The "UMA scam"
By Antonio Cheong on on Permalink.
I stumbled into this rabbit hole after a crypto hackathon at Oxford, which, to no surprise, was teeming with scammers. I ended up with about $100 in random tokens, which I swapped for ETH. Since KYC wasn't an option, I decided to check out Polymarket to see what all the fuss was about. I was surprised to find that many markets closed with objectively false outcomes, which prompted me to dig a little deeper.
UMA is the oracle used by Polymarket to verify claims and settle disputes.
How it works
- A statement is proposed as true with a bond of $750
- 2 rounds of disputes can be raised against one another, each costing $750.
- If no disputes are raised within the time limit, the latest statement is considered true.
- When a resolution cannot be reached, human UMA voters determine the outcome on a majority basis.
It doesn't work
- Due to the price of the bond, the dispute structure intrinsically prices out smaller players.
- Voters are not incentivized to reach the correct conclusion but rather align with the majority.
- Outcome proposals are time limited, therefore a conflict cannot simply "wait" until more information is available.
Scams
- In low volume markets with many small individuals players, a whale can simply assert a false resolution as it costs up to $1500 just to reach human UMA voters.
- Ambiguous rules are often inserted in contracts that make the resolution opinion based rather than factual. A common one is "If it's unclear ..., this market will resolve to the side with the stronger argument based on credible reporting." where "credible reporting" are occasionally controlled by participants themselves.
- A user can propose 2 nearly identical markets, one with significantly less volume than the other. By proposing a resolution in the market with less volume and thus less attention, there is a high likelihood of it being automatically closed without disputes. The closing of that market can then be used as evidence to support a similar resolution on the higher volume market even if the resolution is not objective truth.
In the worse case scenario, even in high volume markets, whales holding a large amount of UMA tokens can simply vote on a false outcome. This is because the vote share is tied to the amount of tokens you hold.
Case study
Polymarket voters just verifiably got scammed after the UMA Oracle went rogue.
byu/GabeSter inCryptoCurrency