What Is Umee Network? | Cosmos 101

Umee Network is one of the most interesting projects in the Cosmos ecosystem. It could become “The AAVE of Cosmos”. But why is everybody so excited about Umee Network? And what does Umee’s architecture look like?

What is Umee Network?

First, what is the project all about? At the time of writing, the network is not live. But the project aims to become a cross-chain DeFi hub. So, users will lend and borrow cross-chain! The network will connect to Ethereum as it relays between the Gravity bridge. This is possible because Umee Network is a Cosmos SDK-based chain using the Tendermint consensus algorithm. Umee network will enable IBC soon to interact with other Cosmos SDK-based chains such as:

Besides, Umee’s Universal Capital Facility will unleash high capital efficiency!

Umee Network: Universal Capital Facility

Umee’s Universal Capital Facility is the project’s heart. It will bring capital efficiency and the role of DeFi to a new level!

But what is the Universal Capital Facility?

This element will unleash the true potential of IBC and the Gravity Bridge. The Universal Capital Facility allows users to lend and borrow cross-chain and use their capital more efficiently. Users can deposit assets on Umee and then participate in the DeFi protocol via the Universal Capital Facility.

When depositing assets on Umee, the network mints uTokens. These uTokens are 1:1 mapped to the deposited asset. Due to the underlying interest rate, the balance of uTokens increases constantly. The balance of uTokens will generate income even when split or transferred. uTokens can be bridged to Ethereum as an ERC20 token. Users can use these tokens to collateralize loans on another blockchain!

Example:

uTokens explained

But collateralizing loans with uTokens on another blockchain is just the tip of the iceberg!

With Umee, users can also use their staked assets to collateralize a loan on another blockchain. Therefore, meTokens get minted.

This is how it works:

Users stake their assets, e.g., ATOM. Then users get a meToken, representing their staked position. The meToken then earns staking rewards in meATOM. These meATOMs are withdrawable at any time. However, the unbonding process takes 21 days.

Users can take the staked postion to collateralize a loan on another blockchain. And due to the staking rewards, users can pay interest on their loan without a big risk or much effort.

meToken explained

However, it is also possible to liquidate staking rewards immediately in a stablecoin like USDC or DAI and use it in the market.

Umee Network: cross-chain DeFi rates

Another interesting aspect of Umee is cross-chain DeFi rates! Cross-chain DeFi rates rethink the time value of money. Today, central banks basically determine the time value of money. When interest rates are low and inflation high, your money in your bank account will be less valuable and powerful by tomorrow.

Umee Network aims to create sustainable time value for crypto assets!

Today, Central Banks determine interest rates (the time value of our money) by using a so-called Yield Curve. The yield curve represents the relationship between market remuneration rates and debt securities’ remaining time to maturity. This curve is the term structure of today’s interest rates.

And now, Umee wants to create a new term structure. Umee network intends to use a Staking Curve instead of a Yield Curve to capture the time value of money!

ETH 2.0 and IBC could make staking mass adopted the broader financial system. Then it will be easier to capture the value that the global staking economy is creating—introducing a global staking curve that determines cross-chain DeFi rates, on the other hand!

UMEE tokenomics

The UMEE token is not live yet. Also, the chapter in the white paper about UMEE’s tokenomics is very short. The only thing that is for sure is that users can use UMEE to:

  • delegate
  • debate
  • propose
  • vote on proposals

Right now, we don’t know much about the UMEE token. But we know that UMEE will be the network’s governance token.

Conclusion: Could Umee Network become the AAVE of Cosmos?

So, Umee Network is one of the most exciting projects in the Cosmos ecosystem. The reasons are:

  • High capital efficiency (Users can use staked assets as collateral/ cross-chain lending & borrowing)
  • Cross-chain DeFi rates

Umee states in its whitepaper that AAVE highly inspires the project. So, could Umee become the AAVE of Cosmos? Well, if Umee can experience such a network effect and hype is yet to see. But the project could definitely unleash the true potential of IBC and the Gravity Bridge.

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