AMA with Hart Lambur, Co-Founder of UMA Protocol

Transcript

okay bankless nation welcome to this community ask me anything we've got hart lambert here from the uma protocol this is a synthetics protocol we're super excited to bring him here today some quick logistics of course this is a community ask me anything so you guys feel free to ask questions we will try to bring those questions into the conversation you can ask them on youtube you can ask them in the bankless members only discord we're making a change we usually do these on thursdays around 12 p.m eastern we are now doing them on wednesdays at 12 p.m eastern so quick change every the i think we're doing it the second and fourth wednesday of every month so this is the fourth wednesday of

the month of february we're bringing this to you here david how you doing man oh super awesome you know i've always been curious as to what what the the the spiel behind uma is right it's one of the few protocols that i haven't really done a deep dive into myself so i'm really excited to get hart on here to to answer some of my questions and then of course also the community questions as well i know that a lot of these viewers for these amas are on periscope right because it's just easy to see on twitter but if you want to get your questions asked go to the youtube chat box i'm monitoring the youtube chat box if you've ever seen me like doing this like looking off to the left it's because i'm trying to get your guys's questions and relay them to heart um so that's what's

going on uh always the the youtube chat box is a really fun place to be when we do these live streams um and so get your questions in there as well and of course if you are a bankless premium subscriber you can also put your questions into the bankless discord where we will prioritize those absolutely all right well before we get to heart we're going to introduce him in a moment but first we want to tell you about the fantastic sponsors who made this ask me anything possible if you are looking for a product that connects your fiat bank account with d5 tokens and products you need to download the dharma mobile app dharma is a non-custodial smart contract wallet and comes with a bridge that connects you right into your bank account drama is the fastest and most efficient wallet between your fiat

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because your monolith wallet is native to ethereum monolith helps you transcend both the legacy and the crypto worlds because the money that you hold in your monolith wallet has the power of d5 behind it swapping assets on unit swap or earning yield and defy is at your fingertips but with monolith so are the groceries at your grocery store or the coffee at your coffee shop go to monolith.xyz to sign up and get your monolith visa card today all right guys we are back with hart lambert who's the co-founder of the uma protocol this is a synthetic asset protocol on ethereum we've talked about synthetic assets in the past on the newsletter various other places we think

it is absolutely massive uh it has absolutely massive potential within d5 hart how you doing it's great to have you on bank list are you ready for the questions today it's great to be here and yeah ryan david um i am ready for the question i'm looking forward to chatting with you guys that is awesome all right um so we got to clear this up because you are a former goldman sachs person so you spent some time in the belly david didn't know i was not informed tell us what so what is it like um being in the belly of the beast and in goldman sachs for the time you spent there and then coming

to d5 what's what's that transition been like well i learned a lot so okay ryan i um i'm i'm old for defy as we previously discussed right um um but i studied computer science in university like the true nerd that i am um and honestly when i graduated um i was in new york at the time i'm canadian and there was no jobs there's no startup jobs there's no computer science jobs when i graduated new york startup scene has changed dramatically the only place i could get a job was at a big bank that's actually how i ended up there um and i ended up as a bond trader through the financial crisis so i was

actually the guy trading government bonds um when the fed was doing all their buybacks i was the guy at goldman sachs i was actually selling the fed all the bonds from goldman sachs it's like absolutely hilarious um and so i learned a lot around how markets work how market structure works and how people respond to incentives that's that's just been really fascinating did you learn how bailouts work during that time as well i did learn how bailouts work um i did learn a lot about monetary policy i'm not actually sure you and i agree on all the macroeconomics here but doesn't matter uh i i really um learned a lot about how markets work learned a lot uh

about economics learned a lot about incentive structures and that set me up to um play in d5 really nicely so so what has like what's different about divi versus kind of traditional finance so a lot of people i think in d5 uh it's it's honestly they're learning finance through defy which is which is somewhat incredible because i think that the best way to learn finance these days is to actually get into defy start using these tools because that's a crash course in financial history but anyway a lot of people entered finance listening to this through defy and don't know much about kind of the traditional financial world uh what should they know about it what are kind of the differences that you see

well there's a lot of uh a lot of a lot of work a lot of stuff has been invented in traditional finance it's just completely unapproachable and completely unavailable to the average person so like the thing that i think is wild about defy is it like makes it possible for some 15 year old kid in his parents basement to like create a financial product like that's a wild idea um it might be dangerous by the way there might be like you know some rug pulls or some bad ideas that get created in those basements but that approachability and accessibility is is pretty fascinating and if you think about it like when i first started at goldman i i started right when

structured products and cdos and all this stuff was kind of getting created or was booming i should say and these were effectively um financial products being engineered within these wall street banks and being engineered actually pretty badly within these wall street banks and defy now is like letting a whole other category of people tinker and build things and i hope they're being built and engineered a lot better than that stuff was um but the approachability and the ability to actually write a financial contract in your parents basement that is wild and that just does open up finance to a whole different market for people to better understand it

