UMA Protocol: synthetic asset issuance with optimistic oracle

The derivatives market is the cornerstone of finance. A derivative is an asset that derives its value from an underlying asset or a basket of assets (or index) through contracts. They allow investors to adjust their exposure to certain assets without acquiring or offloading the underlying assets. For instance, a futures contract is a legal agreement for exchanging a certain asset at a certain time in the future at a pre-agreed price, and it is a common tool for leveraging or hedging purposes.

Synthetic assets are analogous to tokenized derivatives. Tokenization enables assets to be easily transferable and tradeable on-chain in a permissionless manner. Most decentralized synthetic asset issuance protocols adopt an over-collateralization mechanism in which users would have to lock up collaterals to create debt-based synthetic tokens (aka synths). If the collateralization-to-debt ratio (c-ratio) drops below the protocol-specific minimum requirement, users would be subject to liquidation.