KeyTango — The Easiest Way To Get Started With Defi
KeyTango is a forum for institutional investors to find, understand and participate in DeFi goods and services such as yield farming and liquidity pools. We agree that DeFi is intended to and should be more inclusive.
You may be a crypto veteran, but you may be a newbie. Starting today, a series of posts will break into layman terms some of the core principles of DeFi.
Price Oracles In A Nutshell
Oracles are basically third-party services that allow smart contracts within blockchains to receive external data from outside their ecosystem. Oracles serve as a data base that can be entered into a smart contract, one that allows them to access real-time data that is not yet on-line, much of which is the accurate price of properties.
And if the oracles themselves are not data bases, they are layers that validate on-chain data relevant to real-world events and then send combined data to smart contracts.
Price oracle risk is the risk that such price feed may be skewed and the incorrect price will be inserted into a smart contract, wrongly decreasing or increasing the price of the commodity, providing an incentive for the manipulator to arbitrate. The effect of such exploitation is further compounded by the use of flash loans by attackers to leverage the arbitrage potential provided by price manipulation.
Many autonomous oracles use the ShellingCoin mechanism, where objective sources report data without validation from other sources. Due to the lack of this touch, these sources/agents disclose “true” data to the best of their capability while expecting other sources to do the same.
This system is susceptible to a number of issues, such as party-to-party collusion, messaging and even bribing. In comparison, in the case of a hacker attacking the data feed, there is no retaliatory process in operation. Even a single incorrect value may have major implications for applications that depend on an oracle.
Various DeFi protocols also launched price oracles to provide consumers with clear pricing details. For eg, Compound announced its decentralized price oracle, the Open Price Feed (OPF), in August. In the OPF, price reporters — such as cryptocurrency exchanges, DeFi protocols and OTC trading desks — may send price data using a known public key.
Users can obtain recorded pricing data by accessing the price reporters’ public API. The price oracle is decentralized, since price data can be sent and obtained without the use of the Compound Protocol infrastructure.
The Growing Popularity of Decentralized Oracle Platforms
Projects such as Chainlink provide decentralized oracles that gather and provide financial data for derivatives and loans. For example, Chainlink indicates that its oracles have retrieved data for more than 90 per cent of the amount of derivative credit defaults between public blockchains.
These details are adopted by providers of DeFi derivatives such as Synthetix, Nexus Mutual and MCDEX, among others. Earlier this year, Coinbase released Price Oracle to reduce structural risk in the larger DeFi ecosystem. Coinbase Oracle can be drawn into blockchain networks and, once there, it can be combined with other data feeds used by DeFi ventures.
Overall, decentralized finance has seen a phenomenal rise in 2020. Blockchain oracles have played an instrumental role in the advancement of DeFi, as they improve data durability and consistency through multiple DeFi protocols.
Through depending on decentralized oracle networks, DeFi protocols can save time and money while promoting creativity in other fields of decentralized finance. In order to minimize the price oracle risk exposure, investors can use platforms that do not rely on a price oracle, use a tamper-resistant price oracle such as Uniswap V2, or use a price feed from a source with tons of trading volume, in order that the value of manipulating its price is extremely expensive.
Market Making (MM)
In essence, market makers describe the liquidity and depth metrics for capital markets. They track the price of assets they produce in real time to take advantage of the opposing trend in the economy, which is always in an advantageous position. Simply stated, if most sellers on the street were attempting to sell a commodity, market makers would buy it, And as most traders on the market want to purchase a commodity, market makers will sell it. By doing so, market makers play a regulatory role in asset markets while eliminating unforeseeable price fluctuations due to low liquidity.
Would you like to see what else is possible for Oracles?
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