UMA’s oracle update to limit Polymarket resolution proposals to whitelisted parties to improve market outcomes

UMA, the oracle provider for Polymarket, is introducing an oracle update to the prediction market platform, which will limit market resolution proposals to whitelisted users.

The update will have Polymarket transition from its Optimistic Oracle V2 (OOV2) to the Managed Optimistic Oracle V2 (MOOV2) contract. This change comes after UMA passed the UMIP-189 governance proposal on Aug. 6.

MOOV2 restricts proposals to a whitelist of experienced proposers to improve due diligence and reduce disputes, particularly in non-contentious markets like sports or crypto prices. 

"After passing via governance, the ManagedOptimisticOracleV2 (MOOV2) contract managed by Polymarket is now supported on our Oracle Dapp," a community manager for UMA's official Discord channel noted. "Polymarket has begun testing requests on Polygon mainnet with real proposal rewards and will begin migrating production requests soon."

The update aims to address concerns about market manipulation and governance attacks by limiting who can propose resolutions, likely in response to previous issues with UMA’s oracle system, such as those involving large UMA token holders or whales influencing outcomes. However, it is unclear when MOOV2 will be fully implemented on Polymarket. 

According to PolymarketGuide, an independent knowledge base on Polymarket, one of the issues with OOV2 was that many proposals were submitted prematurely and without experience, which often led to the proposer losing their bond and causing market delays of up to four days.

The updated MOOV2 allows only whitelisted addresses to submit proposals, while other users can tag whitelisted proposers to submit a proposal. The right to dispute a proposal will still be open to anyone. This change would require discussion on the proposal before submission, according to PolymarketGuide.

"With a smaller, more experienced group, the typical proposer is more likely to perform due diligence, reducing early proposal disputes, especially in non-contentious markets such as sports, weather, and crypto prices," PolymarketGuide said in its document.

It summarized that the transition from OOV2 to MOOV2 can be seen as moving from open debates over precedent to a centralized council of proposers.

According to UMA, when MOOV2 was first announced, Risk Labs, the entity behind UMA, announced an initial whitelist of 37 addresses, which include employees of Risk Labs and Polymarket, and users with over 20 proposals with more than 95% accuracy.

The transition to MOOV2 has been criticized for limiting community participation by restricting proposals to a select group, which some see as a step toward centralization. Critics also argue that more explicit market rules could address disputes more effectively than restricting proposers.

Meanwhile, it was announced earlier this year that Polymarket and UMA are collaborating with EigenLayer to research and potentially explore the development of a next-generation oracle system, seeking to advance the functionality and reliability of prediction market oracles.

How Polymarket's UMA oracle works

In blockchain ecosystems, an oracle is a mechanism that brings real-world data, such as event outcomes or prices, onto the blockchain for smart contracts to use. Prediction markets like Polymarket rely heavily on oracles to resolve bets by determining the truth of an event.

Polymarket, a decentralized prediction market platform where users trade on the outcomes of real-world events, currently uses UMA's Optimistic Oracle to settle markets but is seeking to enhance its capabilities.

Polymarket has been using UMA's oracle system since its early days. When a market closes, a proposer submits the outcome (e.g., "Biden won"). This is assumed to be true unless challenged during a dispute window. If disputed, UMA's decentralized voting mechanism kicks in to settle it.

Such a system differs from a decentralized oracle network, such as Chainlink and Pyth, that proactively fetches and aggregates off-chain data (e.g., prices or weather) from multiple sources, delivering it on-chain via a network of nodes.

The Block has reached out to Polymarket for further comments.