UMA Tokenomics & Token Staking Update 2023
TL;DR — UMA is launching token staking. $UMA tokenholders will receive streamed rewards when they stake and vote on disputes. This change is part of UMIP 173, which includes other optimizations to voting and security.
Key takeaways:
- $UMA tokenholders will soon be able to stake their tokens to earn streamed rewards.
- This change makes voting more attractive and increases the security of the network.
- This change comes as part of a package of upgrades explored below
Strategic context
This update to UMA’s tokenomics comes as part of a larger UMA 2.0 upgrade.
In addition to token staking, UMA 2.0 will drastically simplify the way that data consumers interact with UMA’s oracle as well as introduce a new mechanism for being able to secure exponentially more value.
UMA is the first optimistic oracle connecting smart contracts to any data, anywhere. UMA’s is the market leader in optimistic oracles, specifically with its emphasis on validating data and serving it on-chain to resolve markets. Unlike price-feed oracles such as Chainlink that require a permissioned and pre-validated data feed to operate, optimistic oracles like UMA can validate any data, anywhere.
How UMA staking will work
Once UMA staking launches, tokenholders will be able to stake $UMA through a new Voter dApp dashboard to be eligible for rewards. When emissions begin, $UMA will continuously be allocated to all token stakers, every second. Based on the forecasted emission rate and UMA voter participation, $UMA stakers should expect to receive around 30% APY if they vote consistently on disputes posed to the DVM.
For any stakers who abstain from voting or vote incorrectly, a portion of their token rewards will be reallocated to successful voters after each vote. This system incentivizes aligned participation: as long as you turn up to vote on disputes and vote correctly, you’ll be rewarded.
When staking goes live, $UMA tokenholders can stake $UMA via the Voter dApp dashboard to start earning. There’s also a seven-day withdrawal period for staked tokens, so you’ll need to wait until the end of the cooldown period if you want to unstake your $UMA.
Voting Optimizations
In addition to token staking, the upgrades included in the UMA improvement proposal #173:
- Governance votes will no longer have a penalty for voting against the majority
- Spam protection mechanism to allow tokenholders to agree not to respond to a request
- Upgraded voter delegation support
- Price requests now contain a unique identifier, enabling easier tracking and support in front ends
- Gas optimizations
You can find more detail in UMIP #173.
A more secure Optimistic Oracle
UMA token staking incentivizes stakers to vote correctly by offering them rewards, and disincentivizes them from staying idle or being incorrect, as they will have penalties for doing so.
The seven-day cooldown period prevents stakers from impulsively selling their tokens on the open market, which means they have deeper protocol alignment when they commit to voting. This lays the foundation for a more engaged community of tokenholders that want to secure the protocol’s long-term future.
The cooldown increases security by increasing the cost to corrupt the oracle, since anyone who accepts a bribe for voting dishonestly would need to wait for seven days to sell their tokens on the open market (rather than selling their tokens onto market liquidity before the price is impacted by an exploit).
The change from discrete to streaming rewards has removed a griefing vector for UMA. Before staking, $UMA whales could theoretically spam the system with unnecessary disputes to increase their voting rewards. Though that never happened in practice, it will now be impossible.
UMA Staking Timeline
The new staking system will be proposed in one UMIP put before $UMA tokenholders. If this passes, it will be the last time that the current UMA voting system will be used.
UMA will share details of the UMIP when it’s live — keep an eye on Twitter for further information.
