackathons channel on Discord. You can also come and find us at the hackathon.
ETHGlobal Paris runs from July 21–23 and winners of the $10,000 UMA prize will be announced over the course of the event. We look forward to checking out your projects soon.
Tldr; Decentralized Autonomous Organizations could change the way humans coordinate forever, but the nascent ecosystem faces many challenges today. oSnap’s trustless governance solution solves some of the biggest ones DAOs need to overcome.
Key takeaways:
While the DAO ecosystem shows huge promise, many DAOs face similar challenges.
Maintaining trustless governance via oSnap offers the DAO ecosystem a robust foundation to build on.
Decentralized Autonomous Organizations are one of the crypto ecosystem’s most promising innovations. In allowing individuals to unite around a common purpose, DAOs could change the way communities, businesses, and other organizations coordinate on a global scale if they reach their potential.
Yet the DAO ecosystem is still in the early stages of development in a burgeoning space. As DAOs navigate the path towards full scale decentralized governance, many of them face similar challenges. Among the biggest are executing voting outcomes on-chain while upholding decentralization, staying efficient, and maintaining security.
oSnap was developed to address these issues. Powered by UMA’s optimistic oracle, oSnap uses Snapshot’s off-chain voting mechanism and Safe wallets to help DAOs execute the outcomes of governance proposals on-chain in a trustless manner. When an oSnap proposal passes, any tokenholder can execute the transaction. This empowers DAO communities and optimizes for decentralization, autonomy, and organization.
A flowchart explaining how oSnap works.
oSnap stands for Optimistic Snapshot Execution. At the solution’s core is UMA’s OO, a Web3 protocol for serving any kind of data to smart contracts. UMA acts as a decentralized truth machine, verifying truths about the world and recording them on the blockchain. The OO powers a variety of different Web3 projects, and its place at the heart of oSnap is already beginning to change the DAO landscape. Learn more about integrating oSnap here and find out how the solution addresses common pain points for DAOs below.
Solving decentralization issues
The key goal for any DAO is to achieve trustless governance around a specific cause, purpose, or set of values; that’s why they’re called “Decentralized” Autonomous Organizations.
While many DAOs have made huge strides towards achieving this goal, staying true to crypto’s decentralized ethos might be the biggest challenge DAOs face. When DAOs need to come to an agreement on a proposal such as allocating $100,000 to a grant program, they typically use Snapshot voting to reach a decision on whether the funds should be spent in a decentralized manner. Yet passing a Snapshot vote does not let DAOs complete on-chain execution. To solve this problem, DAOs often fall back to a central team controlling a multi-sig wallet. This means a handful of individuals may be trusted to manage millions of dollars of treasury funds on behalf of the DAO.
oSnap allows any tokenholder to execute a proposal without relying on a central team. This proposal to send 2.3 million ACX from the Across DAO’s treasury to Risk Labs as a reimbursement was executed on June 2 after the vote reached quorum (Source: Snapshot)
oSnap solves this problem by removing reliance on multi-sigs. Though DAOs can use oSnap alongside multi-sigs today, the solution lets any tokenholder see a proposal through to execution once it passes.
In other words, oSnap champions true decentralization. In the future, we believe it could replace multisigs for DAOs entirely.
Removing inefficiencies and blockers
DAO governance can be slow and messy. Let’s say a tokenholder comes up with an idea to change the DAO’s new NFT collection because the community is unsold on the artwork. They post the proposal on the governance forum and the community spends weeks debating whether it’s a good idea, which causes price fluctuations in the NFT collection. The proposal then goes to a Snapshot vote, but the vote needs repeating after unclear results. The second vote passes, and then the artist is drafted in to revise the work so the team can change the metadata on the original drop. After two months, the collection’s floor price is 40% down, half the community has left, and the original proposal still hasn’t been completed.
In many cases, even after a proposal passes, it can take a long time to execute updates. The team may spend two weeks focusing on other priorities, or a multi-sig co-signer may lose access to the wallet due to illness or a vacation. But when an oSnap proposal passes, there’s no need for the DAO to wait around for a group of individuals to execute the results. Any tokenholder can go ahead and execute the transaction in Snapshot and the results will be pushed on-chain.
While DAOs often face obstacles, using oSnap ensures governance gets done smoothly and efficiently.
Preventing opaque management practices
While on-chain governance should make organizations more transparent in their operations, DAO members are not always able to track activities like treasury fund allocation. When a central group oversees a DAO’s funds, individuals may mishandle funds or make mistakes that impact the entire community.
oSnap helps DAOs operate with full transparency. Every community member sees the governance proposal via Snapshot, and proposal rules appear in language that anyone can read because humans verify the oracle. When the Snapshot vote ends, anyone can see whether the vote reached quorum and raise a dispute within the liveness period. Once the liveness period passes, on-chain execution sits with the community rather than falling back to a central team. The transaction gets executed, and the results appear on-chain where everyone can see them. This process is shown on UMA’s oracle dApp.
Details on all oSnap proposals can be found via UMA’s oracle dApp, and anyone can dispute any proposal within the liveness period (Source: UMA)
Opaque treasury management is one of the most common problems in the DAO ecosystem today. Though the vast majority of DAOs act with honest intentions, tokenholders often miss out on important fund-related updates due to teams taking full control of treasuries. When the community is responsible for treasury management, everyone can track the DAO’s activities and the opacity issue is solved.
oSnap allows DAOs to operate with greater transparency, benefiting all community members.
Eliminating ineffective governance
DAOs make governance open, involving community members in key decision making. This has obvious advantages: it reduces centralization and establishes alignment with crypto’s core principle. However, there are risks to creating an open governance structure. Many DAOs are presented with trivial or harmful proposals that go against the group’s core mission.
In the worst cases, groups of tokenholders may submit a dubious proposal and collude to push through a decision that the majority of the DAO disagrees with due to their superior voting power. Conversely, a DAO may come to an agreement on a proposal and then see a central team use their control to override the decision. A recent controversy involving Aragon and a group of “Risk-Free Value” hunters highlighted some of the problems that can occur with DAO governance. Aragon said in May that it was “repurposing the Aragon DAO” due to a coordinated attack from a group of tokenholders known as the “RFV Raiders”; the organization was widely criticized for the move.
The Aragon Association sparked controversy in May when it repurposed the Aragon DAO to preserve funds held in its treasury (Source: Aragon)
oSnap eliminates the possibility of such incidents. When setting up an oSnap module, teams are required to set a number of rules, including the bond amount, liveness period, voting quorum, and voting period. This helps ensure proposers only submit valid proposals and disputers protect bad ones from passing. Additionally, if the quorum and voting period is high enough, there’s a greater chance that the whole DAO will have a chance to participate in the vote before it goes through to execution. If a proposal passes, the DAO can proceed to execution without trusting the team to make the transaction.
In short, oSnap makes governance more effective, removing harmful proposals and ensuring the DAO’s intentions are acted upon.
Removing security issues
DAO governance involves security risks. When a DAO oversees millions of dollars in assets, it can become a target to bad actors. These actors may include internal team members, tokenholders, or other external parties. DAO governance frequently involves communities voting on how large sums of money should be spent, and a harmful proposal can lead to dishonest value extraction. Similarly, if a small group oversees the DAO’s whole treasury, one actor could decide to act with malfeasance for their own financial gain.
oSnap helps DAOs stay secure as it is powered by UMA. As an early Ethereum project that verifies data and records it on-chain trustlessly, UMA stays true to crypto’s core tenet: decentralization. The OO is verified by humans, and it only takes one disputer to prevent a bad proposal from passing. For DAOs using oSnap, this helps ensure that every governance decision can be assessed within a liveness period before the results get executed on-chain.
oSnap uses Web3’s most robust and versatile oracle, meaning DAOs benefit from safety and security.
Pushing the DAO ecosystem forward
While still in its early stages, the DAO ecosystem has some hurdles to overcome. oSnap solves many of the space’s biggest challenges by enabling trustless governance. This allows for greater transparency and efficiency while maintaining security and decentralization. In the future, we see the DAO ecosystem growing larger, and we envision trustless execution serving as modus operandi for many more projects. As Web3’s Optimistic Snapshot Execution tool, oSnap is ushering in this future today.
If you want to learn more about oSnap or you’re interested in integrating the solution into your project, read this guide to getting started, reach out via integrations@uma.xyz, say hi via Twitter or Discord, or fill out our partnerships form here.
Tldr; oSnap is an UMA-powered solution that helps DAOs execute the outcomes of governance proposals on-chain without falling back to a central entity. oSnap allows DAOs to stay decentralized while getting governance done in an efficient manner. Since launching, oSnap has already settled transactions such as expense payments, treasury reimbursements, and market-making loans.
Key takeaways:
oSnap is an UMA-powered tool that enables Optimistic Snapshot Execution, helping DAOs get governance done in a trustless manner.
Several leading DAOs, including Across Protocol and BarnBridge, have integrated oSnap in a commitment to decentralization.
oSnap is empowering DAOs by putting on-chain execution in the hands of the community. This means DAOs can get governance done efficiently and trustlessly.
oSnap is an UMA-powered solution that’s bringing trustless governance execution to the DAO ecosystem.
oSnap leverages UMA’s optimistic oracle with Snapshot’s off-chain voting mechanism and Safe wallets to enable Optimistic Snapshot Execution for DAOs. When a DAO uses oSnap, community members can vote on a proposal via Snapshot, and if it passes, any tokenholder can execute the transaction on-chain. This means DAOs can get governance done in a decentralized and autonomous manner without falling back to a centralized team.
UMA sits at oSnap’s core. UMA is an optimistic oracle that serves data to smart contracts. It’s a decentralized truth machine that publishes things about the world, allowing for any kind of verifiable truth to be recorded on the blockchain.
With oSnap, transactions get executed optimistically unless someone raises a dispute. As a result, DAOs can operate in an efficient manner, and any tokenholder can execute vote outcomes on-chain.
oSnap launched in February 2023 and has quickly found traction in the DAO ecosystem. At the time of writing, oSnap has welcomed five partnering DAOs: Across Protocol, BarnBridge, Lossless, +DAO, and ShapeShift.
oSnap will soon be integrated into other leading DAOs. In the meantime, it’s already helping our first few partners make DAO governance happen without foregoing decentralization. Here’s a look at some of the first transactions it has enabled.
Paying for DAO operational costs (BarnBridge)
On May 1, QXYZ Labs requested $141,354.40 from the BarnBridge DAO. QXYZ Labs is a contributing entity to the BarnBridge DAO, and the request was to cover operational expenses for Q2 2023.
When the proposal went to a Snapshot vote on May 10, it passed with 100% of respondents voting in favor.
Q.XYZ submitted a Snapshot proposal to request $141,354.40 from the BarnBridge DAO on May 10. A transfer of 138,093.69 $USDC was executed with oSnap on May 18 (Source: Snapshot)
On May 18, oSnap enabled a transfer of 138,093.69 $USDC from the DAO’s treasury to QXYZ Labs’ Safe wallet. The transaction also included a 10,000 $USDC bond.
The transaction can also be viewed via the oracle dApp, and anyone was able to dispute it within the liveness period.
