Startup Spotlight: Umee Crosschain

Welcome to The Modern Day Renaissance Man newsletter. I, Trey Layton, write about the things that interest me, often covering topics such as startups, sports, and entertainment. If you'd like to receive these newsletters directly in your email a few times a week, go ahead and subscribe to never miss an email!

Happy Wednesday, folks.

The past week has been the Super Bowl of international economic news. Between, a finance bro taking over the tiny island across the pond and the updates, both provided and withheld, from the Chinese version of the State of the Union, econ Twitter has had a lot to respectfully quote retweet about.

I've already joked about the blink that was Liz Truss' tenure, but equally quick was the choice of a new Head of Government over in the land of bean toast. Rishi Sunak, the former Chancellor of the Exchequer (cool title if you ask me) is becoming the SECOND (NYT incorrectly reported he was the first... as reliable as ever) minority and youngest ever Prime Minister in British history. He is inheriting quite the mess given the hit to the British financial system and the British pound that Truss managed to cause in her very, very short time in office.

Luckily, the rest of the world is pretty bullish on PM RS's financial chops. Sunak is the proud owner of a closet full of Patagonia vests built up over years in finance, first with Goldman Sachs and then as the manager of a hedge fund. TBD on whether he can manage the national budget, but at least he can explain the difference between a levered and unlevered beta. Investors believe this to be enough, and the pound has experienced a rally of about 4¢ since his announcement.

Further to the East, China has officially wrapped up its National Congress, an event it holds ever five years to flex its achievements like a teenage boy and his fake cuban chain as well as lay out its goals for the next half-decade like Elon posting memes of him sunbathing on Mars.

The biggest news was political, as in addition to a strange video in which former Chinese President was force-escorted out of the assembly (officially for "health problems" though many others believe it to be a show of power on part of leader of the Chinese Communist Party Xi Jingping), it appears that CCP leadership is strengthening its hold on the... nice office chair?

Xi was also granted another five year term, a move which breaks the precedent set by leaders before him and further cements Xi as the most powerful Chinese ruler since Mao. A further flex of political moxie came about when he reinforced his inner advisory (the Politburo Standing Committee) with allies. In the past, this group was more ideologically diverse with reps from the various factions within the CCP. Now, its members' stances are like the Spiderman pointing meme.

Much like every company that has reported earnings over the past six months, China does warn that there are concerns over "uncertain macroeconomic conditions." The nation revealed slowing economic growth, a tough blow to the China > US crowd. Xi's boys also warned of potentially painful reforms and rebalancing to its investment and housing market financial model, a move meant to address a looming issue which is moving dangerously close to a full blown crisis. Other important economic metrics which had been on the agenda were delayed, something which certainly did little to address fears among economists.

Considering the biggest news from the 6 day event could be summarized in a few paragraphs, I feel like a lot of the bravado and ceremony might have been a little unnecessary. @Xi, this could have been an email.

This week's startup breakdown is a bit different from those of the past few weeks, but it might be the one that I'm most confident in. Rather than an actual company, let's talk Umee, a layer one blockchain solution for decentralized finance (DeFi) purposes.

Heads up, this one will be a bit heavy on the crypto jargon, so I'll be doing my best to simplify the breakdown while plugging in as many of the best explanatory resources that I can find. With that said, feel free to reach out with any questions, and I'll do my best to either answer myself (unlikely... I understand roughly 1% on a good day) or find a resource that helps us both learn something :)

Also, none of this is meant to be financial advice. It is meant to be purely informational. As always, do your own research.

DeFi is meant to provide many of the same financial services which already exist in a decentralized way, meaning that rather than relying on financial institutions and banks, there is no middle man. This means that you can do things like secure loans and stake money directly, providing more financial ownership than the web2 model.

To provide the ultimate DeFi experience, Umee utilizes interoperability. This means that its platform can be used from across different layer one blockchains, greatly expanding its ease of use and the size of its potential audience. More specifically, it uses various protocols and bridges to position itself as the go-to crypto DeFi platform. These are tools that can be used to connect one layer one blockchain to another, such as allowing you to convert Bitcoin to Ethereum as there is no way to do this directly.

Decentralization is the core of web3. Part of that ethos manifests itself in the widespread adoption of open source code and infrastructure. Many projects, such as Ethereum and Hyperledger, are examples of this, meaning that anyone who speaks cOdEr can go and look at the code that the blockchains are built on and modify and build on top of these 0s and 1s to produce their own project.

Umee is also built as an open-source project, making its monitoring possible by its official organization. This also means that it's easy for a multitude of products and services to be built on it. Ideally, it hopes that this will open the door for innovative products like multi-chain staking, cross chain interest rates, and interchain leverage products, all of which would provide financial tools to investors and citizens who would not otherwise have access to the same tools in traditional finance (TradFi, because you can't expect us crypto degens to know how to spell tradishinul).

