UMA Protocol Launches Optimistic Oracle

According to the company’s announcement, Optimistic Oracle will allow users to get cheap, accurate data on “almost anything.” Hart Lambur, the co-founder of UMA Protocol, said the Optimistic Oracle went into production on 13 May, noting that further details about the product, partnerships, and future integration will be announced in the coming months.

The concept behind UMA’s Optimistic Oracle is to enable essentially any actor to push an answer on-chain. A dispute regarding the data will only arise if the answer is found to be wrong. Plugging into the Optimistic Oracle doesn’t require using a smart contract launched on UMA, making it accessible to any DeFi protocol.

“It operates optimistically, meaning that the vast majority of the time you get your answer quickly,” Lambur explained in the company’s blog post. 

The Optimistic Oracle system consists of three actors—requester, the contract requesting a data input; proposer, an off-chain actor that proposes an input; and disputer, an off-chain actor that is able to dispute an input they disagree with. 

In an ideal scenario, a contract requests a price and specifies the dispute period, which can range from as little as a few minutes, to as long as a few days. The proposer then posts a bond and proposes a price. If nobody deems the price wrong, the data is finalized after the dispute period ends and the proposer gets their bond back. 

If a disputer disagrees with the proposed price, they post a bond equal to the proposer’s bond and escalate the dispute to UMA’s Data Verification Mechanism (DVM). UMA token holders are then tasked with resolving the dispute over a 40 hour period. If the disputer is wrong, their bond is paid as a penalty to the proposer, and if the disputer is correct, they earn the proposer’s bond as a reward.

Lambur explained the system is optimistic because disputes are designed to be very rare. The concept has been proven in production, with fewer than five legitimate disputes seen over the past year. 

When it comes to the real-world utility of UMA’s Optimistic Oracle, Lambur noted that it is a better alternative to options such as Chainlink when it comes to arbitrary data and super precise data. Arbitrary data is required for products such as UMA’s KPI Options and insurance contracts. KPI Options are synthetic tokens that payout based on a specific metric, with the metric being data that is not available on-chain. More precise data is required for options and other structured products that are highly sensitive to even the slightest price changes. Complex computations and sophisticated financial contracts also require the highly accurate data provided by the Optimistic Oracle.