This transaction marks the first example of oSnap enabling a payment for operational costs, but it’s unlikely to be the last. As DAOs frequently allocate treasury funds to external contributing entities, oSnap has a clear use case in ensuring payments get made. Using oSnap to execute such transactions improves efficiency and eliminates the need for centralized treasury management.
Making reimbursements for liquidity provision (Across)
On May 11, Risk Labs treasury manager Kevin Chan submitted a proposal to the Across DAO for an $ACX token reimbursement and a series of additional payments. It later went to a two-partSnapshot vote.
The proposal came after Risk Labs deposited 2.3 million $ACX in bribe payments to Aura Finance to drive emissions in the $wstETH/$ACX pool on Balancer between December 2022 and May 2023. The goal of this series of deployments was to improve ACX liquidity and benefit tokenholders.
The Across DAO proposal noted that Risk Labs had achieved its goal with the Balancer pool topping $1 million at its peak. As a result, it said, the Across DAO should reimburse the 2.3 million $ACX. It also requested 600,000 $ACX tokens to cover an additional four bribe payments to Aura Finance.
The proposals reached 130% quorom with 98.86% and 99.87% of respondents voting in favor. On June 2, oSnap enabled the transaction for the 2.3 million $ACX from the treasury to Risk Labs. The transaction also included a 10 $WETH bond.
The proposed transfer of 2.3 million $ACX appears in UMA’s oracle dApp. It shows that the transaction was requested on May 25 and settled on June 2 after the liveness period closed (Source: UMA)
As Chan noted in this tweet storm, he executed the transaction from his wallet as an ACX tokenholder, with no multi-sig signers involved. As with all oSnap transactions, any tokenholder could have made the execution.
While reimbursements are not as common as other treasury payments in the DAO ecosystem, this transaction highlights oSnap’s ability to help DAOs maintain decentralization by making the community responsible for execution. With oSnap, any tokenholder can execute a transaction, regardless of the size of their holdings.
Issuing a loan for market-making (BarnBridge)
On May 10, early crypto adopter GSR presented a proposal to the BarnBridge DAO in hopes of becoming a market-maker for the project’s $BOND token.
The proposal sought to transfer 300,000 $BOND as a loan to GSR and went to a Snapshot vote on May 19. As the proposal was put forward shortly after oSnap’s launch, it was divided into three tranches.
The proposed transfer of the funds was subject to an agreement that GSR would return the funds to the BarnBridge DAO. The three votes passed with 100% quorum, with 194,000, 190,000, and 212,000 $BOND tokens voting in favor.
On May 25, oSnap enabled the first transaction for 100,000 $BOND. On June 5, oSnap enabled the second transaction for the same amount. Both transactions also included a 10,000 $USDC bond.
This series of transactions is the largest oSnap has enabled to date, totalling a value of $720,000 at settlement time. By the time the third tranche completes, BarnBridge will have cleared over $1 million worth of transactions with oSnap. BarnBridge’s oSnap adoption shows that the solution can help DAOs make larger transactions without the need to fall back to a small number of trusted individuals that oversee millions of dollars in funds.
Trustless execution and the future of DAO governance
These use cases show that oSnap is already proving itself as a useful tool for DAO governance. They also hint that the DAO ecosystem is beginning to evolve into a world where DAOs maintain decentralization in their operations.
oSnap also supports ShapeShift, Lossless, and +DAO, and will soon be integrated into other DAOs in the ecosystem. This fits neatly into our vision of a future where DAOs embrace trustless execution and communities are empowered to govern themselves autonomously. Although it’s still early, oSnap is in a strong position to support this future today.
oSnap is easy to integrate. If you’re interested in joining the oSnap family or you want to learn more about Optimistic Snapshot Execution, get in touch with us here. Alternatively, you can always reach out at integrations@uma.xyz or say hi on Twitter or Discord. We look forward to hearing from you.
Tl;dr The ETHGlobal Waterloo hackathon is happening from June 23–25, and UMA is sponsoring the event. The prize pool for builders totals $225,000, with UMA donating $10,000 to the best projects built using UMA. Applications are open to builders now.
Key takeaways:
UMA is sponsoring the upcoming ETHGlobal Waterloo hackathon.
Hackers are invited to submit their ideas for ways to build on UMA, with $10,000 in prizes available for the best entries.
The event runs from June 23–25 and applications are open now.
The UMA and Across teams recently returned from a fruitful offsite where we mapped out the role we intend to play in Web3’s future, and before long we’ll be hitting the road again for ETHGlobal Waterloo.
Our recent travels land off the back of a packed first half of 2023. Our long-awaited UMA 2.0 upgrade introduced $UMA staking and the OOv3, and we launched a tool that enables Optimistic Snapshot Execution for DAOs, oSnap.
But we’ve also found time to attend some of the key dates in the hackathon calendar. We’ve sponsored a string of ETHGlobal events this year and seen many killer project submissions. Talented builders have presented ideas covering everything from decentralized flight insurance to sports betting platforms, leveraging the optimistic oracle’s flexibility to power their projects.
Now, we’re inviting hackers to build on UMA at ETHGlobal Waterloo. Join us in Canada and contribute to the future of the Web3 ecosystem.
UMA heads to ETHGlobal Waterloo
Hackathons are where Web3’s brightest new ideas come to life. ETHGlobal’s events are always some of the standout dates in hackathon season, serving as the birthplace for new projects that accelerate the Ethereum ecosystem.
ETHGlobal Waterloo will see project teams, mentors, builders, and other members of the community come together to share their ideas on how to advance the Web3 space. Other teams sponsoring the event alongside UMA include The Graph and Polygon, while Ethereum creator Vitalik Buterin will be returning to Ontario to deliver a keynote speech.
UMA core team members will also be on hand to provide support and guidance to hackers throughout the three-day event. We’ll judge all project entries that use UMA or Across Protocol and select the best ideas as prize winners. Builders have a chance to win from a prize pool worth $225,000, with $10,000 of that sum donated from UMA.
The full breakdown for the $10,000 prize, to be paid in $UMA, is as follows:
First place: $5,000
Second place: $2,000
Pool prize: $3,000
ETHGlobal Waterloo runs from June 23–25, and applications for builders are still open at the time of writing. Submit your application to build something amazing here.
What can you build with UMA?
UMA is Web3’s optimistic oracle. It acts as a decentralized truth machine, serving data to smart contracts and allowing for any kind of verifiable truth to be recorded on the blockchain. Any statement can be proposed as true in UMA’s oracle system, and economic incentives ensure that most statements are accepted as true. In rare dispute cases, $UMA tokenholders vote to solve the dispute and get rewarded for voting correctly. The OO is “optimistic” as the game theoretical mechanism ensures that dispute cases are rare.
Today, UMA powers projects like the cross-chain bridge Across Protocol, the on-chain prediction market Polymarket, and the decentralized cover projects Sherlock and Cozy Finance. oSnap, an UMA-powered solution that uses Snapshot and Safe, is also helping several leading DAOs remove centralization from their governance process.
Recent hackathon highlights
The scope for what can be built with UMA is limitless. Recent hackathon highlights include a Zero Knowledge-powered data browsing indexing tool that uses the OO to ensure applications do not misuse data, a flight insurance protocol where the OO delivers flight cancellation details to trigger payouts, and a sports betting platform for making event predictions where the OO verifies the predictions and settles disputes.
Hackers are welcome to submit ideas that use the OO or Across Protocol, with UMA team members set to select the prize winners. Below are some examples of possible use cases for the OO:
A betting escrow platform.
UMA already powers prediction markets and betting platforms, but it could have wider use in the space in the future. A betting escrow service could use the OO to settle a bet between two parties and distribute the funds to the winner. For example, when Balaji Srinivasan bet that Bitcoin would hit $1 million by June 2023, the OO could have been used to verify the price at the deadline and trigger a payout to the individual on the other side of the bet.
A service for taking out loans against real-world assets.
DeFi has long been researching ways to make use of “real-world assets.” Many argue that crypto will not reach its potential until RWAs can be brought on-chain. The OO could help here, as it could be used to verify assets when they’re posted as collateral. We can imagine a world where an RWA platform asks users to collateralize their Picasso paintings or Rolex watches, using the OO to verify the transaction and help the users take out a USDC loan against their holdings.
An event insurance platform.
The OO helps power Sherlock and Cozy Finance, two cover protocols designed to help DeFi users get protection against their holdings. As it can verify any kind of information and record it on-chain, it could also be used to provide cover for many different types of real-world events. One example is issuing payouts to ticket holders in the event of a cancellation. If Taylor Swift cancels her concert, a fan holding a $400 ticket could file a claim via the platform. The OO could ask whether the concert was cancelled and then issue a payout.
Final call for ETHGlobal Waterloo
Hackathons provide a great opportunity to connect with the community and build for the future and we’re excited to see the ideas that come out of ETHGlobal Waterloo.
If you have a smart idea on how to use UMA or Across Protocol and you’re interested in hacking at the event, head to our developer docs to get started.
If you have a smart idea on how to use UMA or Across Protocol and you’re interested in hacking at the event, visit our developer docs to get started and get in touch with us here. You can also say hi at integrations@uma.xyz, drop us a DM on Discord or Twitter, or come and find us at the hackathon.
ETHGlobal Waterloo runs from June 23–25 and winners of the $10,000 UMA prize will be announced over the course of the event. Submit your application here and we look forward to checking out your projects soon.
Tldr; The Graph is a critical piece of Web3 infrastructure, serving as a decentralized query layer for blockchain data. As UMA has a subgraph, anyone can run queries to search for useful data related to the optimistic oracle.
Key takeaways:
The Graph is a data query engine that supports UMA and other Web3 projects.
UMA subgraph users can find data related to the optimistic oracle that isn’t easily accessible elsewhere.
The Graph shares useful data while maintaining core crypto principles like decentralization, transparency, and immutability.
Built to make blockchain data more accessible, the infrastructure project helps power many Web3 applications through its open-source indexing and query protocol. UMA is one of many Web3 projects that uses The Graph’s subgraphs. UMA’s oracle dApp provides accurate, up-to-date information because it pulls data from the subgraph.
But subgraphs are not just useful to applications. Anyone can run queries through The Graph to access data related to the optimistic oracle. While our frontend provides useful information, querying UMA’s subgraph offers an alternative way to access data related to the oracle. UMA’s subgraph runs independently from UMA. Running a query through it maintains decentralization, and any data related to the protocol’s contracts is immutable. This feature explores some of the ways users can explore UMA’s subgraph to learn more about the oracle.
What queries can you run through UMA’s subgraph?
UMA’s subgraph is transparent and available for anyone to browse. You can find it via The Graph’s hosted service at this link. There are many different queries you can run via UMA’s subgraph; below are just a few examples.
This query retrieves information about the latest resolved price requests in the UMA VotingV2 system. The different components of this query are as follows:
priceRequests: The main field indicating that we want to fetch data about price requests.
where: { isResolved: true }: This parameter filters the results so only resolved price requests are included.
orderBy: resolvedPriceRequestIndex: This parameter indicates that the results should be listed in ascending order based on the resolved price request index.
orderDirection: desc: This parameter indicates that the results should be listed in descending order with the latest price requests appearing first.
first: 5: This parameter limits the number of results to the top 5 resolved price requests.
