Umee - Cross-chain DeFi in Cosmos Ecosystem
Umee is an application-specific chain in Cosmos ecosystem, focusing on cross-chain decentralized finance applications. The project has concluded CoinList offering and raised nearly $32 million which ranked fifth-largest public raise on CoinList for 2021. Prior to the public sale, the project has raised $6.3 million seed round funding led by Polychain Capital, Alameda Research, Coinbase, CMS holdings and others.
Cross-chain overcollateralized lending and borrowing
Umee is a proof of stake blockchain built with Cosmos SDK, and the first application will be a cross-chain overcollateralized lending and borrowing protocol. Umee Chain mainnet was launched on 15 Feb and will be IBC (Inter-Blockchain Communication) enabled from start, making it connected with other Cosmos ecosystem chains such as Terra Chain, Osmosis Chain,etc. Umee Chain will be also connected to Ethereum by the Gravity Bridge, which is the official bridge connecting Cosmos ecosystem to Ethereum. The relationship of Cosmos ecosystem Chains, Umee Chain, and Ethereum can be illustrated in the diagram below.
Umee enables users to deposit Cosmos assets such as $ATOM on Umee side and borrow ERC-20 assets on Ethereum side and vice versa. Therefore, the DeFi protocol will be implemented on both Umee network and Ethereum network.
Let's take one simple example from Umee white paper to illustrate how Umee works. Let's say there is a user deposit Cosmos asset such as a value of $150 of $ATOM, the user will earn interest for his deposit and also could use the deposited asset as collateral and borrow $100 worth of $ETH on Ethereum. There will be a capital pool on Cosmos side and an capital pool on Ethereum side. For the lending & borrowing function to be workable, there needs to have enough liquidity on both Cosmos side and Ethereum side.
Source: Umee White Paper
uToken and meToken
On a more detail level, when the user deposit $ATOM on Cosmos side, $ATOM will be locked, and a uToken, uATOM will be minted. This is similar to the AAVE model, the balance of uToken grows over time by the underlying interest rate applied to the deposit.
uATOM can be further bridged over to Ethereum and act as collateral for borrowing.
uTokens=asset lent + interest from lending their asset
In addition, Umee allows users to use the staked version of PoS token as collateral, which is called meToken. A user who wants to stake their assets in the Cosmos ecosystem can stake their tokens through Umee and receive a meToken. When the staked position earns staking rewards, the meToken concurrently earns staking rewards. From information provided in the white paper, the meToken is not interest accruing, this may suggest the lending and borrowing function is only available in the original PoS token not the staked version, and interest earned through borrowing only be directed to depositors of original PoS token. meToken can only act as collateral.
meTokens= asset staked + staking rewards
Users who stake their PoS asset in Cosmos ecosystem through Umee have the option to let their staking rewards be liquidated for another asset. For example, if users stake $ATOM through Umee and use their meATOM to take out a loan in USDC, they can have their $ATOM staking rewards automatically liquidated for USDC in order to help pay off the loan plus interest.
$UMEE is the Umee blockchain's native token, and is to be used for staking to secure the blockchain, used as gas fee to pay for transactions on Umee Chain, and act as a governance token. $UMEE token will exist in two forms, an Umee chain native version and an ERC-20 version native to Ethereum since the DeFi protocol also exist on Ethereum.
The genesis supply of $UMEE is 10 billion. The total supply is uncapped with an inflation mechanism.
Genesis supply allocation is as below:
$UMEE inflation schedule changes based on a target staking participation rate, inflation rate (i.e. the staking reward) is between 7% to 14% according to different staking ratio.
Community governance can make decision whether to use fees generated from the protocol to buybacks and burns $UMEE tokens, which could make it a deflationary token.
The unlocking amount of $UMEE is quite large at the early stage, public sale tokens will be unlocked in 10 months, resulting in around 55M tokens being unlocked every month. Considering the public sale price at $0.06 and $0.07, the selling pressure will be a concern in the early stage. The Private Round will also be unlocked in 18 months after an initial 6-month locking period.
Core team members include:
Brent – Founder of Umee. Previous experience include head of strategy at Tendermint, the first 30 employees at ConsenSys.
Aleks- Lead engineer of Umee. Previous experience as the lead engineer of the Cosmos SDK.
Zac – Previous experience as early employee of ConsenSys.
Many teams developing in Cosmos ecosystem come from Tendermint, however, the concept of Tendermint sometimes is not clear, and may mean different things in different context. Tendermint Inc. is a company incorporated in U.S. that invented the Tendermint consensus and developed Tendermint Core. Another important entity is Interchain Foundation, registered in Switzerland, the Foundation supports Cosmos ecosystem together with Tendermint Inc. One subsidiary of the Foundation, Interchain GnbH maintains IBC and Tendermint Core.
Cosmos ecosystem is still in its early stage in terms of DeFi use cases. Umee tries to enable the Cosmos assets as collateral to borrow Ethereum assets, leveraging the mature DeFi landscape in Ethereum. The early use case for Umee probably is more on collateralizing Cosmos assets to borrow on Ethereum, and with the development of Cosmos ecosystem, collateralizing Ethereum assets and borrowing on Cosmos could become more popular in the future.