alright so let's go into that a little bit more uh i love that juxtaposition between financial financial products from the legacy world versus financial products in the defy world but let's talk about um financial products and synthetic assets in the legacy world like what is this world world like and what are synthetic assets specifically in like you know the legacy world legacy financial system how do these things how are these things built how do they operate who uses them uh why are they useful yeah well let's talk about like maybe the concept of just a derivative um david so uh what is the derivative what's the point why does it matter um a derivative is a financial contract and in traditional finance it's really a

legal contract and i'll actually come back to this this analogy here too but it's a legal contract so ryan and i can make a legal contract where we're betting on something and it could be um the the value of brazilian equities the brazilian stock market and i'm picking the brazilian stock market right now because it's actually like ryan's in the u.s it's actually really difficult for him to buy the brazilian stock market because of regulations and rules or whatever else um but ryan doesn't really care about actually owning the brazilian stocks he just cares about betting on whether they go up or down he just wants and so he just wants the exposure so if you are a hedge fund or or whatever

what you do is you go and you write a legal contract called a derivative with an investment bank that gives you access to this this type of risk and you can now sidestep the fact that this hedge fund can't actually buy brazilian equities because it's difficult to do so instead they can buy the price exposure of brazilian equities through this derivative contract and so call that a synthetic kind of exposure where they don't actually own brazilian equities directly they own a legal contract that gives them exposure to brazilian equities and so what has happened here is that hedge fund rather than like not being able to buy something is able to use the synthetic asset to kind

of bet on anything and to get price exposure on anything and it makes finance for them global the problem is that like ryan's not a hedge fund and he can't get access to that um as an individual right he just he just doesn't have the re there's not the resources the wall street bank won't write a derivative contract for them hence because it's a because it's a permission system right like ryan doesn't have like a billions and billions of dollars on his bankroll like what are the other restrictions that prevent because i like i got my roommate downstairs uh we like to talk about the future of finance why can't we just go create a contract between each other and how is that different than like perhaps a a bigger well-capitalized

institution making a contract well you and your your buddy probably could create a contract for each other like david let's say you're in the state of california the two you guys could write down a piece of paper or legal agreement what that thing is and say hey we want to do this and you could probably like like what's your like you could do that but what's your enforcement mechanism there i guess you could go and sue your buddy um in the state of california if he doesn't like pay up on your derivative contract which would be hilarious but uh it's it there's sort of a barrier to and better write like a multi-million dollar contract in order for it to be worth it

to sue the guy you know so it's the same reason why ryan like won't have access to the derivative markets that a hedge fund does because he's just not a big enough fish to like go after you the enforcement mechanism this legal enforcement mechanism only works at like a big scale for huge entities writing these contracts defy and frankly what we're doing is designed to change that to make that be uh accessible at a much a much more approachable like a much lower entry point lower the barrier to entry david just uh uh just just you know i think it's bad news for roommate relations to write derivatives with your roommates yeah just

maybe and this is like a big picture question because when you when you talk about terms like derivatives heart i want to make sure people understand this um i think a lot of people have seen this graphic have you seen this heart it's like money around the world right and like this is comparing the world's money in markets uh 2020 and it's very visual right so you've got each each size square is worth a billion dollars so you've got silver here 100 billion dollars with one square and then you've got the size of cryptocurrency and then you've got like military spending and it's size that's cryptocurrency this metric needs to get significantly updated because it says it's 244 billion dollars this was made a while ago yeah so i guess like add like eight

blocks or so whatever right but it's like it's like close um all right so then you've got u.s budget deficit on you go and you got billionaires how much they own then you've got the the you know how much for gold 8 trillion 10 trillion in this calculation 11 trillion fortune 500 anyway you get all the way down you pass global debt you pass real estate uh global real estate holy going past real estate which is huge okay real estate is how big is real estate god that's before global debt i don't know i miss real estate it's somewhere in here um then you've got global wealth but then you've got this big thing at the end which i think is the stunner which is derivatives okay if all that other stuff real estate stocks global debt you

thought that was big you get to the end of this graph infographic and you see derivatives and it's like 560 trillion worth of global money is in derivatives and you keep scrolling down it takes a whole bunch of scrolls to see all of the value and derivatives um can you explain that like is this good is this healthy is this how markets work or is this just is there a real problem here this this sort of stuff is a bit of a misnomer um because you have a lot of um uh offsetting risk so um ryan you and i make a billion dollar derivative where you're going long bitcoin and then you unwind it later but

you don't actually unwind that trade you just do a derivative in the opposite direction for a billion dollars so now we've got a two billion dollar derivative uh derivatives outstanding and the way the derivatives market has evolved there's just all of this offsetting risk which by the way part of the problem here part of the problem in the financial crisis is that nobody actually really had a good picture of that offsetting risk because it wasn't written down any like in one place and was the issue was that it wasn't actually offsetting correctly was that the issue or people didn't know what was offsetting right people like there was like sort of just uh like oh i think like i was actually on the goldman sachs derivative trading desk unlike when lehman's blowing up and goldman doesn't