Within the priceRequests field, the following subfields are specified:
price: The resolved price of the price request.
time: The timestamp from when the price request was resolved.
resolvedPriceRequestIndex: The index of the resolved price request.
isGovernance: A Boolean value (“true” or “false”) indicating whether the price request is a governance vote.
rollCount: The number of times the vote for this price request has rolled. Votes roll if they do not reach 50% consensus, though this is rare.
latestRound: This subfield provides information about the latest round for the price request.
totalVotesRevealed: The total number of votes revealed for this round.
groups: An array of objects representing different groups of votes.
price: The price associated with the group of votes.
totalVoteAmount: The total vote amount received for that particular price.
You can execute this query to get crucial information about the latest resolved price requests in the UMA VotingV2 system. Data on resolved prices and variables such as their timestamps, resolved indexes, governance status, and vote distribution can be used to analyze voting patterns and consensus outcomes. This can offer valuable insights into the oracle’s overall performance.
When we execute this query, we can see that there was one rolled vote across the five requests.
This query retrieves information about the biggest stakers in the UMA VotingV2 system. The different components of this query are as follows:
users: The main field indicating that we want to fetch data about users.
first: 5: This parameter limits the number of results to five stakers.
orderBy: voterStake: This parameter limits the list by the number of tokens they have staked.
orderDirection: desc: This parameter lists the users by token staked in descending order.
Within the users field, the following subfields are specified:
id: The user’s unique identifier.
address: The user’s Ethereum address.
annualPercentageReturn: The annual percentage return (APR) the user can earn by staking $UMA.
annualReturn: The user’s annual return in $UMA tokens.
countNoVotes: The number of times the user has not voted on a dispute.
countWrongVotes: The number of times the user has voted incorrectly on a dispute.
countCorrectVotes: The number of times the user has voted correctly on a dispute.
voterStake: The amount of $UMA tokens the user has staked to participate in voting.
cumulativeSlash: The cumulative number of $UMA tokens the user has had slashed as a penalty based on their participation.
You can execute this query to get insights into the top stakers in the UMA VotingV2 system. Data on users and variables such as their unique identifiers, addresses, annual returns, and voting statistics can be used to analyze how the top tokenholders engage with the UMA VotingV2 system. This is useful for identifying trends among influential users and determining the effectiveness of UMA’s governance mechanisms.
When we executed this query, we could see that the top user had staked 6,226,601 $UMA at the time of execution, and they’d had 44,308 $UMA slashed due to missing eight of 20 votes.
A query showing the top five $UMA stakers (Source: The Graph)
This query retrieves information about the global statistics in the UMA VotingV2 system. The different components of this query are as follows:
globals: The main field indicating that we want to fetch global information.
first: 5: This parameter limits the number of results to the top five global statistics.
Within the globals field, the following subfields are specified:
id: The unique identifier of the global statistics.
userAddresses: All of the user addresses staking $UMA tokens in the VotingV2 contracts.
cumulativeStake: The cumulative amount of $UMA tokens staked across all users in the voting system.
emissionRate: The emission rate of voting tokens in the system.
annualPercentageReturn: The annual percentage return (APR) users can earn by staking $UMA.
annualVotingTokenEmission: The number of $UMA tokens emitted annually in the system.
countCorrectVotes: The total number of correct votes across all users.
countNoVotes: The total number of count no votes across all users.
countWrongVotes: The total number of incorrect votes across all users.
You can execute this query to get comprehensive information about the UMA VotingV2 system. Data on global statistics and variables such as the number of tokens staked, the number of vote counts, and the number of tokens emitted can be used to ascertain the health and performance of the system. This is useful for evaluating the effectiveness of the governance mechanisms, monitoring important variables like token emissions, and identifying trends or anomalies in the system.
When we executed this query, we can see that there were 21,255,549 UMA tokens staked at the time of execution, the emission rate was 0.18, the APR was 26.7%, and more.
Getting started with UMA’s subgraph
To run a query via UMA’s subgraph, follow the below steps.
2. Delete the default text and input your query in the left-hand field
3. Press the “Execute query” icon
UMA’s subgraph lets anyone independently find data and learn more about the voter system.
Querying UMA’s subgraph is best suited to coders with an understanding of the GraphQL query language. However, the UMA subgraph is open for anyone to access data on UMA for themselves.
You can visit our docs to learn more, and explore UMA’s subgraph schema via our Github page.
If you want to access data related to the oracle but are unsure where to start, we’d love to hear from you. DM us on Twitter or join the UMA Discord server for more details.
This piece is a collaborative effort between Chris Williams, Editorial Contributor at Risk Labs and Pablo Maldondo, Smart Contract Engineer at Risk Labs.
Tldr; The NFT ecosystem has evolved in recent years as niches like the “PFP” trend have emerged, but it falls behind on governance. oSnap’s optimistic governance mechanism can help the space mature by giving projects a way to operate in a trustless manner.
Key takeaways:
The NFT ecosystem features many community-governed projects, though NFTs rarely represent voting power today.
oSnap’s optimistic governance mechanism could help DAOs overseeing NFT projects, bringing more decentralization to the space.
The NFT space still needs time to mature as it’s one of crypto’s youngest niches.
NFTs are one of crypto’s most promising innovations. Since the technology exploded in 2021, NFTs have transformed the Web3 landscape and welcomed millions of new adopters. NFTs are powerful as they offer provable ownership for any kind of asset. In the first major NFT boom, they found success in the digital art scene. While it’s likely that NFTs will support many other kinds of innovations, art remains at the ecosystem’s core today. But NFTs add a new dynamic that traditional art lacks: community.
Since the 2021 boom, art NFTs have played a fundamental role in Web3’s evolution. Yet the NFT ecosystem lacks decentralization. Many of the space’s top projects rely on centralized teams to execute their roadmaps. The few that do reach decisions through DAO governance still use trusted setups. As the space starts to mature, oSnap’s optimistic governance design could help projects that want to uphold Web3’s decentralized values. This feature explains how.
How NFTs went mainstream
NFTs hit the mainstream for the first time in early 2021. Arguably the biggest catalyst behind growing awareness of the technology came after Beeple sold an NFT collage of 5,000 pieces of his art, titled “Everydays: The First 5,000 Days,” at Christie’s for $69 million. Alongside Beeple, other digital artists like FEWOCiOUS and XCOPY saw huge success as the market grew in size. Celebrities and pop artists like Grimes and The Weeknd then started to experiment with the technology amid the froth. By the middle of the year, NFTs were everywhere as crypto entered “NFT summer.” Collins Dictionary even selected the term “NFT” as its word of the year.
Beeple’s “Everydays: The First 5,000 Days” rocked the art and crypto worlds when it sold for $69 million in a Christie’s auction in March 2021. The landmark moment kickstarted a mania phase in the NFT space (Source: Christie’s)
While digital artists like Beeple spearheaded NFT technology’s first mainstream moment, avatar-based collections, also known as “PFP” NFTs — a reference to their popular use as social media profile pictures — soon soared in popularity too. Taking inspiration from the early Ethereum collection CryptoPunks, many avatar-style projects emerged during the 2021 NFT hype cycle. While most lost steam over crypto winter, some have evolved into vibrant communities where like-minded collectors bond over their shared interests. Today, the “PFP” scene still sits at the heart of the NFT ecosystem.
CryptoPunks is one of the world’s most beloved NFT projects. The 10,000-piece collection pioneered the NFT avatar trend, inspiring many other community-focused projects (Source: Larva Labs)
NFTs could offer myriad use cases in the future, from event ticketing to authenticating goods and digital fashion for the Metaverse. But to date, digital art and community are the technology’s two best-defined use cases. And though newer crypto entrants are unlikely to be able to spot much difference between a Beeple to a Bored Ape, the two niches greatly differ.
Art and community in the NFT space
Digital art NFTs tend to offer one thing: the art itself. When someone buys a digital art NFT, they buy it to consume the art and support the artist. Ideally, they pick an artist who could become a bigger name in the future, turning their NFT into an investment. In these cases, the artist is responsible for any updates and semblance of “governance.”
“NFT collectors may expect a roadmap, but they don’t always have a say in how the projects are run.”
By contrast, avatar NFTs focus primarily on community. Although avatar NFTs are based on artwork, avatar projects invite collectors to support a mission and connect with other community members with similar interests. The artwork is simply the community’s equivalent of a sports jersey, used to show allegiance to a set of values with a picture others can recognize. Avatar NFT collectors often buy into a project to gain access to the community and future utility. Yet while NFT collectors may expect a roadmap, they don’t always have a say in how the projects are run.
Barring some exceptions, NFTs rarely grant collectors voting power in a project’s governance process. Many projects fall back to a centralized team. In some cases, they may make big decisions like migrating assets to a new blockchain without holding a governance vote. Still, some projects have empowered their communities by giving them control of governance.
DAO governance in the NFT ecosystem
The DAO governance model is the standard modus operandi for DeFi projects in Web3 today, but it’s less common in the NFT space. Some projects, however, stand out for their embrace of the DAO model.
One example is Nouns, whose operations are managed by the Nouns DAO. One Noun NFT goes up for auction every 24 hours, and you need to own one to vote in Nouns DAO governance proposals (holders can also delegate their vote to a third party). Whenever a Noun auction closes, the ETH raised gets sent to Nouns DAO’s treasury. It’s holding around $51 million today, per Etherscan data. The Nouns DAO votes on how to manage the treasury. In one recent proposal, community members discussed whether to diversify 400 wstETH to rETH, though it was later canceled. Another requests $200,000 to develop a Nouns-themed game, while another suggests using a 4-of-8 multi-sig wallet to distribute $129,000 as part of a partnership with WarpedWorld.
Noun 1, sold for 613.37 ETH soon after the project launched in August 2021. All ETH proceeds from Noun NFT sales go directly to the Nouns DAO treasury, currently sitting at around 28,800 ETH (Source: Nouns)
Botto also uses a DAO model, but it works differently to Nouns. Botto is the world’s first “decentralized autonomous artist.” It’s an AI robot that produces digital art, and its community members are responsible for voting on the best pieces to mint as NFTs on Ethereum. To join the Botto DAO, you need to hold the BOTTO token or an NFT access pass. Community members select from 350 “fragments” every week to help Botto’s art evolve and use Snapshot to vote in governance proposals. Recent governance votes to pass include a proposed collaboration with the digital artist Ryan Koopmans and a planned exhibition and auction at the Verse gallery in London. The Botto DAO also votes on how to make treasury allocations, such as paying project contributors.
Botto’s Seaport Subject, recently sold as an edition of 10 in a Verse auction. Botto DAO held a governance vote to come to an agreement on the Verse auction and pricing structure (Source: Verse)
Like Botto, Treasure DAO is an NFT project that uses a fungible ERC-20 token for governance. Treasure is building a “decentralized gaming ecosystem.” Its flagship NFT avatar project is called Smol Brains, but community members use a token called MAGIC to vote on proposals. As with Botto, off-chain voting takes place via Snapshot; the last proposal suggested using Treasure’s MAGIC/ETH liquidity to pay for developing a game called Bridgeworld. It passed with a 93.21% majority.
