UMA Launches Hats Finance Vault with Protected Tokens

tl;dr — Hats Finance is a protocol for providing bounties to whitehat hackers who report smart contract vulnerabilities. UMA has partnered with Hats to offer such bounties on UMA’s contracts.

This partnership is unique in that UMA has funded the Hats vault not with raw $UMA, but with protected tokens backed by $UMA. Protected token pairs are a powerful new primitive backed by UMA’s Optimistic Oracle and can protect tokens from smart contract risk and user error. These protected tokens shield the underlying UMA assets from theft or loss if the vault itself has an issue.

What is a protected token?

Protected token pairs use the UMA Long-Short Pair contract to wrap any ERC20 asset and create protected and recovery tokens. The protected tokens are put in a wallet or contract address where you want an extra layer of protection and the recovery tokens are held in a secure wallet elsewhere and can be used to recover the underlying assets in the event of a hack, bug, or other cause of lost funds.

Therefore, the protected tokens can be used with confidence that they do not expose your assets to additional smart contract risk beyond the relatively simple (and OpenZeppelin audited) Long-Short Pair contract, which is particularly useful for new protocols or new features added to existing protocols.

How do protected token pairs work with Hats Finance?

Risk Labs has launched an UMA Hats Vault Protected Token Pair that uses UMA as collateral and has deposited the protected tokens in a vault with Hats Finance. The protected tokens will reward whitehat hackers who identify bugs in the UMA and Across protocols.

If funds are lost due to a hack or bug in the Hats vault or user error in the UMA committee multi-sig that reviews reports, the recovery tokens held in a secure wallet elsewhere can be used to recover the underlying UMA. Recipients of rewards through this program will also receive 1:1 matching recovery tokens from Risk Labs so that they can redeem the protected/recovery token pair for the underlying UMA without waiting for contract expiry.

Other UMA holders can even mint protected token pairs of their own and add protected tokens to the Hats UMA vault! We’re working on a helper contract that will make it easier to match protected and recovery tokens 1:1 in a decentralized way. Once that’s ready, you can send the recovery tokens you minted to that contract. In the meantime, remember to deposit the protected tokens in the vault while keeping the recovery tokens in a secure wallet.

How can you launch your own protected token pairs?

If your DAO or protocol is interested in launching protected token pairs, reach out to the Risk Labs team or the SuperUMAn DAO for help!

We can advise you on contract parameters and make sure that the question your contract may ask the Optimistic Oracle covers all of the issues you would like to protect yourself against and that hacks, bugs, and (if applicable) user errors will be publicly verifiable if there are any disputes.

Protected tokens could be useful for experimental protocol launches, staking systems, token rewards programs, on-chain enforcement of off-chain governance, asset recovery for lost keys, and more. We would love to hear your ideas and help you bring them to life.

UMA Launches Hats Finance Vault with Protected Tokens was originally published in UMA Project on Medium, where people are continuing the conversation by highlighting and responding to this story.