really know what risk they have to lehman brothers they kind of think they know but it's like if you're when you've got numbers like that if you're off by a little bit it could be like billions and billions of dollars right um and so you know frankly there's a whole other thing where if you had a blockchain you had all those derivatives written on the blockchain where somebody could actually go and look at really articulate precisely what the risk was that to me reduces systemic risk a lot this is a whole other conversation right of just um but this is where i think d5 is going and why i think going back to what i was saying earlier in 2006 when people were inventing cdo cubes or whatever um there was not a lot

of transparency you know what the underlying risk of those products were if you put them on a blockchain it's a hell of a lot safer because people independently can see like okay here's what this thing is um and so to me finance is meant for a blockchain like finance and what people's contracts are should be written on a blockchain because it provides a lot more transparency um into where things are going this is a big conversation that i've had with a number of big corners is that you know bitcoiners will point at defy and be like look at all that risk look at that composability risk like if maker dow goes down the whole thing goes down we're just going to recreate the financial crisis and that's never made sense to me because i i would say that financialization and financial tools can can be dangerous um i think warren

buffett has this quote that like finance could be like create weapons of mass destruction but it's i totally see that like there's a fundamental difference that when everything is done in an inside out fashion and everyone has equal access to information and that information is actually consumable that is what prevents something like an 08 crisis right it's like we just didn't have the information because people only had a very narrow view of what they were able to see and no one could have the big picture and now we have things like dune analytics and like the graph which lets us help us consume data and that i think is really the fundamental difference that you know if we had ethereum as the financial platform the 08 crisis wouldn't have happened does

that how does that land with you heart i agree man like listen this is a controversial statement and some people will uh push back on it but like at a minimum you take these mortgage-backed securities that blew up in 2008 and the reason why they blew up is nobody knew what was behind them nobody knew what was in these mortgage-backed securities right they had to basically trust some bank or then some credit agency um and those guys didn't know either it was it was bad think of trust actually here there was too much trust baked into the creator of these products that couldn't be verified as to what it was and so if instead that structure if you were to make imagine a sort of ethereum based

version of it there's some wrapper that includes a bunch of like loans but you can actually go and look at those individual loans on the blockchain um and you can verify with yourself trustlessly what's happening there that is so much safer um and so i agree david you have the ability to view source on like financial tools and financial products which is super powerful you know before i get off the infographic one other question i have heart is this um so if you scan the infographic you look at traditional finance the other thing that kind of jumps out at me is like the base money the reserve assets are relatively small and then like the derivative assets are absolutely massive so like multiples of

the the reserve based money assets right so you've got kind of your your your layer 1 m1 money that's tiny and then everything built on top gets bigger and bigger and bigger until you get derivatives and they are the biggest of all over 500 trillion do you expect the same thing to play out in this new financial system that we're building in d5 where you have a relatively small kind of base money reserve asset and then you've got like things built on top but derivatives are the biggest from a notional value perspective of all does that play out here too yeah i just don't know if you call them derivatives like there may just be something different there's room for like new new to get invented here but like ryan i do

agree that what you will see at some level is like a base asset a reserve asset which you know ethan's money right so we can eat but you have a base asset and it gets used in all these ways that then the notional value builds up and you're already seeing that happening in d5 where like your base asset is eth which is used to create dye and then you take the eth-die pair and that can be used as collateral to take something else you're already beginning to see this happening um and i think that is the nature of uh finance with leverage

and debt um happening that's just the the way it works heart let's get into some of the more specific details about uma um and i think a lot of listeners there are mental models around synthetic assets we'll probably begin at with synthetics which uses train link oracles to come to a consensus about what the price of an asset is how is the what is the uma model for producing a synthetic yeah i think the mental model to think about here that i i actually want to think of it as almost a primitive that we're putting forward and um if you if you go back to the early days of maker

where maker was single collateral dye where it would only had eth in it what happened there you took uh eath and let's call let's make it raptease let's call it an erc20 asset you took each as a collateral and you created a derivative token a synthetic token die that was deemed to be worth there's a payout function it was deemed to be worth a dollar of each that was what dyes were supposed to be worth they're supposed to be back what we've built is effectively a generalized version of that concept where we call it a a synthetic token that takes an erc20 collateral and takes a payout function

and creates a synthetic token a derivative token that is some amount of that underlying collateral as defined by this payout function and so this is actually a surprisingly powerful primitive because we can do all kinds of crazy things where we convert or transform one erc20 asset into another the difference to point out because you mentioned synthetics synthetics has a different just a very different model where they have a pool a debt pool that's everybody staking their snx to to create this dead pool and out of that debt pool they allow