Doodles became one of the NFT space’s iconic avatar projects when it launched in late 2021. But unlike many other projects that emerged in the same era, Doodles NFTs work like Nouns, offering voting power in governance decisions. Doodles currently uses Snapshot, but its most recent proposal passed through a plan to sunset off-chain voting and elect a council to decide how funds are used.
The current list of NFT projects that use DAO governance are arguably the most decentralized in the space today. However, they are few and far between relative to the huge number of projects that have emerged since 2021. This reflects the nascent state of the NFT ecosystem today.
Web3 projects following Web2 principles
Some NFT projects launched with a central figure and have since evolved into community-run endeavors even though they have no roadmap. In this sense, they share similarities with Bitcoin and Ethereum, which became more decentralized over time. Popular examples include CryptoDickbutts and mfers, two meme-centric avatar projects where community fun is the main focus. The founders for the two projects bowed out after they launched. Neither CryptoDickbutts nor mfers has a roadmap, and there’s no token utility or DAO to govern.
CryptoPunk #110 on display at the Centre Pompidou in Paris. Yuga Labs donated the NFT to the historic museum as part of the Punks Legacy Project (Source: Centre Pompidou)
Ethereum’s most iconic avatar NFT collection, CryptoPunks, is another centralized and decentralized hybrid. Larva Labs owned CryptoPunks when it launched the project with a free giveaway in 2017. Punks then became synonymous with a community of Ethereum power users. The project took on a new lease of life when Yuga Labs acquired it in early 2022, giving away IP rights to all Punk holders. Since then, a central team has made a number of key decisions to accelerate the project, such as pushing forward with the Punks Legacy Project, an initiative to donate selected Punks to fine art institutions like the Centre Pompidou. To make the donation possible, the team behind the Punks Legacy Project had to come to a decision and then transfer the NFT to Centre Pompidou in an on-chain transaction. This process could have been executed in a more decentralized manner with optimistic governance.
“Many top NFT projects are run more like Web2 companies than DAO-based DeFi projects.”
Many of Web3’s top NFT projects are managed in a similar way to CryptoPunks, adopting structures that share more similarities with Web2 companies than DAO-run DeFi projects. Such projects typically make announcements to their community rather than leaving the community to decide the project’s future. Examples include Moonbirds, Azuki, and Yuga’s viral hit Bored Ape Yacht Club. Each of these projects has won popularity by rewarding loyal holders with token airdrops, exclusive event access, and other benefits. However, some centralized projects have come under fire for making contentious decisions that negatively impact NFT holders without consulting the community.
How NFT projects could use oSnap for governance
While projects can push for decentralization by operating as DAOs, they don’t always eliminate reliance on trust. Even when DAOs reach decisions on votes in a decentralized manner, individuals on a central team usually have to execute voting decisions on-chain. Optimistic governance is currently Web3’s best solution to this problem, using optimistic assumptions to push transactions with incentive-aligned tokenholders asked to dispute any errors. oSnap, the UMA-powered optimistic governance tool that uses Snapshot and Safe, is an example of an optimistic governance execution tool.
Optimistic governance has not yet caught on in the NFT space, but it has obvious benefits for DAO-based projects. NFT DAOs typically take responsibility for managing project treasuries, often to the tune of tens of millions of dollars. Treasuries should be overseen by incentive-aligned community members, but the funds are often handled by a small group of central figures. This means that the DAO has to trust those managing the funds to act with honest intentions. Any NFT DAO that falls back on a multi-sig wallet faces this problem.
“Optimistic governance has obvious benefits for NFT DAOs.”
But the potential benefits go beyond treasury management. NFT DAOs use Snapshot or other voting tools to reach decisions like distributing rewards, allocating funds, and, in Botto’s case, selecting artwork to go to mint on the blockchain. But as Snapshot is off-chain, the DAOs have no way of executing governance decisions on-chain.
oSnap is the perfect solution for NFT DAOs looking to maintain decentralization. Launched in collaboration with Snapshot and the Gnosis Guild team, oSnap uses UMA’s optimistic oracle and Safe’s industry-leading multi-sig wallets to execute the results of off-chain Snapshot votes on-chain. oSnap offers flexibility for projects that want to add customizations, something that could help NFT projects in their various endeavors. For example, a DAO could use it to automatically distribute rewards, make treasury payments, or for any other kind of on-chain decision.
oSnap and the future of the NFT space
NFTs are a nascent niche in a young asset class. If Bitcoin is an adolescent, NFTs are just entering their toddler years. As such, it’s likely that the full potential for the space is still unknown. The stars of the first NFT explosion show just a hint of how the technology could reshape our understanding of ownership forever. Where the crypto movement has shown that digital asset ownership is the future, NFTs have shown that every kind of asset will be tokenized in the future.
While some early NFT projects have found success by championing Web2-like values, those embracing community and decentralization are blazing a new trail, potentially positioning themselves for longevity.
“The crypto movement has shown that digital ownership is the future. NFTs have shown that every kind of asset will be tokenized in the future.”
Many of the most innovative projects in the NFT ecosystem use DAOs. As use cases expand beyond digital art, we can expect to see more NFT DAOs form. Whether projects increasingly use non-fungible or fungible tokens for governance, there’s little doubt that community will remain at the center of the space.
UMA also hopes to see the NFT space evolve into a community-driven ecosystem where decentralization is seen as a must-have rather than a nice-to-have. For the projects that uphold Web3’s values by eliminating trust in favor of their communities, oSnap will be there to help them flourish.
oSnap is free to use. If you are interested in integrating the solution into your project or learning more about the product, start by filling out this form here. Then, follow UMA on Twitter and join the Discord.
Disclosure: At the time of writing, the author of this piece owned an edition of Botto’s Seaport Subject, two Otherside plots, and an assortment of other NFTs. None of the information presented in this article constitutes financial advice.
Tldr; UMA is sponsoring ETHGlobal Lisbon from May 12–14. Ahead of the event, UMA is presenting a pitch for teams looking to build with oSnap: a Twitter Drops tool for sending tokens to any Twitter account.
Key takeaways:
UMA is pitching a new project idea to send tokens to any Twitter account ahead of this weekend’s ETHGlobal Lisbon hackathon.
The “Twitter Drops” concept uses oSnap to implement rules that allow a specified Twitter user to claim tokens via a Safe wallet.
UMA team members will be on hand to assist hackers building projects on UMA at ETHGlobal Lisbon.
Introducing Twitter Drops
UMA has developed a new concept for sending tokens to any Twitter account.
“Twitter Drops” leverage oSnap to allow any Twitter user to claim tokens from a Safe multi-sig wallet, using UMA for verification.
UMA is presenting this reverse pitch (“request for hackers”) ahead of this weekend’s ETHGlobal Lisbon hackathon, where teams are invited to use the optimistic oracle to bring their projects to life. UMA is sponsoring the event and team members will be in attendance to assist builders across three days of hacking.
How Twitter Drops would work
Twitter Drops use oSnap, the UMA-powered solution that enables trustless on-chain execution via Safe wallets.
oSnap has initially been adopted as a tool for enabling optimistic governance with Snapshot, but it can support many other use cases owing to its flexibility.
oSnap can implement specific rules and customizations, which means it can be used to propose on-chain transactions for designated users. With Twitter Drops, rules could be added to the oSnap module allowing a Twitter account to claim a Safe wallet before a cutoff date. The claimant just has to post a tweet and submit an on-chain transaction to claim control of the Safe wallet. If they don’t claim the tokens in the wallet ahead of the cutoff, they can be sent back to the deployer.
Here’s a step-by-step process for implementing a Twitter Drop:
1. Alice and her team build a frontend interface for creating and claiming a Twitter Drop.
2. Alice uses the interface to create a Drop, deploying an oSnap module and Safe multi-sig wallet holding 10 ETH, 10,000 UMA, and a Lens handle. (You can do this on testnet! It’s a hackathon, after all.)
3. Alice adds a rule to oSnap to introduce conditions on claiming the wallet. The rule could read as follows:
“This Safe can be claimed by @dreamsofdefi before May 31, 2023. They can claim the wallet by submitting any transaction before May 31, 2023 with a link to a tweet as the explanation field. The tweet should read “I am claiming my Twitter Drop at [Insert Safe address] from [Insert wallet address] as verified by @UMAprotocol.”
Alice can set the recipient’s Twitter profile, cutoff dates, and the Safe address when deploying the Drop. Since she doesn’t know @dreamsofdefi’s wallet address in advance, they will specify the address in their tweet.
4. @dreamsofdefi visits the frontend on May 30 and connects their Twitter account and Ethereum address to claim the Drop.
5. @dreamsofdefi posts a tweet reading “I am claiming my Twitter Drop at [Insert Safe address] from [Insert user address] as verified by @UMAprotocol,” triggering the on-chain transaction from their address.
6. The on-chain transaction includes a link to the tweet in the explanation field. When processed, a new transaction processes giving @dreamsofdefi 1/1 control of the Safe wallet.
7. The oSnap rules also update, noting that “This Twitter Drop has been claimed by [Insert user address]. Any transactions from [Insert user address] are valid.”
8. @dreamsofdefi can now access the 10 ETH, 10,000 UMA, and Lens handle via their Ethereum address. As they gain access before the cutoff date, Alice can not reclaim the assets; they are now in the sole custody of @dreamsofdefi.
Why Twitter Drops are powerful
Twitter Drops show how oSnap can enable new solutions that improve the Web3 user experience.
In this example, Alice can distribute the assets to @dreamsofdefi on the condition that they post a tweet without waiting to verify their identity. She doesn’t need to share the wallet’s private key, and she doesn’t even need to know their address. @dreamsofdefi, meanwhile, can access the Safe wallet any time before the cutoff and enable account abstraction to set flexible rules. Since oSnap establishes the rules for controlling the wallet with one deployment, Alice and @dreamsofdefi can both save on gas costs.
In the future, we envision a world where all Ethereum users control wallets like Safe to secure their assets. Twitter Drops offer an early preview into this future, giving a way for users to distribute tokens in a flexible, trustless, and efficient way.
Twitter Drops is one example of an exciting oSnap use case that bridges the gap between crypto and social media, offering added benefits like enhanced security and flexibility.
If you’re attending ETHGlobal Lisbon and would like to work on Twitter Drops or another project with oSnap, look out for our team members in attendance. We’ll be helping hackers bring their ideas to life, and we’re donating $10,000 to the best ideas that come out of the event.
oSnap is free to integrate and only takes a few minutes to turn on. It’s been audited by OpenZeppelin. To learn more about integrating the solution into your project, please DM us on Twitter, join the UMA Discord server, or reach out via this form.
And there’s much more you can build on UMA, either using oSnap or through direct optimistic oracle integrations! This is just one idea of many and we love to see hackers’ creativity at these events.
Tldr; Across Protocol and ShapeShift, two of the Web3 ecosystem’s core projects, have integrated optimistic governance via oSnap. With this update, the two DAOs are showing their commitment to decentralization by handing governance execution to their communities.
