UMA gets ahead of Yearn.Finance as the largest DeFi protocol on Ethereum

The decentralized financing (DeFi) environment is changing rapidly day by day. On September 1, UMA overtook the yearn.finance as the largest DeFi protocol on Ethereum with a market capitalization of $ 1.3 billion.

Data from CoinMarketCap shows that six DeFi projects are now worth over $ 500 million. These projects are UMA, yearn.finance, Aave, Maker, Synthetix and Compound.

However, whether UMA can be described as a DeFi protocol remains uncertain and depends on perspective.

What is UMA and how does it compete with other projects like yearn.finance?

According to official UMA documents, the project is building an “open-source infrastructure for “priceless” financial contracts on Ethereum.” Priceless in the sense that they do not require an on-chain price source for each transaction. The network allows anyone to liquidate a position that they determine as insufficiently secured based on their own off-chain data. If no one liquidate the position, the system assumes that it is properly secured.

The UMA infrastructure consists of two main parts: the design of priceless financial contracts and the Data Verification Mechanism (DVM).

The first allows users to create synthetic tokens on the platform. DVM is a decentralized Oracle service such as Chainlink and Band. Conceptually, UMA is closer to Oracle projects than DeFi. However, UMA is building infrastructure for the DeFi sector, given the importance of oracles for decentralized finance.

DeFi platforms on Ethereum and other major blockchain networks cannot directly retrieve public data. Oracles, such as Chainlink, Band and UMA DVM, help protocols capture market data through smart contracts.

DeFi market is changing rapidly

An anonymous trader known as “Hsaka” said that UMA, which has the largest APY pool for the Sushi token, catalyzed its rise. In addition, the trader emphasized that incentives are important for the growth of DeFi-related projects. He said:

“So, $UMA just became the most valuable DeFi token. I don’t think it having the highest APY pool for $SUSHI is the sole reason, rather a contributing factor. The fact that that helped flip YFI, LEND, SNX, etc gives you an idea of how powerful incentivization can be right now.”

Multiple DeFi protocols and DeFi projects are starting to work together, instead of competing.

“To clarify, nothing we build under yearn.finance competitive. It is collaborative. For example, an important element not listed in the announcement article is how black swan events are handled; Underwriter: Nexus Mutual. Reinsurer: Nexus Mutual Stronger together.”

Following the rise in popularity of DeFi protocols, major exchanges are starting to list more tokens. On September 1, Binance, Huobi and OKEx introduced SUSHI, which fired 1200%.

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