users to buy synthetic assets so all synthetic assets in the synthetics platform are collateralized or backed by this single debt pool whereas what we're doing what we proposed is it's actually much more of a component it's a single primitive that an erc20 asset goes into this contract to mint a derivative token according to some payout function so there's a big criticism of the synthetics model is this like systemic risk conversation where like this one single pool of debt if that doesn't work out all synthetic assets crumble it seems and so the takeaway that i just got out from you and correct me if i'm wrong is that uma as a more as a primitive

doesn't actually depend on one single pool of debt it uh is more modular between like the input asset and the output asset is that correct yeah that's that's that is correct i mean again i i think i actually have a lot of respect for the synthetic platform and all that just to be very clear and i think they're doing like really fascinating stuff and the whole deep ecosystem um should be thankful to a lot of their innovations and the way they push things forward so say that clearly but yeah there is a pooled risk approach here that um is true for other platforms like compound has the same issue compounded the any asset it's got us if any asset fails the whole thing fails there's similar arguments that can

be made to some of these other pooled platforms david what we're kind of producing is more we really think of it as a developer infrastructure so developer can come to us and take our contract take our primitive and say i'm going to segregate this pool where i'm going to create a synthetic asset that's backed by just this this one erc20 in its own sort of segregated pool and that has pros and cons it's kind of got its own um different use case i think there's one one kind of takeaway here is if this is if you're listening and this is kind of your your first exposure to synthetics like the magic moment for me and understanding it was

back to heart's example of of dye like once i wrapped my head around dye and understood that then i started to understand what uh what a synthetic is and it's basically if you take an erc20 like a store of value right whether that store value is wrapped bitcoin or ether or whether that's usdc so you take a store of value and you combine that with an oracle like so with the price feed store value plus price feed in a smart contract platform equals anything you could create anything you want out of it you could create s p 500 you could create like you know um gold silver any commodity any asset anything that has value you know the art on david's wall

anything basically so that that to me is is why this this synthetic primitive is so powerful because we have a lot of store value erc 20 assets right and we've made a lot of like strides forward to create great oracle solutions now we have even arguably like more decentralized oracle solutions like the uniswap uh t-wap uh and now we can create anything um and by the way this is the the notion if you've been following bankless for a while the notion of why economic bandwidth is so important what we mean when we say economic bandwidth is just the the market cap and the liquidity of that store of value asset and it can be either you know centralized like it like

a usdc or it can be more trustless like eth but anyway that's the combination store of value plus oracle equals any kind of asset that you want is that is that a good way to think about it i love that i'm gonna steal it and use it ryan um but it's alchemy right it is alchemy where you're taking store value erc20 asset plus price feed right to any other thing and it actually probably segues nicely into what our oracle solution is which i'm not even sure you guys have like we're pretty quiet about that or it's a bit under the radar a bit more nerdy but we have this whole philosophy on how to we're written something we're going to

label this the optimistic oracle our whole solution to this is to not rely on a price feed um but to actually try to create these things where we only need a price if there's a dispute and i can go in a bit more detail but this priceless methodology that we've adopted this optimistic oracle allows us to essentially create a price feed for anything which if you take it back to your model of what you just described um if we have store of value so erc20 asset plus price feed for anything it literally lets us create a derivative or a synthetic asset for anything

and this is where i think our i think the ability to create new to actually dream up assets that didn't otherwise exist suddenly becomes possible so we could if we wanted to make a price feed if the price fee for anything could be the the the number of subscribers to your guys's youtube channel right all of a sudden we can make uh a synthetic asset that actually tracks the value of like the number of subscribers to your guys's youtube channel um and i think this becomes super interesting and kind of fun yeah it's it's basically back to that that kid in the basement that kid in the basement can go create a synthetic of anything a

value and then go trade it in this platform that's the magic of it the other magic of it i think is when we're talking about defy permissionless open decentralized finance this is what solves the game stop problem right like we could like rather than robin hood stopping trading on gamestop we can create these synthetic assets in ways that they really can't be stopped by a centralized intermediary so so that's par powerful too okay so i'm i got to confess the heart i don't fully understand the priceless oracle thing and i'm not sure we have the time to get into the technical detail like i have my head wrapped around what chain link does like i understand that all of these various oracle like i understand that i understand uh unit swaps um oracle at

like a you know a decent level but how is your priceless oracle different is there like an explain it like on five just for that yeah the way to think about this is where we're enforcing our contract optimistically and you can actually think like frankly a lot of the thought process came from conversations we had with the plasma group which is now the optimistic team and optimistic grow ups like same concepts here the goal here is let's minimize oracle usage let's only use the oracle if there's like a genuine dispute effectively in like layer 2 like an exit game um and the way to think about this in um uh in a traditional is actually more

like a traditional legal contract back to david's derivative agreement that he wrote with his roommate right in that derivative agreement david wrote with his roommate this legal contract you hope you don't have to sue the other person to enforce it your goal is to not go to court and litigate this thing your goal is just that you you only use court as uh an enforcement mechanism so that like wait if you don't follow the terms of the contract i will sue you the very high level understanding for our optimistic oracle is the same concept where we don't use the oracle um in 99 percent of the cases and actually it's more than that we only use the oracle to get a price if there is a