One of the most promising features of DeFi is the potential to provide these sorts of financial tools, such as debt instruments, to those who are traditionally unbanked or otherwise lack access to the same loans and credit as the more financially privileged of us. With Umee, it's possible to do things like lend to others even when they don't have a verified credit score and instead using things like an online footprint to estimate creditworthiness, allowing lenders to access a new source of income and to make a difference by providing a financial lifeline to traditionally underserved people.

Like many web3 projects, Umee has its own token, $UMEE, which forms a backbone for the entire ecosystem. When you purchase a token, it allows you to participate in decision-making by providing users the ability to stake the token to provide liquidity for the lending platform which rewards the lender in interest payments. Owning the token also grants voting rights for the platform, quite literally providing you ownership in the entire Umee environment. Finally, the benefit that most care about, you can buy $UMEE when it's cheap and sell it when it's more valuable. Crazy.

As of writing, UMEE is worth $0.011. Put in other terms, $1 buys you 88.82 tokens. In total, the fully diluted market cap is above $112 million, and the daily trading volume is around $420K. As seen in the chart below, it has been far from immune to the downturn in the broader crypto market. This admittedly is not one of the biggest projects in the space, but it has solid fundamentals, and even more importantly, it has a devoted base of users. The people who are familiar with the project are completely bullish, and this bodes well for its continued success.

While it's not likely that Umee, or even DeFi more broadly, will completely replace the existing financial system, the global debt capital market is valued at around $200 trillion. Even just capturing a tiny portion of this massive market sets the platform up for success, and considering just how easy it makes access to these tools in comparison to the existing debt market system, it's likely that DeFi will rapidly begin to eat into that market.

DeFi is a saturated market, though. There are quite literally hundreds, if not thousands, of platforms and protocols looking to disrupt traditional finance with web3 tools. It can be hard to stand out from among the crowd, but there are a few reasons why I believe in the staying power of Umee over many of the others. First, it approaches interest rates in a new way by considering the duration of the loan, the supply and demand for lending, and the borrower's credit history to create a more reflective rate than those provided by other lending platforms which tend to be completely market-driven.

Further, Umee also provides options that more closely resemble bank loans which would allow it access to borrowers resembling institutional investors. UDX is a platform which exists in the ecosystem and offers fixed-term loans for verified borrowers, typically other DeFi protocols and institutions. This provides another source of revenue for the Umee fund as it can attract the sorts of institutions which might typically be wary to enter DeFi and allows the protocol to support other projects operating in the space.

Perhaps the biggest differentiator for the Umee chain is the unreal team behind it. It was built by experts from traditional Big Tech companies like Meta and Apple, finance folks from J.P. Morgan and Fidelity, and seasoned crypto maxis from Binance and Polygon. This sort of experience and knowledge gives the platform so many resources, including the learned appreciation for the necessity of security. As a result, they've partnered with some of the biggest names in security auditing in Trail of Bits and PeckShield.

Finally, the massive potential of the project and the network of the team has led to backing from the most respected of crypto and institutional investors alike. Though this alone should never be used to make an investment decision, it certainly can't hurt to know that Coinbase Ventures, Algorand, and Polychain Capital all have given it the stamp of approval.

However, even a project as promising as Umee is not immune to risks. Among these are the immense competition in the space, the vulnerabilities that exist in bridge networks, and the potential scenario in which TradFi holds on to its control over the financial market.

I touched briefly on why I believe that Umee stands out from the crowd, but there is nothing stopping other platforms and protocols from adopting similar interest rate policies. As of now, this mechanism sets it apart, though, and I am willing to take a bet on the experience and expertise of its team, its auditors, and its investors to ensure that the ecosystem is constantly growing and evolving. Finally, the community which it already has built around it, much of which has quite literally bought into it, makes it unlikely to fade like many DeFi projects of months past.

Another risk exists because Umee relies heavily on bridge networks. Unfortunately, these have proven to be about as impenetrable as a sponge. Most crypto critics point to the massive, hundred million dollar hacks that show up in the news every few months. 99% of these, and 99% of the money that is lost in crypto, occur because of vulnerabilities in bridge networks.

While the blockchains themselves cannot be compromised, it is extremely technically challenging to implement the secure code necessary to make exchanges between them. Because of the massive amounts of money that are wrapped up and moved across these bridges, there will always be incentive for bad actors to exploit them.

Finally, crypto still has a long, long way to go before reaching the mass adoption which its maxis so desperately hope for. Web3 has massive knowledge barriers, and these are too intimidating for most which pushes people away from the space. They're more familiar with the traditional financial sector of banks and lenders. There have to be substantial gains to be made from embracing web3 for people to push past the costs of learning, or there won't be enough of a pull for them to leave the comforts of Bank of America and Visa.

These are legitimate concerns, but they are ones that apply to all DeFi players. I believe that Umee's unique edges, such as its team, its open-source infrastructure, and its robust token system, will all allow for it to succeed, nonetheless. Hopefully, this opens the doors to a whole new wave of DeFi services which will lead to more financial health for billions of people.

Hungry for more startup coverage? Make sure to check out StarKeys, another newsletter bringing you nothing but early-stage startup breakdowns once per week.

Let me know what you think about Umee, but remember, this is not financial advice.

Cheers to another day,

Trey