Oracles, P2P Insurance, And DeFi - An Interview with Umbrella Network, Polkacover & Bridge Mutual

How'd you explain the Umbrella Network and decentralized oracles to your mom? 

Umbrella Network: Mom, remember that time we were at the casino in Las Vegas, and we played blackjack for eight hours. Remember that dealer Jack who kept making mistakes by adding up the hand totals?

I mean, is it that hard to add together two or three cards? None of the other dealers seemed to have the same problem as this person.

But also, remember how all the other players noticed whenever the dealer made a mistake? Well, that’s sort of what decentralized oracles do. We have multiple parties watching the same data and transactions.

And if there is a mistake made by the person submitting the data, or if there is malicious intent such as cheating, the community that watches, known as validators, will call this out. 

It’s easy for the dealer to make a mistake. Jack, the name I’m giving that dealer who kept messing up, is human. He might’ve been having a bad day.

Or maybe he didn’t like us and wanted us to lose. Either way, our group of fellow players caught him. And they did it and called Jack out on it because this was the right thing to do, not because there was some economic benefit to doing so.

Now imagine if the dealer had to pay our fellow players if he made a mistake. Jack would be far more careful not to make such mistakes. Fellow players would’ve been even more vigilant, watching Jack like a hawk.

That’s what Umbrella Network does. It’s a network of validators that watch and report incorrect data. And if they spot bad data, the equivalent to Jack messing up, then they get paid for it.  The idea here, as you can see, is to enhance accuracy by incentivizing the ecentralizecollective vigilance of the system.

What do you mean by 'the mainnet is launching'? How different is it from a testnet launch? 

Umbrella Network: Note: Public testnet is launching, not mainnet

For the last couple of months, Umbrella Network has been building and testing internally on Ethereum testnets Kovan and Ropsten. This means only Umbrella Network’s team members and advisors had access to the system. We’re really proud of our achievement with a small group of highly dedicated people.

And just five weeks after our initial DEX offering, or IDO, we will be revealing our product to the general public on March 15th. This short amount of time between the two further demonstrates how much momentum we have.

Developers will, for the first time, have access to over 750 cryptocurrency and other data available for their decentralized applications, already more data offered than any other oracle on the market today. They’ll have access to data like implied volatility data supplied both by Umbrella Network and Genesis Volatility, time-weighted average prices, cryptocurrency prices and commodities like crude oil.

So we are inviting developers to join us on testnet to build their product and to grow with us as we head to Mainnet together. 

Which Blockchain has the best chance of upstaging ethereum? 

Umbrella Network: If I knew the answer to that, I would leave this interview and put all my money in that blockchain’s token. 

It feels like blockchain is in a similar stage to when I got into the mobile industry in 2010. Back then, there were two big issues for developers. First, bandwidth was insufficient. And second, accessing data was expensive. LTE addressed the former issue. And Amazon Web Services, or AWS, solved the latter.

Similarly, blockchains today have a bandwidth issue. We have a number of new blockchains coming online, including ETH2.0.

At the moment we’re paying particular attention to Polkadot, Solana, Cardano, Elrond and Avalanche. And we’ve already committed to running on Binance Smart Chain. Ultimately, we’ll support any chain where there is a developer community in need of secure data.

After all, Umbrella Network is blockchain agnostic, so we are open to far more than just one.

As for the latter, we’ll be greatly reducing the cost of on-chain data. When you consider that one of the industry leaders in the oracle space has mentioned that it can cost $0.60 per piece of data, assuming 30 GWei and $200 ETH, it’s really remarkable how much their data is still in high demand despite those hefty costs.

Keep in mind that GWei is closer to 200 and $1900 ETH. Our costs are much, much lower. Currently, in fact, we offer the lowest prices in the market. 

What is that one use case of decentralized oracles that you'd want the community to build?

Umbrella Network: So glad you asked. We’re actually going to announce a Developer Challenge this week. I don’t mean to spoil the surprise, but there will be multiple rewards for developers who integrate into the Umbrella Network. They’ll be judged based on the utility of the application and how well it demonstrates Umbrella Network’s features and benefits. 

We’ll give some suggestions with the announcement. But I’ll drop one here. We’d like to see a decentralized price aggregator using IPFS and UMB oracle data.

What are the pros and cons of using a native token, like your UMB, for internal transactions, in comparison to using bitcoin? 

$UMB is not a payment token. Native tokens like $UMB are too volatile to be suitable for payments, in our opinion. We believe stablecoins or even ETH is more appropriate for payments. $UMB is a governance token that also provides liquidity mining benefits for token holders.

$UMB holders will elect representatives in governance of the DAO. And they will be able to delegate their tokens to validators who will then share user fees with the tokenholder on a pro rata basis.

Should we expect 2021-2022 to be the year of oracle wars? Why?

Umbrella Network: Let’s hope for good, healthy competition that’s based on product differentiation and features. I believe there needs to be a thriving market of oracles that address the wide variety of needs demanded blockchain developers. No one oracle is going to be able to meet the needs of all developers. The needs are simply too large and diverse. 

Instead, I see a future where many great oracles serve different parts of the market. For us, it’s the big data market. We’re addressing the market for those who need more complex or less frequently used data that is currently not well supported in a secure manner. That’s why we are focused on the mid- to long-tail cryptocurrency price market and emerging markets in decentralized options, insurance, indexes, synthetics and calculated values.