dispute in whether okay so this seems like there could be some efficiencies here because you guys have removed the oracles and um and but the oracles are still there in the backstop right so it's the threat of the oracles in the background that makes the incentives for people to follow the rules in the first place uh and i would imagine like i i make her dao i heard this crazy stat from somebody who works at the maker dow team where they are spending twenty to thirty thousand dollars a day in gas fees to constantly update the oracles on the ethereum l1 that's that's inefficient that's a crazy number right like we could be doing other things with that capital and so i

think what you are doing is you what you are saying is like well we'll have the oracles but we won't use them because we are going to give the option for participants to settle between themselves as they agreed and if somebody defects from that agreement then we will do the more expensive stuff which is bring in the oracles uh and that's like kind of quote-unquote bring in the courts right bring in the judges bring in the lawyers that's exactly right david like and i think the maker example is this is part of our our path to thinking here was exactly that so maker is pushing all these prices to the blockchain every five ten minutes or whatever they're they're doing all this and most of those prices aren't being used for any

liquidation um they aren't being used for anything they just have to be there and then you have liquidations that happen right that happen pretty rarely so our our design or like kind of simplifying it is like okay when a liquidation happens you have a keeper in the same same in the maker system you have a keeper say hey i'm going to liquidate this position but there's no on chain price speed they just say i'm going to liquidate this position now and the only difference we do here is we let that liquidation go through but we don't pay their keep the keeper their reward for a two-hour period it's a parameter or system we don't pay them the reward for that period and if anyone during that period disputes that liquidation

then it goes to the oracle that's basically for dispute resolution and because of the economic design here because like an uh a liquidator if they do a bad liquidation loses a lot of money we've actually designed this where you know to date in the sort of six months less than that but five months that this design has been live um we've only had one dispute one genuine dispute we've tested it um and basically this optimistic enforcement has actually worked really effectively and so it's very efficient um in terms of a gas cost thing but the other thing that makes it really cool is we can be an oracle for a lot more things for

pretty much anything we don't need to going back to the example of if we want to make a token with the number of subscribers to your youtube channel you guys couldn't do that right now in this current gas environment if you had to push an oracle update for the number of subscribers to your youtube channel on chain that would just be too costly for you to do the other advantage this approach is that it lets us do things like that because disputes are so rare one thing one thing i want to ask is um so the the threat of the oracles in the background is what keeps people aligned and this this makes sense to me when i i'm reminded of our uh episode with uh justin drake not too long ago where he he uh

he didn't coin anything but i would like to say he coined this rule this law that i call drake's razor where if you can use crypto cur or cryptography use cryptography and if cryptography fails use cryptoeconomics and this seems to be saying like okay we'll just use the protocol and if there's a dispute then we'll turn to crypto economics right my question is like that two hour window of that dispute window that that is nice that makes sense but like what if uh and maybe maybe this is kind of missing some some of the the design here but like two hours is a long time for liquidations but kind of a short time for humans right like i sleep eight hours a night or at least try to get my eight hours night's sleep what if somebody presses what if somebody tries

to liquidate me in those two hours while i'm asleep like what's up with that how do we get the assurances there where do the crypto economics come in yeah that's where that's where this like crypto network is so awesome right because david we can design this so if you have a position you get badly liquidated you you get liquidated when you show it within we don't need you to dispute that we need just somebody that's watching the network to dispute it and as long as we can pay that dispute or a legitimate like appropriate reward they show up people respond to economic incentives so while you're asleep if you get unfairly liquidated some guy in hong kong should be the guy being

like okay i'm gonna dispute david's liquidation here the guy that liquidated david here because he should have been liquidated and i'm gonna get a reward for doing so um and so the idea is that you just have this crypto you have this network where all these eyes all over the globe are watching these transactions to make sure they're appropriately followed and they're responding purely to economic incentives i'm going to slip a quick youtuber question in here because i think it's uh relevant right now somebody watching on youtube is asking um we recently wrote an article about keeper dao are you familiar with keeper dao cart uh i am familiar not like super deep i think it's really interesting are they an entity that can provide some of the liquidations that you were just talking

about the kind of a keeper entity uh are they doing that or are they the type of entity that would do that uh yes the type of entity no they're not doing it right now but we've talked to them and i'd like entities like that to do this um and again it kind of goes right into this whole idea of like they'd be one of these this network it's like out there in the ether pun intended um that's monitoring um how monitoring these contracts to make sure they're appropriately followed okay so you've got this synthetics um synthetics protocol this primitive that you've built out um

can we get into a few examples of this of how people are building it so you've got 63 million total locked value in contracts on on uma 21 million of synthetic tokens that have been melted using uma nine projects can you give us highlight a few examples of how uma is being created and what synthetics are coming out on the other side yeah those numbers are actually all scale we don't have that being updated live yet that's something that's happening in the next week or two um you can pull that right from the blockchain i know i know um it's embarrassing um so they're they're higher than that but yeah i can talk about like the types of things that have been created that i find like really interesting um and again guys the part