Key takeaways:
Across Protocol and ShapeShift are now using optimistic governance execution with oSnap.
The updates allow the projects to execute governance decisions on-chain in an efficient and trustless manner.
oSnap helps DAOs maintain decentralization, removing trust in central teams and empowering communities to execute on-chain decisions.
Across Protocol and ShapeShift are now using oSnap for optimistic governance execution.
After successfully passing through Snapshot governance voting rounds, the two projects have integrated the UMA-powered solution. With oSnap, the Across and ShapeShift DAOs can now execute on-chain governance decisions optimistically based on off-chain Snapshot votes.
Across, an UMA-powered cross-chain bridge, and ShapeShift, a permissionless decentralized exchange for cross-chain swaps, are two of the Web3 ecosystem’s staple projects. This update highlights their commitment to maintaining decentralization. oSnap will empower their communities to govern their projects without relying on individuals to get governance done.
The two oSnap integrations mark a step forward for Across and ShapeShift while reinforcing one of our core beliefs: Web3 needs to be decentralized, and oSnap can help make it happen.
How it works
Launched in February 2023, oSnap is a solution to help DAOs propose and execute governance proposals on-chain without relying on trusted parties. It combines Snapshot’s voting mechanism with Safe (formerly Gnosis Safe)’s multi-sig wallet infrastructure and leverages UMA’s optimistic oracle to verify transaction data.
With oSnap, when a DAO’s proposal passes a Snapshot voting round, UMA’s OO validates and processes the approved transactions. If a proposal doesn’t pass, it gets rejected. If a dispute arises, UMA’s tokenholders are responsible for resolving the proposer’s and disputer’s bonds through on-chain voting.
This means DAOs can let their communities execute on-chain governance decisions without waiting on central teams to ship updates. It helps projects maintain decentralization and get governance done in an efficient manner.
oSnap is a flexible tool that can help projects ship trustlessly and efficiently according to their needs. Across and ShapeShift will both add their own customizations, highlighting oSnap’s broad scope.
Across is launching with a number of customizations, including flexible quorum rules, select contract exclusions to prevent protocol upgrades, and an extended five-day dispute window.
ShapeShift, meanwhile, will require members to post a bond of FOX tokens when they submit a proposal. This will ensure all proposers have a stake in the ShapeShift DAO. For governance proposals that pass, UMA’s OO will accept them and the update will ship.
Though Across and ShapeShift slightly differ in their oSnap integrations, both projects are pushing for the same goal: allowing their communities to handle governance from proposal through execution in a trustless manner.
Why this matters
Many DAOs use Snapshot to vote on governance proposals today. While Snapshot helps communities vote on proposals in a decentralized manner, prior to oSnap it did not offer an easy way to execute proposals because the votes are off-chain.
To overcome this issue, DAOs typically rely on project teams to push through updates once a vote passes. Most teams use multi-sig wallets controlled by a handful of trusted individuals, which means they rely on centralized points of failure. While the DAO ecosystem has shown progress, many projects fall short on decentralization because they rely on trust.
oSnap offers a solution to the multi-sig problem. It’s designed to help DAOs stay decentralized and operate efficiently. With two of the space’s major projects integrating the solution, the DAO ecosystem is moving closer to Web3’s decentralized vision.
Web3’s optimistic future
Crypto’s end goal is to create an alternative value system that empowers billions of people worldwide. It’s a movement that aims to enable decentralized coordination at scale, redefining our understanding of value and eliminating trust in third party entities.
While there are many challenges that come with building the trustless world, we believe that decentralization must remain at the foundation of everything we do. The DAO ecosystem forms a key part of this world, but it is not yet trustless. Optimistic governance execution solves this issue and allows DAOs to thrive.
Tl;dr: As DeFi has grown, the demand for decentralized cover has increased. While the decentralized cover space is small relative to the size of the DeFi market, several projects have come up with useful ways to offer protection to users. These projects typically rely on resolution processes for payouts, highlighting the value of optimistic oracle mechanisms like UMA.
Key takeaways:
The DeFi space is risky, which has created demand for protection.
Projects like Nexus Mutual, Sherlock, and Cozy Finance have paid out millions of dollars in claims as DeFi has grown.
In the decentralized cover space, tokenholders typically vote on payouts, creating an important use case for optimistic oracles like UMA.
DeFi is blockchain’s biggest success story to date. Since MakerDAO became the traditional finance alternative’s first project to launch on Ethereum in 2015, the ecosystem has ballooned in size, peaking at $250 billion in total value locked in late 2021. Groundbreaking projects and primitives have emerged across multiple blockchains. To date, over seven million unique addresses have interacted with DeFi at least once.
While DeFi has cooled in recent years as part of a broader crypto market decline, it’s the primary use case for blockchains like Ethereum, Avalanche, and Solana. But the space is not yet mature. When someone chooses to interact with DeFi, they expose themselves to risks such as smart contract bugs and hacks. It’s thanks to DeFi’s neverending deluge of hacks that crypto has been dubbed “the Wild West of finance.”
This environment has created demand for insurance-like products to protect users. DeFi relies on other support pillars like security audits, whitehat hacking, and protected tokens, but decentralized cover is arguably its most effective shield. While only a fraction of the $55 billion locked in DeFi today is protected, several solutions have emerged with innovative approaches to make the ecosystem safer. This feature unpacks how decentralized cover works, and the role optimistic oracle mechanisms can play in the space.
Euler Finance’s $200M hack and lessons for the space
DeFi suffered the latest in a series of blows on March 13, 2023 when the Ethereum lending protocol Euler Finance was exploited for $200 million in a flash loan attack.
While $200 million is a staggering sum, nine-figure hacks like this have become commonplace in DeFi. The Euler incident was not unique in its size, but rather due to the events that unfolded in the aftermath. Euler Labs took all of the usual steps teams take following an attack, including contacting law enforcement, offering the hacker a 10% bounty, and launching a $1 million campaign for information leading to their arrest. But on April 4, Euler Labs announced that the exploiter had returned all of the stolen funds to the Euler DAO treasury. The attacker, who identified as “Jacob,” also sent an apology in an on-chain message.
The Euler Finance exploiter sent an on-chain message to the project apologising for the theft when they returned the funds (Source: Etherscan)
The return marked one of the biggest recoveries of stolen funds in crypto history. What’s more, after Jacob traded the stolen assets for ETH and DAI, they sent back a greater sum than the amount they stole. The Euler team announced a plan to repay users on April 5; some claimants lost a portion of what they’d put in while others profited, depending on their activity on the protocol.
While hackers rarely engage with their victims and much less return their stolen wares, DeFi teams often attempt to negotiate with their attackers following hacks. In fact, 10% bounty offerings have become something of a standard in attacks like this. Euler came out relatively unscathed after Jacob returned the funds. But it’s clear that DeFi needs to do more; sending on-chain messages and offering out a bounty after an incident occurs isn’t enough to sustain a healthy ecosystem.
Some Euler users had taken out cover, DeFi’s on-chain equivalent of insurance, prior to the March 13 incident. Cozy Finance, a DeFi protection protocol on Ethereum and Arbitrum, reimbursed users after launching cover for Euler in February. Sherlock also paid out $4.5 million directly to the project. And Ethereum’s biggest cover protocol, Nexus Mutual, paid out $2.4 million; the project’s DAO later contacted Euler to demand a $2 million refund because it had covered losses for policyholders who later got their funds returned. Nexus Mutual has said it may pursue legal action if the funds aren’t returned, per CoinDesk. Cozy and Sherlock use UMA’s optimistic oracle as a resolution layer for payouts, while Nexus Mutual has its own internal resolution system to reach decisions on payouts.
The Euler incident highlights the importance of diligent auditing and dealing with incidents effectively when they occur. But it raises an important question: is there a way to make DeFi safer (and what happens if the funds later get returned)? Security audits and effective crisis management have an important role to play here, but it’s clear that protection is also crucial.
DeFi and risk
Interacting with crypto involves an element of risk. Users need to evaluate risk and then make decisions such as the assets they should buy and the amount they should put in based on their conclusions. Interacting with DeFi increases this risk and presents users with a new set of questions: is this protocol safe? How much yield can I earn? What portion of my portfolio should I put into this smart contract?
Similarly, DeFi projects have to weigh up the risks with their own questions: is the code safe? Can we trust our audits? What’s the plan if we get hacked?
DeFi protection is a direct response to risk, and it’s designed to help users and projects answer the above questions. When projects offer cover, they’re essentially saying “this technology is experimental and risky, but our product can offer you peace of mind by protecting your assets.”
Protection in DeFi
Similar to DeFi users, projects like Cozy and Sherlock face the question of how to price risk through the cover they offer. Protection options vary according to the related project and activity. But generally, they target a few different types of users:
Yield farmers who want to earn from depositing assets into a protocol. The rate they pay for protection needs to be lower than the yield they can earn, otherwise it makes no sense for them to buy it.
Borrowers who want to take out assets against their holdings. They pay to protect their collateral and also pay interest on their borrowed funds.
Lenders who want to earn a premium for providing protection to other users. They can earn a high interest rate on their holdings, but they may lose a significant portion of their deposit in a trigger event such as a hack.
Once DeFi protection projects offer cover to users, they need to establish whether to make payouts in the cases where an incident occurs. In the traditional world, insurers typically decide on whether a customer will receive a payout based on a set of predetermined terms and conditions. In some cases, insurers lean on loopholes to avoid making payouts.
DeFi protection works differently. Projects usually rely on a resolution process to determine payouts, which can offer transparency and eliminate bias. Rather than one party deciding on who receives a payout, groups of tokenholders place votes and earn rewards for their participation. This is where UMA’s OO can serve as a useful tool for protection projects.
Cozy uses UMA’s OO as part of its security layer to trigger payouts. After a hack, the oracle answers the question “did a hack happen?” and then pays Cozy’s users who took out protection. For the most part, Cozy users are typical DeFi users.
Cozy Finance launched protected for Euler Finance users in February, leveraging UMA’s optimistic oracle to trigger payouts (Source: Cozy Finance)
Sherlock works differently to Cozy in that it directly targets protocols rather than users. When the project agreed to pay out $4.5 million to Euler, it did because Euler had taken out cover. Sherlock uses a group of expert researchers known as “Watsons” to price risk and offer cover accordingly. Like Cozy, Sherlock uses UMA’s OO to trigger payouts, but only if a decision is escalated. By asking $UMA tokenholders to evaluate payouts when the project can’t come to an agreement, Sherlock aims to eliminate third-party bias. This is because $UMA tokenholders are incentivized to vote honestly, and they shouldn’t stand to gain or lose anything from Sherlock’s payout decisions.