Opponents of total decentralization cited speed, regulation, and ease of use to demonize DEXs. How would you answer those questions in the context of decentralized oracles?

Umbrella Network: Give the DEXs some time to grow and mature. Despite having their hands tied behind their back by low bandwidth and high cost of data, DEXs have developed their platforms at just amazing speed. There’s a new feature or product available almost every time I visit Uniswap, Sushiswap, Balancer, 1INCH and Pancake. When their hands are untied, we’re going to see an absolute explosion of growth, including solving such issues as speed and ease of use..

What is that one development in the Blockchain space in 2021 that you’re most excited about?

Umbrella Network: I’m really looking forward to seeing the decentralized options market growing. At first, the pricing of options was very rudimentary. You either had to be fully collateralized or the pricing was so expensive that they were uncompetitive in comparison to their centralized counterparts. For example, Hegic, who in my opinion was the first to innovate and grow in this space, used a very simple method to calculate the cost of options. And naturally without advanced models, they had to over-charge for a simple option. However, we’re now working with new projects like Oddz and others to provide them accurate-implied volatility that allows them to price options on par with the best Wall Street models. And that’s in part because Umbrella’s models are actually built by Wall Street quants. 

Furthermore, we’re going to see more dynamic hedging strategies powered by new projects and new data. The next wave of decentralized options players will price options using the best IV calculations and hedge using the best set of “Greeks” such as delta, gamma and theta. And they’ll have access to the financial instruments needed to implement these hedges, such as a thriving futures market. 

We’re in the early innings. But it’s really going to be exciting to see where we are at the end of 2021.

How would you explain Decentralized Risk Coverage to your mom?

BridgeMutal: It's the evolution of how humans do insurance. Instead of contracting with a large insurance company and depending on governments to regulate them and keep them honest; everyone becomes the insurance company, insures each other, and relies on game theory and transparency to ensure fair and accurate outcomes.

Since risk changes with time, what processes/implementations do you have to quickly update the risk, given allegations that decentralization would make it slow?

BridgeMutal: A broad set of generic risks are covered, and the price of coverage is dynamic and determined by the amount of coverage available. This negates the need to micromanage and assess risks. It will actually be much quicker than traditional insurance in terms of claim resolution time.

Let’s say you use two oracles and both arrive at different results. How would you pick one over the other?

BridgeMutul: We will have multiple oracles drawing from multiple sources. The oracles should be ignoring significant outliers, and we will, too. The system will take the average of what's left.

What is that one development in the Blockchain space in 2021 that you’re most excited about?

BridgeMutul: There's a lot of big developments this year, it's hard to keep track. I guess I'm most excited to see working and robust layer 2s on Ethereum.

To a layman, DeFi and CeFi might pretty much appear the same. How would you correct them, knowing that they’re a layman?

Polkacover: DeFi and CeFi are both words that float around in the crypto space quite often. Decentralised Finance (DeFi) is essentially CeFi but without the presence of a centralised body in between.

There is a security protocol that is used by the transacting parties in order to ensure maximum security. This is as opposed to Centralised Finance (CeFi) which makes use of a centralised body in between transacting parties.

The function of the centralised body is to ensure transparency as well as to encourage accountability as they require users to register using personal information.

This is currently more popular amongst crypto users in general, but since the exchange is a third party that has to act as an intermediary, some users feel that it compromises the independence that crypto is valued for.

We are building solutions for both kinds of crypto user's within our roadmap

How is P2P Insurance different from Regular Insurance? Won’t both have the same/similar formulae at play?

Polkacover: P2P insurance is very different from traditional insurance in that it is far more transparent, it is easier to make claims, and there are significantly fewer regulations. In a P2P insurance model, SMEs would benefit greatly, especially micro-enterprises.

This is owing to their lower premiums (on average) as well as the ease of claiming with them. This is because their processes are digitised as opposed to the paperwork associated with traditional insurance companies and their claims process.

In essence, traditional insurance discourages innovation, lacks quickness for claims and other processes, and is done offline. In contrast, P2P insurance is done by a pool of investors who band together, decide policies and premiums themselves, and use digitisation to expedite and streamline processes.

They can insure new products as they have a higher risk threshold.

A common weapon of the DeFi opponent is the concept of ‘Impermanent Loss’. Does Polkacover address those concerns? How?

Polkacover: The concept of impermanent loss is embedded in DeFi and crypto communities. It is a topic of token value variation when a pool is created.

We are targeting coverage against NFT's against impermanent loss as our initial products will be distributed across NFT marketplaces with Phantasma being one of the first partners. PolkaCover is also partnering with several other projects in order to mitigate this issue in the future for our stakeholders.

What is that one development in the Blockchain space in 2021 that you’re most excited about?

Polkacover: Insurance 😉 !!. We have always felt there was a lack of insurance products & options for Insurance protocols and crypto users in general and we have seen line insurance projects which are now in development.

There is a massive untapped market and I wish all insurance projects succeed and make crypto a safer place to transact in. Our partnership with the Umbrella network brings us one step closer to our goal of creating a best-in-class insurance marketplace.