New “Yield Dollar” From UMA Protocol Causes Concerns Over BTC In DeFi

UMA Protocol stands as a DeFi platform that has recently launched a “Yield Dollar.” This stands alongside a three-asset yield farming incentive. However, the company set to provide this synthetic BTC, holding more than 9,000 BTC in total, has yet to distribute it.

Synthetic BTC On Ethereum

This new launch was done thanks to the partnership with Ren Protocol, which stands as a liquidity protocol operating on a permissionless basis.

With this, UMA allows its users to lock in renBTC within UMA, which stands as an ERC-20 coin that represents Bitcoin within the Ethereum Network. This renBTC can, in turn, be used as collateral in order to mint Uma’s Yield Dollar token, the uUSD. This, in turn, can be used to purchase even more renBTC, thus creating a permissionless leveraged position.

Permissionless Loan lSystems

This stands as the first time in Bitcoin’s history when the Yield Dollar concept had been applied to Bitcoin.

What the uUSD token does, is it essentially stands as a fixed-term, fixed-rate loan. In other words, the token itself represents a perpetual contract, with its value approaching $1 as it reaches its date of expiry. Once the token is expired, it is then redeemable for $1 of the collateral asset.

These tokens, in turn, open up an array of possibilities for the end-users, as well. Barring the obvious of creating a permissionless leveraged position through the use of renBTC, users of UMA are also capable of accessing yield farming, as well.

As per the announcement of the company, Ren and Risk Labs will now start offering farming rewards to users that contribute their uUSD, which was minted from USDC and renBTC, to a Balancer pool.

Many Concerns Being Raised

However, things don’t look so well, in the long run. Earlier this month, it was discovered that renBTC holds more than 9,000 BTC in one wallet. While the protocol isn’t decentralized, the plan is set within the roadmap. Even so, that single wallet held well over $90,000 in BTC.

It’s a little shocking to me that @UMAprotocol and @renprotocol announced a major $renBTC initiative today with zero acknowledgment of the fact that all BTC collateral is being custodied by 5 of n Ren team members.

We need to have this conversation immediately.

— Chris Blec (@ChrisBlec) September 7, 2020

Alongside this, users have also questioned the Multi-Party Computation aspect that has yet to be fully implemented. The biggest issue about this, is that the renBTC itself, in its entirety, is currently being custodied by the team members of the network itself.

Alongside this, it was shown that renBTC doesn’t leverage Multi-Party Computation, even if it claims it does. Instead of doing that, the network leverages a cryptographically outdated Shamir’s Secret Sharing.