Don’t just focus on the RWA track, the oracle track is also worth paying attention to.

Pay attention to both the RWA track and the oracle track.

Author: LianGuaiBitpushNews Asher Zhang

On July 24th, Worldcoin, a cryptocurrency company founded by Sam Altman, CEO of OpenAI, announced the launch of the WLD token, which was warmly received by the market as soon as it went online. By establishing on-chain IDs, Worldcoin is accelerating the expansion of on-chain credit, which will greatly promote the development of oracle services. So what are the application scenarios for oracle services? And what are the mainstream oracle projects in the crypto market?

Why is the oracle sector worth paying attention to?

RWA essentially brings real-world assets onto the blockchain, turning them into on-chain assets, and further transforming off-chain transactions into transparent on-chain transactions. In the process of transactions, off-chain data needs to be transmitted to the blockchain, and in this process, oracles are indispensable. Oracles are essentially a technology that brings real-world data onto the blockchain, used to obtain and verify external data on the blockchain. In the previous bull market cycle, the leading oracle project Chainlink skyrocketed mainly due to the explosion of “DeFi Summer”. In recent times, the RWA sector has been hot, with various real-world assets being continuously brought onto the blockchain, further increasing the demand for oracles. Therefore, in the future, while the RWA sector is booming, the oracle sector is worth paying attention to.

• Interpreting FTX’s preliminary restructuring plan Cash compensation is adopted, excluding FTT holders.
• LianGuai Morning Post | US Media Zhao Changpeng Once Attempted to Shut Down Binance’s Exchange in the United States
• Messari Development Overview of Polygon in the Second Quarter of 2023

In addition to the RWA sector, the oracle sector in specific areas is also worth paying attention to. For example, L2, credit, NFT, and DID all have potential opportunities. L2 oracles mainly provide native solutions for the op/zk ecosystems, with low latency and security being core concerns, and cheap price feeds being relatively secondary. Oracle services in the credit and DID sectors are more likely to explode in the next bull market, which will be discussed in more detail later.

How to classify the oracle sector?

The oracle sector is actually a very large sector, and it can be classified differently based on different scenarios.

In terms of the form of oracles, they can be classified as software oracles and hardware oracles. In terms of data sources, they can be classified as centralized oracles and decentralized oracles. Centralized oracles usually integrate data from only one trusted third party, such as government departments, official institutions, and reputable companies. Decentralized oracles refer to oracles with a distributed consensus mechanism, also known as consensus oracles.

In addition, there are also consortium oracles and TWAP, among others. Consortium oracles are a special form of decentralized oracles, where the node network is composed of not only regular nodes but also designated trusted institutions, such as dYdX and 0x in the case of MakerDAO’s v2 version of oracles. TWAP is a price oracle launched by Uniswap. Its data source comes entirely from the trading data of the Uniswap protocol itself, and the data retrieval and processing are also done entirely on-chain. The principle of TWAP is based on the token price at the last transaction in each block, combined with the block time, to calculate the total sum of a token’s price throughout the history of the protocol, so that an average price can be calculated when it is used.

What are the mainstream oracle projects?

Chainlink

ChainLink is a leading decentralized oracle project that provides middleware for blockchain smart contracts to call external data. Chainlink is the world’s first decentralized oracle, with clients including Google Cloud and Oracle. Compared to other oracle projects, Chainlink has relatively higher fees.

Band Protocol

Band Protocol is an oracle project running on the Cosmos blockchain. Band’s most distinctive feature is its cross-chain oracle solution, which extracts data from web-based APIs. Compared to Chainlink, Band Protocol is cheaper and can directly access external data. However, Band Protocol has relatively fewer ecosystem projects.

UMA

UMA is an economic game-based oracle. The project has two main technical features: Data Verification Mechanism (DVM), which is a decentralized oracle service, and priceless financial contract design for creating synthetic tokens. DVM designs a mechanism to ensure that the cost of attacking the oracle exceeds potential profit. Priceless financial contracts can function without on-chain price feeds and aim to reduce the frequency and scope of oracle attacks by minimizing the use of on-chain oracles.

API3

API3’s oracle solution allows APIs (data providers) to operate their own oracles without intermediaries such as ChainLayer and LinkPool.

Tellor

Tellor combines PoW mining and PoS staking mechanisms to provide secure and decentralized data for DeFi protocols. The downside of Tellor is that it cannot retrieve data in real-time and storing data on Ethereum is relatively expensive.

NEST

NEST is a distributed price oracle that generates prices through bilateral quotes from miners. Validators can arbitrage if they find deviations between the quotes and market prices, and directly generate prices on-chain. In contrast, other oracles represented by Chainlink provide oracle data by feeding data to on-chain contracts through distributed nodes.

Other oracle projects include the aggregated cross-chain oracle PlugChain and the decentralized oracle ADAMoracle, which supports wide node price feeding.

How will the oracle track develop in the future?

Currently, the credibility of data sources is the most criticized aspect of oracles because many oracles still use off-chain data generated under centralized mechanisms. The perfect oracle still has a long way to go, and the solution proposed by Vitalik Buterin seems more practical. Ethereum founder Vitalik has proposed the “Can Oracles Provide Common Staking?” and “How Can Class RAI Systems Safely Support ETH Staking?” proposals, which are expected to address potential risks in oracle manipulation and are relatively easier to implement. In the articles, Vitalik proposes three solutions: 1. Oracles as stakers; 2. Oracles as 2-of-2 stakers; 3. Hierarchical secure semi-trusted oracles. These three solutions have their own advantages and disadvantages in terms of implementation difficulty, prevention of bad oracles, protection of malicious CDP holders, and the willingness of oracles to operate. However, Vitalik suggests that Solution 1 seems easier to implement in the short term and will be an interesting addition to earning other staking rewards. However, Solutions 2 and 3 seem more trustless and durable, have lower trust in oracles, and better maintain the decentralization of staking. Therefore, in the long run, Vitalik leans towards choosing the latter two solutions.

From the perspective of application areas, with the expansion of on-chain credit, credit oracles may be the most worthy of attention in the next bull market. So, in which application scenarios are credit oracles expected to land first? Most probably, they will mainly focus on seven major application scenarios: legal identity verification, social identity verification, creation proof, fund proof, social reputation proof, personality proof, and interaction proof. Among them, the most noteworthy application scenarios are social identity verification, creation proof, and social reputation proof.

Outlook for the Oracle Track

As a bridge connecting the blockchain and the real world, oracles are still in the early stages of development. In the future, more efficient and secure oracle solutions will continue to emerge. With the development of the blockchain industry, more assets and application scenarios will be put on the chain, and the application areas of oracles will also become more extensive, such as finance, insurance, supply chain, and Internet of Things. In addition, cross-chain interoperability is currently the most important trend in the blockchain industry. Therefore, it is highly likely that oracles will also achieve cross-chain data transmission and verification between different blockchain networks in the future, breaking the existing isolation and improving the liquidity and efficiency of the entire blockchain ecosystem.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!