When you buy Unum, the smart contract looks up the price of ETH and gives you a dollar equivalent of Unum. So if you send in $400 worth of ETH, you get 400 Unum.

Then, a month from now, if you want to sell Unum and get ETH, maybe the price of ETH is $500. So you send in your 400 Unum, and get .8 ETH.

So isn't it possible that Unum becomes insolvent? Forgive me if there's an easy place to read up on this :)

In other words, you send in $400 of ETH for 400 Unum, and if the price of ETH goes down to $300 and they try to cash out all 400 Unum...?

Yes it is possible. That doesn't make it meritless.

You might equally say "isn't it possible that Tether could just print Tethers out of thin air"? And the answer would be "yes", but people still find utility in it.

I wasn't saying it was meritless, I'm just a big finance noob.

So basically Unum is trading "risk of value going down/up" for "risk of smart contract bank run"?

EDIT: Also, I'm really interested since this is the first smart contract use case that I've managed to understand. Which is good since I'm all-in on ETH :)

EDIT 2, for anyone reading this thread: here's the announcement thread, answers all the questions I had here: https://bitcointalk.org/index.php?topic=2473877.0

Compared to holding ETH, yes, that's the tradeoff.

Compared to holding USDT, the tradeoff is that Tether can't print themselves free USDT's, but you have a risk of a smart contract bank run.

But isn't this just a fractional reserves in this case?

How will you have the reserves to pay out everyone who wishes to cash out all of their Unum 1 month later if the price of ETH as dropped by 50%? Where will you have the funds to do so?

Edit: I see from your website you have a penalty in place for when your reserves drop below Unums in circulation - clever play! (https://unum.one/#!/learn#reserve-deficit-sell-penalty)