Sherlock currently covers around $16.5 million in value (Source: Sherlock)
Nexus Mutual launched in 2019 and is still crypto’s largest on-chain protection service. To date, it’s underwritten $5 billion worth of cover and issued $17 million in payouts, per its own website. It’s also the only DeFi cover protocol with a loss ratio of less than 1 ($23.9 million earned in premiums vs. $17.8 million paid in claims), per OpenCover data. In March 2023, Nexus Mutual launched its V2 offering, transitioning into “a risk management layer” for all kinds of businesses. Nexus Mutual now protects against all kinds of risks, in addition to crypto-related risks like smart contract failures and hacks. Although the project does not currently use UMA’s OO, it relies on a resolution process that shares some similarities with UMA’s Data Verification Mechanism. Members of the mutual stake $NXM to vote on claims and get rewarded for voting honestly. Those who vote fraudulently, meanwhile, risk losing their staked tokens. Claims are typically reviewed within three to six days. Where $UMA tokenholders put skin in the game and stake their tokens to verify any kind of truth, $NXM tokenholders stake to come to an agreement on claims payouts.
Tl;dr: The oracle design space features a number of innovative projects, but some make notable trade-offs. If Web3 is to succeed, it will need trustless oracles that stay true to crypto’s decentralized ethos.
Key takeaways:
Oracles play a crucial role in DeFi and the broader crypto ecosystem today, and they should find wider use in the future as more data moves on-chain.
While oracles help power Web3, they often suffer from drawbacks stemming from reliance on centralized points of failure.
UMA’s optimistic oracle is one of Web3’s only decentralized solutions that can be used to verify any kind of data.
As Web3 has grown, oracles have played an increasingly important role in the ecosystem. Oracles provide data for smart contracts, which allows for a wide variety of use cases. Today, they serve as a pillar of Web3 because they help bring real-world data on-chain, yet smart contracts have no way of verifying whether the data is up-to-date and reliable. The oracle problem remains one of crypto’s biggest challenges, but the ecosystem has come to rely on several solutions.
The oracle landscape has evolved as new Web3 innovations have emerged. Today, the oracle space has a market capitalization of around $5 billion, but the ecosystem it powers is larger by an order of magnitude. Without a doubt the biggest use case for oracles today is in DeFi, a space that neared $200 billion in value at its peak. But as more data moves on-chain, we could see new, bigger use cases for oracles emerge.
The oracle space features several projects that take different approaches to powering Web3. But as providing off-chain data for blockchains is difficult, some oracles have made trade-offs on core crypto principles like decentralization. This feature explores the oracle space and explains why Web3 will need to embrace trustless solutions to fulfill its potential.
The oracle bull case
DeFi is currently Web3’s raison d’être, and oracles are a bedrock of the DeFi ecosystem. As they can provide information on asset prices, they enable activities like lending and borrowing. If there were no oracles providing price data, DeFi projects wouldn’t be able to calculate loan collateral or maintain stablecoin pegs, and the ecosystem would implode.
Although oracles can be used to verify any kind of data, most solutions focus on providing price feeds for assets. DeFi’s most popular price feed oracle solution, Chainlink, helps power the space’s most used applications and holds roughly 75% market capitalization dominance of the oracle space.
“The true potential for oracles is bigger than DeFi.”
Oracles are useful for many other functions. They can provide floor price data for NFT collections, which enables use cases like NFT index tokens and derivatives. Even sports brands are now using oracles to get real-world statistics and create dynamic NFTs, an innovation that’s grown in popularity as the NFT ecosystem has expanded.
The NBA uses Chainlink’s oracle to power dynamic assets in The Association NFT collection. Traits include whether the player’s team reached the NBA Finals, the number of assists a player made in a game, and whether the player scored a game-winning shot in the final 24 seconds of play (Source: The Association NFT)
Some oracles are working to solve MEV, the “invisible tax” that’s been described as one of Ethereum’s biggest issues. API3, an oracle focused on building decentralized APIs, uses a system called “Oracle Extractable Value” with the aim of reducing MEV by sending extracted value back to dApps.
Oracles can also serve other important emerging areas of the crypto ecosystem. They can power prediction markets, allow Web3 users to move assets on cross-chain bridges, and help DAOs become trustless. oSnap, an UMA-powered solution developed with Snapshot and Safe, is an example of a new innovation that showcases the potential for oracles in the DAO space. While cross-chain bridges and DAOs are still in their nascent stages, they are already essential parts of the Web3 ecosystem.
“If data lives on a decentralized blockchain, it should be verified in a decentralized manner.”
But DeFi sits at the heart of Web3 today, the true potential for oracles could be much bigger. DeFi has shown early hints of the promise offered by oracles, but it’s likely that all kinds of data from the real world will move on-chain over the coming decades.
This data could constitute a creator’s online profile in a Web3 social app, a weather event for an insurance payout, a breaking report on a decentralized news service, or other data for applications that don’t yet exist. Whatever form the data takes, if it lives on a decentralized blockchain, it should be verified in a decentralized manner.
How oracles make trade-offs
The oracle problem is one of crypto’s biggest. To date, several projects have emerged with different solutions. However, they often make trade-offs that sacrifice on core Web3 tenets like decentralization.
Oracles are popularly used to provide price feeds for tokens like BTC and ETH. Leading oracle solutions like Chainlink, Band Protocol, and Pyth focus primarily on price feeds. However, such price feeds are often limited in scope, with some only covering major on-chain assets. This means certain areas of the ecosystem, such as niche emerging tokens or NFTs, often get overlooked.
Many oracles rely on nodes to submit data, but this places trust in centralized parties. Crypto exchanges and market makers provide data for some oracles, meaning the oracles trust that the data they provide is accurate when they pull it on-chain. In extreme cases, nodes may provide inaccurate information for their own benefit.
Pyth relies on companies like Binance, Bitstamp, and CMS to publish data for its oracle (Source: Pyth Network)
Some of the most popular solutions aim to incentivize honest participation through staking mechanisms. Chainlink, for example, rewards LINK stakers for verifying data feeds in a model it calls “explicit staking.” However, this model is prone to manipulation as it makes an assumption on future revenue (dubbed “future fee opportunity”) for honest participation. As a group of LINK stakers could profit a sum greater than their stake by verifying inaccurate feeds, the model creates a manipulation risk for Chainlink. Crypto researcher Eric Wall was one of the most vocal critics of this mechanism when it was unveiled in 2021.
UMA integrates a staking mechanism to encourage participation, but it differs from the ones used by other oracles. $UMA stakers can earn rewards by staking their tokens and vote to secure the oracle. However, their staked tokens get redistributed if they abstain or vote for the incorrect outcome in disputes. This mechanism builds on early Proof-of-Stake designs and game theoretical principles to make the Data Verification Mechanism more robust.
While some oracles risk collusion between dishonest tokenholders, project teams may also manipulate their own votes if they control a large portion of their token supply. In June 2022, Kleros faced accusations of manipulation after a user was denied a payout from the insurance protocol Unslashed Finance. Some alleged that Kleros team members had used a large number of tokens to sway the vote; the payout was denied.
DeFi’s Achilles’ heel
Oracles make DeFi work, but they can cause problems for the entire ecosystem when they fail.
DeFi’s killer app is composability, but it can also be its Achilles’ heel. When one thing breaks, issues can be widespread. If an oracle shows incorrect data, it can cause liquidation cascades that impact many users.
Oracles have struggled to maintain accurate price information during periods of extreme volatility in the past. When the crypto market suffered from an extreme selloff on March 12, 2020, oracles showed invalid price data, which caused widespread liquidations and bad debt for protocols like Maker. The events became known as Black Thursday. In recent years, some of DeFi’s top protocols have begun using their own oracles to avoid relying on one solution, but they often suffer from drawbacks. Maker, for example, uses its own oracle to track collateral prices.
Oracle price feed attacks are among the most common in DeFi. A popular strategy involves taking out a flash loan and using the funds to manipulate the price of assets in a liquidity pool then borrowing an amount of funds that exceeds the deposited collateral. Though DeFi protocols can mitigate such attacks by using multiple sources, they are still common.
Why decentralization matters
The current Web3 landscape highlights the importance of decentralized oracles. As oracles provide data that smart contracts read, we need to be sure that the oracles work as intended while limiting trade-offs. DeFi has worked for its first few years without imploding, but it heavily relies on a small number of oracles.
“If Web3’s oracle threat is big today, it could be colossal in a decade.”
In the current environment, a big oracle failure could collapse DeFi. The DeFi ecosystem is worth around $50 billion today, so the manipulation incentive is high. Yet the ecosystem still depends on solutions that could fail due to their centralized set-ups.
If Web3’s oracle threat is big today, it could be colossal in a decade. If the space fulfills its potential, DeFi will see significant growth once networks like Ethereum achieve scalability. As other data moves on-chain, oracles will become a vital technology for verifying data in the user-owned web.
Given the important role oracles play in Web3, it’s crucial that the leading solutions are decentralized. If oracles are to act as truth machines for the next financial system, they also need to be very difficult to attack.
“Web3 oracles must be decentralized.”
Bitcoin and Ethereum both have a cost of corruption. Ethereum’s market cap is around $184 billion today, meaning a bad actor would need over $92 billion worth of ETH to attack the network.
UMA also has a cost of corruption; a bad actor would always end up spending more on attacking the oracle than they could possibly profit due to the protocol’s economic guarantees.
But few oracles can guarantee this. Tokenholders may be encouraged to verify data through staking when the possible profit from manipulation could greatly exceed their stake. In the worst cases, oracles may use multi-signature wallets that a handful of people have access to.
The (multi-sig) elephant in the room
DeFi and the broader Web3 space has evolved at a rapid pace in recent years, but the multi-sig problem is currently holding it back.
Many projects use multi-sig wallets to control their smart contracts, which means they have a central point of failure. When a project is controlled by a multi-sig, it’s not always clear who was enlisted as a signer and why, whether they practice good security hygiene, and if they will act with honest intentions. Multi-sigs undermine security when security is a key characteristic for blockchains. We use networks like Bitcoin and Ethereum to secure value and hope to help the space grow. That means we need to be sure that security is always a top priority.
In a recent case highlighting centralization risks in multi-sig wallets, the team behind Oasis Protocol ran a so-called “counter-exploit” in its own multi-sig vulnerability to retrieve $225 million from the Wormhole Bridge hacker. The move came after the High Court of England and Wales ordered Oasis to work with Jump Crypto to recover the funds. While it followed a malicious attack worth $325 million, the incident also placed a sharp focus on decentralization, blockchain immutability, and credible neutrality. If Web3 users accept that multi-sig wallet controllers can seize funds based on a court order today, their own funds could be at risk if a government tries to shut down a protocol in the future. The US Treasury Department controversially banned Tornado Cash in August 2022; some raised concerns that a ban on other popular protocols like Uniswap or Ethereum itself could follow in a worst case scenario.
Although most of crypto’s leading projects strive for decentralization, they sometimes rely on projects that use multi-sig wallets. Chainlink, the most widely used oracle solution in the space today, uses a 4-of-9 multi-sig.
UMA embraces Web3’s decentralized values. There’s no multi-sig controlling the contracts, and any upgrades must be voted on by the UMA DAO. When UMA launched token staking as part of the UMA 2.0 launch this month, it had to pass governance in a trustless manner.
oSnap is an UMA-powered product designed to reduce Web3’s reliance on multi-sigs. It enables DAOs to replace multi-sigs with trustless governance, ushering in a new wave of Optimistic DAOs. If Web3 is to work, it needs decentralized governance and oracles.