that i push here we are trying to position uma like our infrastructure as being this platform to create these synthetic assets we're not creating them ourselves and we want to make it super easy for a developer to that comes up with an idea and developer might even be a wrong word it's like a financial product inventor right um that comes up with an idea we want to make it super easy for them to go and create that thing and so stuff that's been created um fixed term loans we'll call these like yield dollars um or zero coupon bonds where i take um uh ethereum or i take rap bitcoin that's my collateral and i

want to create a synthetic token that's worth a dollar at some future date so okay i've just built a lending platform based on this asset what um the badger dao community is doing is taking this concept in a wild direction where the badger dao guys have um all of these uh vault tokens so people that have um my favorite example is like the badger uh wbtc eth sushi token so you're providing liquidity on wbtc eth and then you're staking it in badger to earn badger tokens and you've got this bulk token

that is an illiquid asset well what if you use that as collateral in a synthetic asset to mint a yield dollar token a token that's worth a dollar at expiry i've just like used my illiquid asset and i've transformed it using this alchemy process into something usable that i can now get leverage or or borrow against which is kind of cool so that's that's one thing i'm going to deep here project teams are creating um a bitcoin dominance tracker um so i can buy a token that tracks bitcoin dominance as bitcoin dominance goes up or down i make money um same with altcoin dominance i think this is a super interesting financial

product to bet in like the market a market neutral way on the or whether the long tail of crypto assets is gonna do better or worse um somebody created a bitcoin cash synthetic on ethereum uh um i didn't want to go and i don't not really i shouldn't say anything too controversial with bitcoin cash i don't know why people care about this but someone wanted to say controversial things about bitcoin cash yeah it's fine so it's so okay so like it's pretty amazing because it's a blank canvas anyone can can create anything they want but um where would someone get access to like let's say i wanted to bet against bitcoin dominance not saying i

do but let's say i did where would i go do that because there's no like uma protocol whereas all of like website or you know where it lists sort of all of the different assets from uma is just this just available in the rest of kind of the d5 infrastructure like i'd go to unit swap and find that or is there one central location where all of these synthetics are trading yeah i mean ryan it's kind of like a good like we don't know i don't know the answer to that i don't know if we like should we have uh a centralized page that lists everything that's been created with a protocol maybe that seems like a good idea that seems like something we should build um for if you wanted to bet against bitcoin dominance you can buy an altcoin

dominance token right now on domination finance which is using our infrastructure behind the scenes um there's sort of an open question here just for us as a project where how loud do we want to be versus behind the scenes like like you know stripe doesn't list every merchant using the stripe platform to like process credit card payments right um but that we might be different maybe we are supposed to list everybody that's building synthetic assets it's kind of an open question that i i don't know um and discoverability does matter so you make a good point maybe we should have a page where here's everything you can buy hart i want to know where liquidity

comes from in the system right we earlier talked about a potential synthetic asset that tracks the bankless subscribers right and i'm i would be bullish on such an asset right but doesn't that mean i'm glad to hear you say that david no super bearish not going anywhere um but like if i want if i buy into an asset that tracks bankless subscribers on the youtube does that mean that somebody needs to take the opposite side of that trade like where does the liquidity come from how does this work yeah um so david this is where amms um are mind-blowing and are the future um and guys like this is again coming from a

guy that was a market maker at goldman sachs for like a decade like screw that a m's are the future it's because of this long tail right it's long tail stuff yeah and you like listen so right now the the answer is that to get to make these synthetic acids usable they need to be put in a uniswap pool or amm pool that has reasonable liquidity right now that's actually pretty capital intensive it takes a lot of capital to create a uniswap pool that has decent liquidity around this stuff but i have a lot of faith that that's going to change be it in future versions of what balance or new swap we're doing or we've got some other half-baked ideas

too on how to make this stuff be a lot more capital efficient but really the amm idea and the fact that there's people out there that now get it they're like oh look i can be a liquidity provider and earn fees by being this market maker and i might get short i might sort of sell an asset that i otherwise like but i'm getting paid to do so this is like a core concept that is frankly making i think these long tail synthetic assets usable so your your core question david you're right like right now your youtube channel subscriber it's a bit costly like you'd have to actually put a lot of capital in to make this uh this subscriber token liquid um but i

think that's going to get better easier and easier and easier and less capital intensive in the near future okay so i would just like to to summarize and again i want to compare and contrast the uma model with the synthetics model the synthetics model people really appreciate because they have infinite liquidity on any asset because all they have they have this massive debt pool which means liquidity can come from anything but there's also that conversation of like well this this is also this the commitment to infinite liquidity is also a commitment to systemic risk right so like bullish and bearish right at the same time uma strips out that mass like that unified liquidity debt pool and so it doesn't have infinite liquidity for everything

