This might be a first-ever when it comes to a crypto comparison article, but I’m going for it. When it comes to a heads-up comparison between two Ethereum-based, synthetic asset protocols – Synthetix and Uma – Synthetix is the winner. Things could change quickly, given the nature of crypto. But as of now, Synthetix has the action.
This article compares the Synthetix and UMA protocols, and their native tokens, in order to provide crypto investors an edge as to what technologies and economic opportunities are coming around the corner.
Let’s roll.
What are Synthetix and Uma
Synthetix and UMA are both decentralized protocols that allow users to mint and trade synthetic assets on Ethereum. These synthetic assets are technically ERC-20 tokens that are pegged to the price of real world assets. As the price of the real world assets fluctuate, so too does the value of the ERC-20 tokens. Thus, Synthetix and UMA both provide crypto-native investors an innovative way to trade and get exposure to traditional asset price action, without having to depart from their crypto-based infrastructure, payment rails, and dApps.
Within both protocols, the represented real world assets are never actually bought, held, or sold. Instead, both Synthetix and UMA require their synthetic assets to be sufficiently overcollateralized to ensure that holders can always redeem their synthetic assets for the current value of the represented real world assets.
Even though Synthetix and UMA are at different developmental stages, these protocols have the potential to be revolutionary. With this technology, anyone with an internet connection can get investment exposure to any tradable asset under the sun. If there is sufficient market demand for price exposure to a real world asset, users will gather the funds necessary to make a tradable market for that asset on the blockchain. In that sense, these DeFi protocols are attempting to bash in the doors to a traditionally restrictive and highly-regulated $540 trillion dollar derivatives market.
How do Synthetix and UMA Work
While both Synthetix and UMA are similar in that they both allow users to mint and trade synthetic assets on Ethereum, their foundational and technical aspects are very different. Let’s examine the details.
Protocol Design
- Synthetix: A smart contract protocol with its own developed dApps. Thus, users can easily access these dApps to mint, buy, or trade synthetic assets (called “synths”). The dApp Mintr is for minting. Kwenta is the premier decentralized exchange. Lyra is for options trading. Thales is for Parimutuels trading. Because these assets are ERC-20 tokens, developers can create their own dApps and integrate them on top of Synthetix’ functionality.
- UMA: Technically, UMA (Universal Market Access) is a smart contract builder and innovative oracle. Practically, it appears that UMA is more of an open infrastructure rails system that allows for the creation and price tracking of synthetic assets via smart contracts. At the time of this writing, it does not appear that UMA has its own native marketplace or decentralized exchange. Rather, it seems that UMA is depending on third-party developers to create user-interface dApps, while UMA focuses on building strong underlying synthetic asset infrastructure.
Purchasing…
David learned about bitcoin in 2015 and has closely followed the crypto industry since then. His professional interests center around bitcoin, layer-one blockchain protocols, decentralized finance, and clean energy. An attorney by trade, David has held licenses to practice law in the State of Hawaii and in US federal courts.
