It’s a new way of using liquidity mining incentives, which DeFi protocols have pioneered over the summer. It could help the network build its developer community at a time of intense competition within the cryptocurrency industry.
UMA developers can build contracts that track the price movement of an asset over time. Buyers can long or short the asset, which will fluctuate in price due to underlying changes to the asset. For example, developers can build tradable assets that track the price of gas fees for using the Ethereum network or real estate prices in a particular city. UMA encourages development of contracts that track non-traditional—but still measurable—changes in value.
Steps to build a #DeFi product: 1. Get a dev to dream up an idea and buidl 2. Get some liquidity 3. Market to end users
Developers will be rewarded according to value locked in UMA contracts, or how much users buy in to bet on changing prices. The total value locked (TVL) metric is commonly used to measure the popularity of DeFi protocols, where more TVL often translates to better interest rates or trading spreads for users.
DeFi uses smart contracts to replicate financial services like loans or interest on user deposits. Liquidity mining, sometimes referred to as yield farming, took the crypto world by storm over the summer, paying users to deposit crypto or take loans using DeFi protocols.
In its announcement, Risk Labs notes that value deposited by users was fleeting and could quickly move to other protocols. By contrast, rewards distributed to developers incentivize learning more about the protocol and helping created contracts become successful, thereby creating a positive feedback loop for the UMA protocol.
If successful, UMA developer mining rewards, like other novel UMA products, could provide a new roadmap for DeFi protocols and other blockchain projects looking to strengthen their network and community.
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