but also doesn't have any systemic risk right so that means that uh it's not just enough to make a synthetic asset you need to also create liquidity right so just because you can create an asset doesn't mean that it's liquid right so it's a two-part process is that correct that's spot-on and i think that's exactly right so right now in order to make you can make a synthetic asset right now on pretty much anything but then you got to make it usable right and making it usable requires making it liquid right so i agree with your two-step process and i'd also agree that the second part of this process right now um that's where i think making it less capital intensive to make it liquid

makes that two-step process easier and easier and easier it's the other difference between synthetics that uma is a bit more like blank canvas in that it's it's permissionless like i could create whatever synthetic i want whereas with synthetics you know they kind of add you know different synthetic listings over time onto their platform but synthetics you could just build anything it's kind of permissionless and that that reasoning goes back to the oracle like goes back right into your your bit of like store value erc20 plus plus price feed you know so synthetics is limited synthetics is limited by price feeds they need a

chain-link price feed for something so that has to exist um and also then i guess financial engineering concerns around like their deadpool and the risk they're they're doing yeah but um [Music] chain-link like there aren't chain-link price fees for anything and in the current uh ethereum gas environment it couldn't be it would be too costly for sure um and even if you didn't have this gas environment you still need uh like that's still different and also by the way i'm a fan of chain link and a lot of what they do and you know there's there's real use in having call it like the fat head assets being pushed on chain like the eat dollar price should be on chain for people to

use that makes a lot of sense you know but the long tail stuff this is where you get more constrained so there's just pros and cons to all these different approaches and i think so as you pointed out this is a very very big market and it's all symbiotic right so um different approaches for different use cases that i think all jive together quite nicely so one thing we've noticed ever since defy summer came around is that protocols are able to leverage their token to add liquidity to help bootstrap liquidity into their system uh is that something that the uma because uma has a token i believe it's called uma um how does how does the uma token

integrate itself with the uma protocol and does that help boost strap liquidity anywhere so our our token our token holders um are fundamentally the voters in the oracle our token holders are effectively the oracle that we try to minimize usage of um i know we'll keep it at a high level for that and then separately david to your point we are using our token um in liquidity mining campaigns and we actually have a pretty interesting program we call developer mining but we are using our token to help incentivize liquidity in these pools to help make them make the assets be more liquid or usable um and so yeah yeah can we talk about developer

mining for just one second because that's a theme we we talk about a lot on bankless which is you know dave and i like to joke that uh we work for algorithms and protocols which we basically do right um and but there there are more and more opportunities uh we're talking to the graph you know not too long ago maybe it's our ama before last and they talked about how success all of the earning uh potential possibilities that existed within the graph protocol so tell tell us about your developer mining if i'm a developer i want to do something for uma protocol is there an opportunity for me yeah so first of all a high level question um or not question statement um we are

designing incentive structures like crypto is designing incentive structures ryan to your point we work for algorithms we work for incentive structures here and liquidity mining like yield farming is a fascinating incentive structure that has been proven super successful at getting liquidity into amms call it um we wanted to take that concept and be like okay well wait we actually really want to incentivize developers with an idea for a product to come and build on our platform um or build using build on the build using our infrastructure and so we can actually do clever things like we

can measure any new synthetic that gets created how how much value is minted in that synthetic how popular quote unquote popular popularity measured by dollar value locked how popular is that synthetic and then what we can do is every week we can look at all the synthetics minted on our platform and be like oh this synthetic is here's the popularity let's pay these guys rewards let's pay these developers rewards based on the popularity of their idea this is cool okay so so when you say developers what you mean is kind of this new class of financial engineers who's developing synthetics and what's really cool about like this is when we when we started to get web 2.0 right with like

facebook and instagram and everything that came after it it created this whole new economy of people from their their offices or from their homes who would just generate content for what for attention for likes that was kind of the currency what you're talking about is essentially these kids in in in their houses or wherever they live or anybody really being able to create synthetics and you know the value of the synthetics that they create is is based upon its usage and you can actually earn an income that way right so like now you have you have youtube uh influencers basically you could have like synthetics creators as a as a full-time hobby job like or you know maybe uh maybe a a very

lucrative job depending on the success of it this is what you're talking about yeah um i'll fred ursum i stole this idea from a while ago but so um long tail long tail financial products right if you think of youtube's like the unboxing video something you could have never predicted right and like this whole like on on like all this that happened because of user generated content i do have a belief and i'm the timing of this is hard but i do have this belief that we will have like user-generated financial products of a sort that are like this long tail of things that um you wouldn't otherwise predict and

you're right ryan i see there being a world where if people produce financial products or produce ideas that other people want um they can earn an income off of that i i think that is a world we're going towards and i don't quite know what it looks like but i completely agree it's part of our vision right that like this it's easy to create um financial products it's easy to build and defy we make kind of like building the c5 stuff simple and this new class of kids in their basement um create interesting things that other people want okay guys and everyone in the youtube this is the last call for listener youtuber questions so if you have a question for heart get it into the the chat box also like and subscribe um

