Ethereum’s receiving the boost ahead of its upcoming move to a staking protocol, in terms of both institutional interest and product launches.
Synthetic Trading on Ethereum
A “synthetic” token launched on the network earlier this week is the latest to join Ethereum. So-called ETHBTC, it tracks the ETH/BTC exchange prices while reducing the need for an “oracle,” crypto publication The Block reported on May 22.
Traders holding the token will see a gain in value if ETH outperforms BTC, a loss if BTC outperforms ETH, and no change if both trade proportionally.
Developed by Universal Market Access (UMA), ETHBTC is a “priceless” token framework. It’s backed by DAI collateral, which in turn fluctuates according to an ETH/BTC index pair. The latter is what’s referred to as a “synthetic” token in crypto circles.
UMA is a decentralized contract platform that’s building oracle-free, or less reliant, infrastructure for the Ethereum network. Two components make up the platform; a decentralized price mechanism and a “synthetic” token issuance platform.
For the uninitiated, “Oracles” on the blockchain are a third-party information source that has the sole function of supplying data to blockchains that permit the creation of smart contracts. As Binance Academy explains, such protocols help blockchains in accessing data outside of their chains.
Synthetic tokens, in current times, rely heavily on oracles for price inputs, collateral calculation, and value tracking. But developers criticize this approach, citing concerns of centralization and oracles being “single point of failures” for dependent blockchain networks.
Oracle’s Single Need
UMA’s ETHBTC is taking a vastly different approach.
The token network allows users to liquidate an “uncollateralized” position externally via off-chain data, rather than depend on oracles for monitoring the price feed. All positions will be considered collateralized unless liquidated.
However, when liquidation is disputed, an oracle will enter the system to mediate the claims, either liquidating the position permanently or reverting the trade to the original state.
UMA claims to have engineered the platform in a way to avoid the misuse of liquidation and preventing it doesn’t occur frequently. The blog states:
“A liquidator and disputer are required to make a deposit before resolution, and the losing party forfeits the money.”
At the time of writing, the ETHBTC token is available on Uniswap, another Ethereum-powered exchange platform, and is worth 0.02 DAI or about 2 cents. The current contract will expire on August 1, 2020.