The multi-sig problem in the oracle space raises two important questions for the Web3 community:
Is an oracle decentralized enough to power the decentralized web if it places trust in a handful of individuals?
Should Web3 applications move away from multi-sig oracles or use multiple oracles to reduce their risk?
While some projects are taking action such as diversifying their oracles to overcome the multi-sig problem, the space has some way to go to achieve full decentralization.
Price feed oracles and optimistic oracles
The core function for most oracles today is providing price feeds. DeFi relies on accurate price information, so price feed oracles sit at the core of the crypto ecosystem. This set-up is flawed because they often aggregate data from centralized sources, and are also limited in scope.
UMA’s optimistic oracle is a new approach to tackling the oracle problem. It’s a design where game theory guarantees honest coordination to find the true outcome and trustlessness is key. The cost of corrupting the oracle outweighs the benefit, something that’s not true of other solutions.
“Optimistic oracles are the right solution for establishing truths in Web3’s future.”
The OO also offers flexibility over price feed oracles: you can use it to find out the price of ETH when Ethereum’s Shanghai upgrade ships, whether it rained in New York City last night, or to help a DAO adjust its staking emissions.
Though price feed oracles power DeFi today, UMA believes that optimistic oracles are the right solution for establishing truths in Web3’s future. A handful of other projects like Tellor and Reality seem to agree as they are taking similar approaches to UMA, using optimistic assertions to verify data. As more data moves on-chain, it’s likely that the benefits of optimistic oracles will become more apparent.
Recent developments in Zero-Knowledge technology could also impact the oracle space in the future. Though Zero-Knowledge Proofs are yet to truly disrupt Web3, nascent projects like Empiric Network, a ZK-based oracle on StarkNet’s Layer 2 network, show early hints of how the space could evolve over the coming years.
What’s next for oracles in Web3?
UMA’s end goal is to power a vast ecosystem of trustless DeFi apps, DAOs, and other Web3 projects that value decentralization. The OO has already proven its utility in powering applications like on-chain prediction markets and bridges, but the opportunity ahead is much bigger.
Web3 could soon expand beyond niches like DeFi and NFTs to a user-owned network securing valuable data for billions of users. With the advent of smart contracts, this new Internet could transform the concept of laws as we know them. Data that lives on a decentralized blockchain should be verified in a decentralized manner. And that’s why we believe what we’re building will be useful for the world.
To learn more about UMA’s value proposition or integrate the protocol into your project, visit our website or reach out at integrations@uma.xyz.
Tldr; UMA staking went live earlier this month as part of UMA 2.0. Protocol emissions are based on voter participation, which currently equates to roughly 28.4% APR. UMA also offers extra rewards to active voters for securing the oracle. This means there’s an economic incentive to staking UMA.
Key takeaways:
UMA staking is live. The emissions rate is currently around 28.4% APR based on voter participation.
The protocol redistributes rewards from inactive stakers to stakers who turn up to vote and vote correctly.
While there are many variables that can impact staking returns, there’s an economic incentive to staking $UMA over passively holding tokens.
UMA started a significant new chapter earlier this month with the launch of the Data Verification Mechanism (DVM) 2.0 upgrade. Among the suite of updates UMA 2.0 introduces, the protocol now distributes token rewards to $UMA stakers.
Where UMA voting rewards were previously based on a snapshot of token balances, now tokenholders stake $UMA to earn rewards and participate in votes. UMA staking builds on early Proof-of-Stake designs and game theoretical principles to incentivize tokenholders to secure the oracle.
$UMA stakers continuously accrue rewards, and they’re also rewarded when they align with voters to solve oracle disputes; when they vote successfully, they receive a portion of the stake from those who miss a vote or vote incorrectly (voters must choose the option the majority answers and reveal their vote within a set timeframe). There’s also a seven-day cooldown period for withdrawals. Similar to Proof-of-Stake Ethereum, this new model ensures that stakers have skin-in-the-game to increase security.
Earning from UMA staking
After the UMIP-174 proposal to turn on protocol emissions passed governance, emissions commenced on 11th March 2023. The emissions rate is calculated based on voter participation. With just under 20 million UMA tokens staked at the time of writing, stakers earned around 28.4% APR.
The below example compares the potential difference in returns between passively holding $UMA and participating in staking and voting over a one-year timeframe.
In this example, Alice deposits $1,000 worth of $UMA to a cold wallet in March 2023. Bob stakes $1,000 worth of UMA and takes part in voting. He also stakes his accrued rewards on a monthly basis to compound his returns.
This means Alice earns 0% yield, while Bob earns 32.4% APY.
It also assumes that UMA holds its trading price at the time of writing, which was around $2.00.
Please note: the above example shows a hypothetical scenario based on today’s token market prices and voter participation. $UMA and other tokens are prone to price volatility. The example should not be interpreted as financial advice — returns from holding $UMA and participating in staking are not guaranteed.
At the end of the year, Bob makes 32.4% on his 500 $UMA holdings, accruing 162 $UMA in rewards. Alice, meanwhile, still holds 500 $UMA with no rewards accrued. Additionally, as the circulating $UMA supply increases over time due to staking emissions, Alice’s holdings get inflated away and her 500 $UMA represents a smaller portion of the overall supply.
To put this example to the test, I staked 500 $UMA from my token holdings via this Ethereum address ahead of emissions commencing. I plan to use this wallet to participate in all votes and stake accrued rewards on a monthly basis to ensure returns compound until March 2024.
The Risk Labs Foundation offers gas rebates in $UMA for voters who commit and reveal, which will be segregated from the staking returns. The total ETH spent on claiming and staking rewards will also be deducted from the total returns at the end of the year.
The aim of this experiment is to compare the returns someone can earn from securing the protocol against passively holding the $UMA token. After one year, I will compare the value held in the wallet against the market value of 500 $UMA.
$UMA is a work token, and UMA 2.0 is designed to reward active voters. While there are many factors that can influence the yield accrued, this experiment should show that there is a financial incentive to staking $UMA.
Variables that can impact staking returns
While we can use today’s market price for $UMA and the 28.4% APR to forecast potential staking rewards, in reality there are many variables that will impact the returns stakers earn.
Fluctuations in rewards — as the emissions rate depends on the number of tokens staked, it will fluctuate over time. As the portion of the $UMA supply locked in the staking contract increases, the rewards paid to stakers decrease, and vice versa.
Frequency of rewards claims — the emissions rate is currently 28.4% APR, but in our example, Bob earns 32.4% APY because he stakes his rewards on a monthly basis. Stakers can compound their returns by staking their accrued rewards (but they must also spend ETH to cover gas costs). As more rewards get staked, other tokenholders see their holdings get diluted due to the circulating supply increasing. (If everyone claimed-and-staked at the same time, the net effect to APY would be zero.)
Number of votes and voters — stakers accrue rewards continuously regardless of whether there are votes to participate in. But as the number of votes increases, staking returns will vary for different stakers. The staking mechanism redistributes 0.1% from stakers who abstain from voting or vote incorrectly to successful voters. This means someone who participates in every vote successfully will earn a higher yield than a passive staker who does not turn up to vote. $UMA tokenholders settled 96 votes in 2022. However, if the oracle processed 10 times the number of votes, the responsibility would increase for stakers. For active participants, they would have a greater chance of earning extra rewards, but they would have to turn up every time to receive them. It’s also worth noting that the redistribution rate could increase or decrease from 0.1% in the future pending a governance vote, which would impact both active and inactive voters and the rewards they receive.
Based on the current APY of 28.4%, it only takes around 31 hours of staking to break even with a missed vote, so it is not very punishing (though the DAO can change that in the future.)
Gas rebates — to incentivize voting, the Risk Labs Foundation offers monthly rebates in $UMA tokens to active voters who successfully commit and reveal in votes. This means that any voters who choose to stake their rebate tokens can accrue greater returns. In my staking experiment, all $UMA rebates will be segregated from the staked supply.
Ethereum congestion — while the Risk Labs Foundation offers rebates on committing and revealing in voting, stakers cover their own gas costs for claiming and staking rewards. This means that stakers may face additional ETH costs during periods of peak congestion. I will aim to claim rewards when Ethereum activity is at a relative low and track the amount of ETH spent on compounding returns throughout my experiment.
Market conditions — as $UMA’s market price increases, the fiat value of staking rewards increases. Broader market conditions can also impact staking rewards as tokenholders may be more incentivized to participate in the ecosystem during bullish trends. Historically, $UMA voter participation has peaked in tandem with the token’s market value. As $UMA currently sits down from its all-time high while crypto winter ensues, it’s arguably a more favorable time to stake for tokenholders who want to secure the protocol’s long-term future.
Next up for UMA 2.0
UMA staking marks the start of a new phase for the protocol, incentivizing tokenholders to secure the oracle. But this update is only one of several upgrades to come as part of UMA 2.0. The revamp will also introduce improvements to the voter dashboard and adjustments to the protocol’s security model.
Check this guide to get started with UMA staking and follow UMA on Twitter for further news on UMA 2.0.
Tl;dr — UMA recently launched token staking as part of its UMA 2.0 roadmap. UMA staking focuses on rewarding active network participants when they turn up to vote on disputes. While many DeFi protocols offer passive staking rewards today, UMA staking shares more similarities with Ethereum’s Proof-of-Stake model. UMA’s new model incentivizes voter participation and increases security.
Key takeaways:
Since the advent of Proof-of-Stake, token staking has played an important role in the crypto ecosystem.
While Proof-of-Stake requires active participation from validators, some more recent models offer tokens to stakers as a form of passive income.
UMA builds on early Proof-of-Stake designs and game theory to incentivize voter participation. In turn, this makes for a more secure Data Verification Mechanism.
Token staking gained popularity with the advent of Proof-of-Stake consensus, but in recent years it’s become more prevalent across many different areas of the ecosystem. The concept of staking has evolved as crypto has, with many DeFi projects using models that differ from early Proof-of-Stake designs. UMA recently rolled out a new staking model unlike any existing one today. In this feature, we discuss how staking has changed, and the role UMA will play in pushing the space forward.
Proof-of-Work vs Proof-of-Stake
Crypto started out with Bitcoin, the world’s first blockchain and pioneer of the Proof-of-Work consensus mechanism. To secure the Bitcoin network, miners put in “work” to verify transactions and receive BTC rewards in return. Ethereum adopted a similar mechanism when it launched in 2015.
While Proof-of-Work has drawbacks, most notably concerning its heavy energy consumption, it has proven effective in securing Bitcoin for the last 14 years. But Proof-of-Stake has recently become a more popular mechanism of choice among newer blockchain networks.
Although Ethereum launched with a Proof-of-Work consensus mechanism, Vitalik Buterin published research on Proof-of-Stake as early as 2014. Ethereum completed “The Merge” from Proof-of-Work to Proof-of-Stake in September 2022 (Source: Lionel Ng/Bloomberg)
When a blockchain relies on a Proof-of-Stake mechanism, validators need to stake the blockchain’s native token to secure the network. As with Proof-of-Work, they earn a reward in return for their input. Vitalik Buterin was an early advocate for Proof-of-Stake, discussing how it could work on networks like Ethereum as early as 2014.
