How Oracles can be Optimistic with Hart Lambur, Co-Founder of UMA - Ep. 67 Podcast Notes

UMA

UMA is an optimistic oracle that can get any type of verifiable data onto any blockchain. Anyone can ask the optimistic oracle any question and is guaranteed a truthful answer through game theory and incentive mechanism design. UMA is similar to the decentralised prediction market, Augur. The main difference between UMA and Augur is that it is not just integrated with prediction markets so any developer can use it. 

Hart Lambur 

Hart Lambur co-founded UMA in 2018. Lambur studied computer science at university and was a bond trader at Goldman Sachs during the financial crisis. He learnt about Bitcoin through Coinbase co-founder Fred Ehrsam. 

Ep.67 Podcast Summary / Notes

How to ensure the information provided is accurate and not malicious 

• Optimistic concept - Any contract can ask any question 

  • i.e. Who won the soccer game/ election/ price of X

• Anyone on the blockchain can answer the question 

  • Once the responder provides information, a challenge period starts 

  • If nobody says the information is wrong, it gets taken as true

• If someone raises a dispute, a Schelling point voting system is conducted by UMA token holders 

  • The vast majority of oracle requests are resolved at the optimistic level 

  • Very few disputes to do extra work on 

• Similar concept as lazy evaluation in computer science 

  • If I don’t need to do extra work to prove what the outcome is, I won’t 

  • A cheap and easy solution to the oracle problem

What happens when people raise a dispute 

• Disputes occur infrequently but not never 

  • 1-4 disputes per month 

• Examples revolve around technical details or situations when there is more than one reasonable outcome 

  • The goal of the system is to figure out what the most reasonable outcome is 

  • Similar to dispute resolution in the legal court system 

Is it possible for market participants to be irrational and is UMA able to resolve it? 

• Layers of dispute resolution

  • 1st layer requires 1 honest participant 

  • Don’t need everyone to be economically rational 

  • 2nd layer Requires UMA token holders to vote 

  • Schelling point voting system - everyone votes in secret - the system is designed such that  people vote for the truth 

• Requires half of the voters to act irrationally for the system to fail

  • Similar to the 51% attack concept; Not impossible but highly improbable 

  • Voters are incentivised to vote as they are rewarded when they participate in the voting process
     

Non-Optimistic Oracles vs Optimistic Oracles

• Non-optimistic oracles 

  • Reporting the prices of centralised exchanges truthfully

  • But exchange data can still be manipulated 

• Optimistic oracles 

  • Community members are able to dispute if exchange data has been manipulated

  • However, requires time for users to react and engage in dispute process

• Trying to deliver truths in real-time is very hard

  • Part of the tradeoff with optimistic oracles is due to the dispute process 

  • UMA’s trade-off is the speed of information for potential recourse and the ability to undo 

What role does the UMA token play in the ecosystem

• UMA 

  • The voting token 

  • Inflationary rewards for voters 

  • Many systems require effective tokenomics to function properly

UMA Products relating to KPI Options

• Previously created KPI Options to help DAOs motivate communities 

• Rebranded KPI Options to Outcome Finance 

• KPI Options are synthetic tokens that can track anything using UMA Oracle

• KPI Options

  • Token that a DAO collateralised with their project token

  • Get a long and short derivative token 

  • DAO keeps one side - the other side is given away via airdrop

  • Able to program payout under certain conditions   

  • i.e. TVL or Volume target

  • e.g. Once a certain TVL target is achieved, community holders of the token will receive additional rewards via airdrop

  • Hence, holders of KPI options are incentivised to achieve community’s goal 

• Tagline: Help your DAO achieve a positive outcome 

What does the oracle industry look like 

• Oracle - get some data that doesn’t exist on the blockchain 

• Smart contracts are only useful if they know something about the world that doesn’t exist on the blockchain 

  • Compound / Aave need to know the USD price of digital assets for liquidation 

  • Easy to answer questions in a centralised manner but defeats the purpose of using a blockchain 

  • Doing it in a decentralised manner is largely underappreciated 
     

What kind of role would oracle play in cross-chain and interoperable blockchains? 

• Difficulty in getting information across chains in a decentralised manner 

  • Optimistic oracles are a lightweight and cheap way of getting information 

  • Non-optimistic oracles are either very expensive to operate or centralised 

What is an underrated issue oracles solve? 

• Multisigs are lazy shortcuts developers in web3 are using instead of using a decentralised alternative 

• Upcoming product on Outcome Finance: Optimistic governance - Attempt to replace multisig using optimistic oracle

Alfa

• Across Finance 

  • Cross-chain protocol community is launching a token and referral program 

  • Users of the protocol gain ownership by referring it to others. 

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Lau Jun Sheng

Jun Sheng is a research intern and is an avid gamer, degen, memer, sleeper. Follow the author on Twitter @jnshngl