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UMA Project

UMA KPI Options and Airdrop

Tl;dr — UMA will be airdropping a new incentivization mechanism called a “KPI option” to a curated list of addresses in DeFi. The value of these options depends on the TVL of the UMA protocol, thereby giving every recipient an incentive to grow the protocol. (KPI = key performance indicator)

Compared to a typical airdrop which can be easily dumped, KPI options are synthetic tokens that will pay out more rewards as the core KPI of the protocol grows.

The Risk Labs foundation has allotted 2,000,000 $UMA [~$60M USD] for this purpose. The target date for the close of this program is June 2021, at which point the KPI options will be redeemable for $UMA. These tokens will have a minimum value of .1 $UMA each — but if the KPI target is hit, they will pay out 2 $UMA, a 20x increase.

This article covers the rationale and implementation of this mechanism as well as how other protocols can build their own KPI options to achieve growth goals.

Using KPI Options for Capital Distribution and Community Growth

UMA likes to experiment with incentive structures. In April 2020, UMA was the first major DeFi project to do an Initial Liquidity Offering. In November 2020, we launched a novel incentivization program called developer mining, which rewarded developers for launching products using UMA.

As our next experiment with incentives, KPI options are designed to reward our community for helping grow the underlying fundamentals of the protocol. UMA is community owned and operated, and so it follows that the community gets the upside of its own success. The community succeeding and the protocol succeeding should be one and the same; this is another experiment in aligning those incentives.

KPI Options Align Incentives

Traditional airdrops of liquid tokens can fuel network growth but can be easily dumped. It is difficult to predict the effect of these airdrops, and the risk of dumps makes airdrops impractical for projects with tokens already in circulation (like UMA).

Instead, KPI options are synthetic tokens that will pay out more rewards if the KPI grows to predetermined targets before a given expiry date. Every KPI option holder has an incentive to grow that KPI because their option will be worth more. This aligns individual token holder interests with the collective interests of the protocol.

Some examples of KPI Options that can be created on the UMA platform:

  • TVL Options: for DeFi protocols, these options pay out more project tokens as TVL goes up. Option holders are united in growing protocol TVL.
  • Volume Options: for exchange protocols, these options pay out more project tokens as trading volume increases. Option holders are united in growing volume metrics.
  • DAU Options: for dapps, these options pay out more rewards as DAU numbers go up. Option holders are united in growing dapp/protocol usage.

UMA’s KPI Option: 2 Billion TVL

UMA is creating the first version of these tokens to incentivize growth in UMA’s TVL. Here is how they will work:

  • Each KPI Option is an ERC20 token. At expiry, each option is redeemable for a specified number of $UMA based on UMA’s TVL at that time.
  • These options are designed to pay out a minimum .1 $UMA if TVL is $100mm or lower; and a maximum of 2 $UMA if TVL is $2B or higher.
  • The rate of payout will scale linearly at a rate of TVL/$1bn between that floor and cap. For example, if the TVL of UMA is $1 billion at expiry, then each option will be redeemable for 1 $UMA tokens.
  • The expiry date for these first options will be June 30, 2021.
  • Risk Labs will use 2mm $UMA tokens to create 1mm options. These will be airdropped to the UMA supporters and the broader DeFi communities. This distribution is part of our plan around community distribution originally outlined at our token launch.

UMA is using its own synthetic token infrastructure to build these TVL options. Below are the steps required to do this. Any protocol can repeat these steps to build their own version:

  • The UMA team will propose UMIPs for $UMA to be added as a collateral type, and for UMATVL to be added as a price identifier to the UMA system.
  • The UMATVL identifier will specify the payout ratio as well as the floor/cap in the payout at redemption.
  • The foundation will deploy the synthetic token contract, deposit 2,000,000 $UMA as collateral, and mint 1,000,000 KPI options. The $UMA collateral will be locked in the contract until expiry, just like any other asset created with UMA protocol.
  • At expiry, the TVL of UMA will be determined (using the UMA protocol), and option holders will be able to redeem their options for $UMA.
  • Future consideration: at expiry, Risk Labs could offer to exchange the expired option token for a new one with a higher TVL target and longer expiry. This could incentivize option holders to continue to grow the protocol KPI.

You can see a live dashboard of UMA’s TVL here.

Developer mining and other programs currently in effect remain unchanged by this announcement.

What’s Next & Timeline

This is the first of 3 announcements. This announcement describes the KPI option idea and outlines UMA’s plans to airdrop these options to both UMA supporters and the broader DeFi community.

The second announcement will disclose the airdrop qualification criteria and its rationale. The snapshot for eligible wallets has already occurred, so no actions taken after this article is published qualify for the airdrop. Save your gas.

The third announcement will cover how to claim these tokens and ways to increase their value.

Teams interested in creating their own KPI Options programs should email hello@umaproject.org.

To ask questions or give feedback on this design, please join discord.umaproject.org.

The UMA team thanks Alex Price, Chris Burniske, Chris Spadafora, Dan Robinson, Jakob Palmstierna and 0xMaki for conversations that lead to this idea.

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UMA is a decentralized financial contracts platform built to enable Universal Market Access.

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Hart Lambur

Hart Lambur

Co-founder @UMAprotocol. Believer in Universal Market Access & decentralized finance. Previously founder @Openfolio, trader @GoldmanSachs, CS @Columbia.

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