heart my question for you is uh no one can really predict the future of uma better than you and and the uma team right and so when you guys are shooting the eating lunch like not really thinking about the future what are some of like the crazier things that you guys think about that you could do with uma like if you guys really went like super deep and you're like well we could do this and then this and like give us an example of some really like sci-fi type stuff that could happen out of uma um david that's a good question and i'm uh i'm currently obsessed with thinking about the stuff so we did our kpi options right we can create a synthetic token like a project can

create a synthetic token that pays out uh some amount of project tokens uh based on a project hitting their kpi we announced this i think it's a better type of incentive structure than many yield farming things out there too because what you end up aligning uh the collect you you end up giving the community ownership in the successful protocol i think that's wild and i think the types of ways you can you can expand that are pretty wild we can create um all kinds of call options a lot of different options markets and like structured notes various sort of interesting payouts using the same primitives the same synthetic i've

actually very recently realized we've only scratched the surface of like what ryan's alchemy is example of store value like erc20 asset plus price feed equals like big big space um one of the things that is really mind-bending that i'm recently thinking about is what if we were to create a synthetic asset collateralized by its own amm pool this is recursive it makes your head hurt a lot but i think there's like wild things you could do there um there's lots of fun stuff basically i think we've got uh we've got a a lot of

a lot of potential innovation coming i i want to ask you you know we're getting to kind of the the close maybe there's some other questions we should ask but but hard this has been kind of burning in my mind so you started it at uh at goldman now you're you're fully down the d5 rabbit hole right like um you're all in here so i guess my question is why hasn't wall street why haven't other financial engineers uh in traditional finance discover d5 like they love building financial products don't they of course they do like what do they think you're crazy when you talk to them about this or when you keep in touch or like why aren't we seeing wall street using uma protocol to create

all of these really cool derivatives so ryan they are they're jealous they want to be doing this this is all they want to be doing um and like you know my old boss at goldman um works with us now works really closely and is doing this just having a lot of fun he wrote a blog post on like creating structured notes using um and building all this stuff he is having a lot of fun doing this the difference here is the people want to play in d5 i actually talk to a lot of wall street people that are either looking for jobs in d5 or want to transition to it or whatever else the institutions like having worked at goldman sachs the institutions aren't going to move man

they're going to get like and we don't want them to move you want goldman sachs to have its lunch eaten by like you know swap or something right and that will happen that's just i think that's just how technology evolves where the people in the incumbent in this case wall street will move to this new infrastructure and will build new entities organizations or whatever else that will eat the incumbents and that's like uh that's that's great so what what's in the what's in store for the future of uma like what's what's on your guys's roadmap that we have to look forward to uh a lot uh so we're doing this kpi option thing and we're gonna be doing

our own version of it um where we are going to be air uh air dropping tokens to um people in our community and people that have been used governance in other communities uh been active governors and other communities we're gonna airdrop them an option that will increase in value the more our tdl goes up which i think is pretty cool um transparent i think there's a cool idea for call options that we're going to put out in the near future we're going to publish more loudly about our optimistic oracle which can be generalized for other use cases outside of just synthetic tokens and make that be kind of like a cool

uh primitive that can be used for um applications where you need a price feed on something weird on kind of a price feed on anything um and then we we have a perpetual synthetic token which is a pretty hard financial engineering problem that uh is audited and ready to go we're going to put an experiment we're going to test that out um so there's a lot it's like we're pretty busy right now uma as a platform i'm reminded of that one like famous gif of uh the microsoft people on stage going developers developers developers it sounds like you guys need a bunch of developers so if if we have any developers listening i'm seeing some developers in the youtube comments how can they get started to go start playing around with with uma

because interestingly uma seems to be not just a money lego but a money lego factory and it seems to really need my money lego developers to really build out money lego structures what how can developers get started you guys are so good at like the taglines and the marketing right like i'm gonna steal that david the money lego factory that's like good man um uh i think there's a job title in there too like money like a designer money lego factory worker like a very a very blue collar title here i like that a lot um uh so david you're entirely right we want and i actually joke back to that

steve ballmer on stage being all sweaty going developers developers developers that is what we want to do um best way is join our discord to start with discord.umaproject.org and we need to do better documentation we do all this other stuff but join our discord read our docs um and yeah chat with us basically all right i want to see you uh replicating the steve bummer gift someday just getting up on a stage and screaming it make sure you make sure you feel the passion that bomber felt at that time um man this has been a lot of fun i think i didn't know a ton about uma protocol going into this

but i feel like i i know a ton coming out um hart thank you so much for for spending time with us today we appreciate it thank you guys this was like really fun um do it again sometime awesome all right bankless nation we are going through all of these interesting projects on the ask me anything to help level you up on what's going on in d5 and it moves so fast that's why you have to keep tuned in so like subscribe the video check out the the podcast as well podcast version of this comes out on a thursday as always risks and disclaimers eath is risky d5 is risky so are synthetics that are based on the ethereum platform you could lose what you put in but we're

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