UMA to Launch Tokenized Version of Stock Market, S&P 500 Reaches the Blockchain
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UMA to Launch Tokenized Version of Stock Market, S&P 500 Reaches the Blockchain

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Universal Market Access (UMA) is a decentralized financial contracts platform. As of March 28th 2019, they have announced the launch of a tokenized version of the stock market. Through the S&P 500, their ERC-20 token will feature fractional ownership in the largest financial markets companies in the United States.


UMA Bringing the S&P 500 to the Blockchain Explained

Founded in 1957, the S&P 500 is a large-cap American stock market index.

It’s based on the market capitalizations of 500 large companies who have common stock listed on either the NYSE, NASDAQ, or Cboe BZX Exchange.

As part of the advancing implementation of blockchain technology through security tokens, UMA is now bringing the S&P 500 to the blockchain.

The S&P 500 index from 1950 – 2016, courtesy of Wikipedia.

Through USStocks, an ERC-20 token, UMA will enable individuals to become partial owners of the largest 500 companies in U.S. financial markets.

UMA is affiliated with Two Sigma Ventures-backed firm Risk Labs. The company said the new token would initially trade on the decentralized exchange DDEX, which is based in Beijing.

Additionally, MakerDao also has involvement with the coin. Investors wishing to purchase the token can only do so with MakerDao’s own DAI stablecoin.

Upon initially availability, the token will not be available for trade in the US. The reasoning, according to UMA, is due to regulatory concerns.

Allison Lu, co-founder of UMA, provided the following comments on the news:

“The blockchain technology actually does enable a few different modifications that make the market more transparent. Our design is trust-less meaning there is no counter party risk, here. The reason why there is no counter party risk is because a smart contract is holding onto all of the collateral backing this trade and the smart contract is over collateralized at all times.”

How UMA’s Token will Create a Tokenized Version of the Stock Market

Every USStocks token will represent $1 x stock index level. The index level is calculated by the 500 largest companies listed on the NYSE, NASDAQ, and Cboe BZX Exchange.

USStocks will be created through one step: liquidity providers despositing DAI into a UMA smart contract. Once the value of the stock index increases, providers add additional DAI and enforce a total collateralization ratio of > 108.5%1.

The tokens will be free to trade until the smart contract’s expiration date. When that date arrives, token holders can redeem their USStocks for DAI according to the final settlement value.

Lu also elaborated on how the token works:

“So let’s say you buy a token and it is tracking the index. And let’s say the index is at $100. The smart contract is actually holding on to more than $100 at all times. So let’s say that the index goes up to $110, then liquidity providers are required to put in another $10 and they have an incentive to do this because they lose an initial deposit that gets paid to initial token holders if they fail in this obligation.”

A similar project has been initiated by the DX.Exchange, who announced in January 2019 they would tokenize existing shares of Apple, Facebook, and Tesla.

Other companies have utilized security tokens for equity offerings in Switzerland, Germany, Malta, and the United States.

The industry will only see more activity, says UMA co-founder Hart Lambur:

“This is only the beginning. Later this year, our partners will roll out more tokens for other assets, inverse exposures, and leverage. These products can trade anywhere that supports the ERC20 standard. We believe in the power of decentralized finance as a force for good. Today, we are taking a small step toward un-blocking barriers to financial market access. We look forward to the day when anyone with access to the internet and digital money can gain access to any financial market, creating a single, permissionless marketplace for risk transfer.”

What do you think about UMA’s plan to bring the S&P 500 to the blockchain? Will the tokenization of existing stock become a common movement? We’d like to know what you think in the comments section below.


Image courtesy of New York Magazine.

March 29, 2019

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Tim Fries Tim is a reporter with The Tokenist as well as co-founder of both Lakeview Capital and Protective Technologies Capital. Lakeview and Protective Technologies are focused on innovation in blockchain and the Internet of Things, respectively. Tim's background is in private equity investing and mechanical engineering.