UMA Protocol (UMA): Creating Synthetic Assets on the ETH Blockchain

UMA Protocol (UMA): Creating Synthetic Assets on the ETH Blockchain

UMA, an innovative protocol for the Ethereum blockchain, enables users to create their self-enforcing contracts that may provide respective financial and economic incentives, thus contributing to mutually beneficial outcomes for all parties involved.

What Is UMA?

Crypto investors demonstrate the growing interest in synthetic assets that represent underlying assets and have the same market value. In this manner, users receive additional opportunities for making contracts and introducing additional conditions that may contribute to reaching their financial goals and priorities. UMA is one of the leaders in this segment as it offers a number of original solutions on one of the most popular blockchain — the Ethereum one. UMA effectively approximates the real-world financial derivatives, especially futures, CFDs, and swaps. Digital assets, including cryptocurrencies, can be effectively combined and included in such contracts. The UMA protocol allows eliminating the barriers to entry and enables users to create their own digital derivatives. Such a platform may serve as a basis for the future innovative growth within the sector.

UMA’s current price equals $2.81 with the circulating supply of 68.6 million tokens. Its maximum supply is 101.7 million tokens, implying that about 32% of the total supply will be issued in the following several months. Its total market capitalization is $192.98 million, making it the 140th largest cryptocurrency at the moment. UMA reached its ATH level in February of 2021 at the price of about $34, and this level was retested in April of 2021. Then, the token experienced a rapid price and capitalization decline with the local minimum in November of 2021 being at the price level of $20. The following months were characterized by its rapid depreciation. However, UMA’s price stabilized within the past few months, and it is among the trendiest tokens recently according to CoinMarketCap.

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Figure 1. UMA’s Promotional Image. Data Source – Vector Stock

Investing in UMA: Pros and Cons

Despite UMA’s high innovativeness, the long-term investments in this crypto project appears to be associated with considerable risks. The reason is that the general level of crypto market development and the demand for crypto derivatives will largely affect the structure of UMA products’ users. In addition, the competition in this segment may also increase in the following months, including both functionalities offered and cost aspects. Therefore, investors should prioritize technical as opposed to fundamental analysis when making their strategic financial choices.

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Figure 2. UMA/USD Price Dynamics (3-Months); Data Source – CoinMarketCap

The short-term price dynamics largely depends on the strong support level at the price of $1.95. At the same time, there are still several significant resistance levels that prevent UMA from realizing its full potential. The first one is at the price of $4 that may signify the reversal of the negative trend. The second one is at the price of $5.7 that may be a significant level for supporting bullish sentiments. Only if UMA’s price exceeds the first resistance level of $4, investors can justifiably enter the market by targeting the next resistance price level. The proper risk management should be exercised, especially due to high market volatility and Federal Reserve’s hawkish policies.