Ethereum successfully completed “The Merge” from Proof-of-Work to Proof-of-Stake in September 2021. Besides Bitcoin, most other major blockchain networks adopt similar Proof-of-Stake mechanisms.
Putting the work in
Although Proof-of-Work and Proof-of-Stake take different approaches, they both rely on those securing the chain to turn up and put the work in.
Miners have to source electricity to power the intensive hardware required to solve transactions. If they run out of power or their mining rig isn’t powerful enough, someone else will solve the transaction before them.
Stakers have to commit their funds and maintain hardware (albeit more lightweight than mining rigs) with a good Internet connection to validate transactions. If they fail to validate a transaction or misbehave, they risk losing some of their stake through reward redistribution.
Proof-of-Work and Proof-of-Stake do not offer “passive income” because miners and stakers only receive rewards if they help secure the network.
How staking has changed
As staking has become more widespread across the crypto ecosystem, it’s grown in popularity on the application layer. Many DeFi protocols on Ethereum and other base layer networks incorporate their own staking mechanisms today.
But unlike with Ethereum or other Layer 1 blockchains, DeFi staking generally doesn’t help secure the underlying protocol. In many cases, “staking” is simply a way of generating passive yield by depositing a native asset to a protocol.
Project tokenholders are often given the option to stake their assets to earn yield. As they don’t have to secure the network or put any work in, the income is passive. These tokenholders can opt out of staking, but then their holdings get inflated away due to token emissions paid to stakers.
Such staking models have faced criticism from prominent thought leaders like Cobie in the past.
How UMA introduces a new staking model
UMA staking differs from other existing models as game theory principles determine how stakers earn rewards.
It incentivizes voters to participate and align — stakers only get rewarded if they turn up and put the work in to solve disputes correctly. If they abstain from voting or vote for a minority position in a dispute, they suffer from reward redistribution.
In this sense, UMA’s staking model can be thought of as an evolution of Ethereum staking. Similar to Ethereum staking (and Proof-of-Work mining), UMA staking is not a form of passive income.
It’s not enough for tokenholders to deposit their $UMA and forget to vote on disputes — they need to care about keeping the protocol secure. Unlike many modern staking models, UMA staking incentivizes voter participation and increases security.
UMA staking strengthens the protocol’s game theory dynamic as tokenholders need to vote correctly to receive rewards. In turn, this makes the DVM more robust and helps secure UMA.
Rewarding active participation
Although its definition has changed, staking remains a fundamental part of the crypto ecosystem. UMA’s new model introduces a design that borrows from early Proof-of-Stake mechanisms and game theoretical principles.
UMA staking will reward active participation to ensure that voters put the work in to resolve disputes. Our hope is that it will incentivize voting and make for a more secure oracle capable of serving as Web3’s decentralized truth machine.
UMA staking is now live. The emissions rate is initially set at a rate equivalent to current voter participation, which equates to around 30% APY today. This yield will vary depending on the number of tokens used for voting.
Read more about UMA staking and the path ahead for UMA 2.0 here.
Web3 envisioned a decentralized world. oSnap can make it a reality
Tl;dr — Though many DAOs and crypto projects show great promise today, relying on centralized teams often leads to problems. oSnap can help projects operate smoothly by removing trust in individuals and empowering communities to execute on-chain decisions. In turn, oSnap helps Web3 maintain its decentralized ethos.
Adding oSnap to an existing Snapshot and Safe is fast and free. It has been audited by Open Zeppelin. See the quick-start guide or reach out to integrations@uma.xyz.
Key takeaways:
oSnap, an UMA-powered solution developed with Snapshot and Safe, is a solution for DAOs to execute on-chain governance decisions.
oSnap can prevent common DAO-related issues like treasury mismanagement and delays as it optimizes for transparency and efficiency.
NFT projects could integrate oSnap to give their community members a say in how they are run.
oSnap makes Web3 more decentralized by removing the need to trust central parties.
UMA recently announced oSnap, a solution developed in collaboration with Snapshot and Safe to help DAOs execute on-chain governance decisions. oSnap is a powerful tool that makes DAOs more efficient and trustless. Many new DAOs and other crypto-related projects have emerged in recent years, showing early hints of the potential of decentralized coordination. But as the ecosystem has grown, it’s also become clear that DAOs need a solution to govern themselves in a trustless manner. As the space is in its infancy today, many projects are falling short of their potential because of their reliance on centralized points of failure. oSnap empowers DAOs to coordinate trustlessly, bringing us closer to the Web3 vision of a decentralized world.
A call for decentralization
More than any other period in crypto history, recent events in the space have exposed the risks of trusting centralized bodies. Several major entities like Terra, Celsius, and FTX collapsed as the crypto market trended down in 2022, at once spotlighting bad management practices and the promise of innovations like DeFi.
The headline events of 2022 validated Web3 enthusiasts who advocate for transparency and decentralization. But while it’s clear that Web3 needs to be trustless, many projects are yet to achieve trustless governance. This has led to problems, from poor treasury management and decision making to slow execution on decisions.
The FTX meltdown, caused in large part by Sam Bankman-Fried, highlighted the importance of decentralization (Source: Stephen Yang/Bloomberg)
If Web3 projects are to achieve decentralization, communities need to be empowered to take charge of governance. oSnap brings DAOs closer to Web3’s original vision by making communities responsible for governance and execution.
oSnap solves this hurdle for DAOs as it allows them to verify outcomes optimistically. Once a DAO reaches a governance decision through a Snapshot vote, UMA’s OO puts the proposal through autonomously unless someone disputes the decision.
Solving treasury-related issues
A significant issue that the DAO space is grappling with today is treasury management. While many DAOs operate with honest intentions even if they are not trustless, some project teams misuse their treasuries and keep their management practices opaque. Though such cases are rare, oSnap eliminates the possibility of mismanagement altogether.
DeFi hacks have exposed the problems that come with entrusting a small group of individuals with a project’s treasury. One example of such a case centers on Tribe DAO, a group formed out of a merger between Rari Capital and Fei Protocol. When Rari suffered an $80 million hack in April 2022, Tribe DAO went through an arduous governance process with four voting rounds until it agreed to reimburse hack victims five months later.
Tribe DAO overwhelmingly voted in favor of repaying hack victims after several governance votes in September 2021 (Source: Tally)
oSnap’s optimistic governance model offers a way for DAOs to coordinate on treasury management and other key decisions. That means it could help communities establish whether funds should be distributed, and it would verify distribution of the funds if the vote passed.
While most Web3 projects operate with integrity, core teams behind DAOs occasionally act with malfeasance. Many DAOs fail due to “rug pulls,” where the core team withdraws a large amount of liquidity from a pool and vanishes. Some teams also misspend their treasuries.
Such issues stem from a lack of transparency in the way DAOs are managed. oSnap solves this problem because it offers communities a way to decide on how treasury funds are allocated. With oSnap, once a Snapshot proposal passes, the transaction can go through unless there’s a dispute. Decisions are executed in a more efficient manner, and the DAO can see how the funds are spent.
Shipping key updates
oSnap does not just improve DAO treasury management. It can also help DAOs become more efficient.
Let’s say a DAO’s community member has put forward a proposal to adjust token emission rates from 2% to 1% annually. The Snapshot vote reaches quorum so the plan can proceed. With oSnap, the rate could be adjusted to 1% immediately after the vote as UMA’s OO would verify the transaction for deploying the code. The transfer would only be stopped if someone raised a dispute, though this is unlikely as they would have to put up a bond, and everyone can see that the DAO agreed to cut the rate to 1%.
This is just one example of how oSnap improves DAO efficiency. DAOs may benefit from using oSnap for other updates like contract upgrades, parameter changes, adjusting listings, and more.
In short, oSnap makes sure DAO governance gets done.
Preventing mistakes
Most DAOs ship updates without optimistic governance today, but this can create risk as they typically rely on a small group of individuals. Many recent DeFi hacks could have been avoided with better OpSec and private key management from core teams. Most teams use multi-sig wallets, but they are not secure. Projects that integrate oSnap will be able to remove their multi-sigs entirely in the future.
Aside from wallet management issues, human error can also lead to costly programming mistakes. The Solana-based decentralized exchange OptiFi highlighted this when its core team inadvertently shut down its mainnet program, locking away $661,000 in funds forever. Though OptiFi made all users whole, the incident showed the risks of relying on individuals to execute updates.
While oSnap does not completely eliminate the chance of human error, it reduces reliance on core teams by handing ownership over to the community. UMA’s OO verifies all transactions, and only one person needs to raise a dispute to stop a transaction.
Today, many DAOs trust their core teams to avoid making mistakes and operate in the group’s best interests. With oSnap, the entire community is responsible for preventing mistakes and ensuring operations run smoothly.
Some of the most significant crypto developments over the past few years have been in the NFT space. After a group of pioneering digital artists like Beeple helped the technology boom in early 2021, many community-focused projects emerged.
One of the NFT space’s dominant trends has been the growth of avatar-based “PFP” collections, projects that loosely borrow from a template set by the early Ethereum collection CryptoPunks.
NFT collectors often invest in the promise of future utility rather than a tokenized image alone. But this is problematic because project teams don’t always deliver on their roadmaps, and collectors don’t always have a say in the utility they’re investing in.
Where DeFi projects issue tokens to community members and ask them to take care of governance, many NFT projects sell (non-fungible) tokens and promise key updates even if they can’t deliver on them.
As NFTs rarely grant voting power in a project, community members don’t always have a say in how the project’s treasury gets used or the project’s future plans.
Examples of contentious decisions NFT core teams can make include migrating assets onto a new blockchain, misusing funds, or even selling the project altogether. Plus, if a core team abandons or “rugs” a project, there’s little a community member can do once they’ve invested their capital.
Unlike most other NFT projects, Nouns operates a DAO structure where community members have voting power to determine the project’s future. (Source: Nouns)
One notable exception in the NFT avatar space is Nouns, whose DAO members are responsible for governing the project’s treasury and key decisions. This model is arguably the closest to Web3’s decentralized vision in the NFT space today as it adopts a DAO structure rather than a company.
oSnap could be a useful tool for NFT projects willing to be literally community owned. If an NFT project offers voting rights to tokenholders and all decisions have to pass through a Snapshot vote with automated on-chain execution, community members don’t have to wait on the team to deliver on its promises. Instead, they are the ones pushing the project forward.
In other words, oSnap could give NFT collectors true ownership in the communities they invest in.
The future of DAO governance
The DAO and broader crypto space has limitless potential, but over-reliance on centralized parties currently inhibits that potential. Treasury misallocation, delays to shipping updates, and mistakes are common across the DAO space today. In many cases, communities have little say in governance and rely on central teams to execute on their roadmaps, as evidenced in the NFT space today.
oSnap changes this dynamic. By enabling efficient on-chain execution on voting outcomes, the solution brings increased transparency and alignment to a space that prides itself on its decentralized values. With oSnap, community members can have ownership in the projects they love, from DeFi lending protocols to digital art-based NFT ventures.
This is why we think oSnap will push Web3 forward.
