Crypto Defi- Why DeFi Protocols Should Migrate from Push Oracles to Pull Oracles

Why don’t DeFi protocols ever play hide and seek with push oracles? Because they always push the updates and never pull their weight!

Boom! - Geek Alert!

Welcome to the world of DeFi, where the financial frontier is being reshaped with blockchain technology. Oracles are the unsung heroes of this revolution, providing crucial external data to on-chain applications. While push oracles have been the go-to, it's time to meet their more efficient cousin: pull oracles. In this article, we'll explore why DeFi protocols should make the switch to pull oracles, with a particular focus on the advantages of using Pyth Network, along with other providers to bolster the case.

Oracles Overview

What are oracles? Oracles are third-party services that provide smart contracts with external information. They act as a bridge between blockchains and the outside world, enabling smart contracts to access off-chain data. Oracles are essential in expanding the functionality of smart contracts by enabling them to interact with data sources beyond their native networks.

We need them!

Types of Oracles

Oracles can be classified based on their source, direction of information, trust, and the way they provide information to smart contracts. Some common types include:

1. Inbound and Outbound Oracles: Inbound oracles transmit information from external sources to smart contracts, while outbound oracles send information from smart contracts to the external world.
2. Centralized and Decentralized Oracles: A centralized oracle is controlled by a single entity and is the sole provider of information for a smart contract. Decentralized oracles increase reliability by relying on multiple sources of truth and distributing trust among various participants.
3. Push and Pull Oracles: Push oracles proactively provide data to smart contracts without being explicitly requested. They push data to the smart contract when a specified event or condition occurs. Pull oracles, on the other hand, require smart contracts to request data explicitly. They pull data from external sources in response to a query from the smart contract.
4. Software Oracles: These oracles interact with online sources of information, such as databases, servers, or websites, and transmit the data to the blockchain. They often provide real-time information like exchange rates or digital asset prices.
5. Hardware Oracles: These oracles obtain information from the physical world using electronic sensors, barcode scanners, or other reading devices. They "translate" real-world events into digital values that can be understood by smart contracts.

How Push and Pull Oracles Work

Push Oracles: Push oracles proactively provide data to smart contracts without being explicitly requested. When a specified event or condition occurs, the push oracle triggers the smart contract with the relevant data. For example, a push oracle might send weather data to a smart contract once the temperature reaches a certain threshold.

Pull Oracles: Pull oracles, in contrast to push oracles, require smart contracts to request data explicitly. A smart contract will send a query to the oracle, which will then retrieve the requested information and relay it back to the contract. Pull oracles can be further divided into:

• Double-Transaction Oracles: These require two transactions. The first transaction is the request for information, which usually causes the oracle to emit an event that triggers some off-chain mechanism to provide the answer (through its own transaction). The second transaction reads the result on-chain from the oracle and uses it.
• Single-Transaction Oracles: These only require one transaction, such as Chainlink's random number generator. The transaction that requests the information includes a callback (address and call data). When the oracle is updated (through a transaction not sent by the user), the oracle uses the callback to inform a contract of the result.

The Advantages of Pull Oracles

1. Cost Efficiency: Pull oracles are like savvy shoppers, cutting down on unnecessary expenses by updating prices only when needed. This reduces the number of on-chain transactions and the associated gas fees. Data shows that applications using pull oracles can save up to 70% in gas fees compared to those relying on push oracles. With Ethereum gas fees often soaring, these savings can be substantial, allowing protocols to allocate resources more effectively.
2. Reduced Latency: Pull oracles provide real-time updates as soon as they are requested, minimizing the delay between price changes and on-chain availability. Studies have demonstrated that pull oracles can halve latency compared to their push counterparts, ensuring you always get the latest information when you need it most. In fast-moving markets, this reduced latency can be the difference between profit and loss.
3. Enhanced Security: With push oracles, a handful of trusted operators hold the keys, which can be risky. Pull oracles distribute the responsibility of submitting updates, reducing the risk of centralized manipulation. This decentralized model allows anyone to submit price updates, enhancing security and spreading out the risk. It’s like having multiple locks on your door instead of just one. Moreover, cryptographic techniques are employed to verify the authenticity of price data, further bolstering security.
4. Scalability: Pull oracles are the marathon runners of the blockchain world—they can go the distance. They scale effortlessly with the growing DeFi ecosystem, managing a vast array of data without breaking a sweat. Networks supporting over 500 low-latency price feeds across various asset classes show just how scalable pull oracles can be. As DeFi applications diversify and the need for more specialized data increases, pull oracles can easily adapt to meet these demands.

Use Cases for Oracles

Oracles are used in various applications across different industries. Some general use cases include:

1. Prediction Markets: Oracles provide real-world data to prediction market platforms, allowing users to bet on future events or outcomes.
2. Supply Chain Management: Hardware oracles can track the location and status of goods throughout the supply chain, enabling smart contracts to automate various processes and improve efficiency.
3. Insurance: Oracles can supply data on events like natural disasters, accidents, or price fluctuations, allowing smart contracts to automate claims processing and payouts.
4. Decentralized Finance (DeFi): Oracles provide critical price and market data to DeFi applications, enabling them to operate efficiently and securely.

Quantitative Evidence: The Numbers Don’t Lie

The benefits of pull oracles aren't just theoretical—they’re backed by hard data. Here’s a closer look at some of the quantitative evidence supporting the switch to Pull Oracles:

• Cost Savings: Applications using pull oracles report up to 70% lower gas fees. For example, a protocol that would typically spend $10,000 per month on gas fees with push oracles could reduce that to $3,000 with pull oracles, freeing up significant capital for other uses.
• Latency Reduction: Innovative pull oracle designs have achieved latency reductions of 50%, ensuring data is up-to-the-minute accurate. In fast-paced trading environments, this can significantly enhance trading strategies and outcomes.
• Security Enhancement: With decentralized submission models, pull oracles have avoided major security breaches, proving that spreading out responsibility keeps things safe and sound. This model has helped maintain a stellar security record, instilling confidence in its users.

Examples of Oracle Providers

Pyth Network: The Pyth Network is a standout provider in the world of pull oracles, offering high-fidelity price feeds sourced from over 95 first-party sources, including exchanges and market makers. Pyth supports pull oracle models and is integrated into multiple blockchain ecosystems. Its pull oracle design allows applications to request the latest price updates on demand, ensuring data is fresh and accurate. Pyth's commitment to low-latency, high-fidelity data makes it an ideal choice for DeFi protocols seeking reliable and timely information.

Chainlink: Chainlink is a well-established provider of push oracles. Chainlink’s decentralized oracle network delivers data to smart contracts with high reliability and security. It supports a variety of data feeds, including price feeds, which are essential for DeFi applications.

RedStone: RedStone offers flexible data feeds suitable for various DeFi applications. It provides both push and pull oracle solutions, allowing protocols to choose the best fit for their needs. RedStone Core is a pull oracle solution that offers rapid updates and a broad spectrum of data feeds, making it ideal for most use cases.

The Road Ahead: Embracing the Future of Oracles

As the DeFi ecosystem continues to evolve, the need for more efficient, secure, and scalable oracle solutions becomes increasingly clear. Pull oracles offer a promising path forward. By migrating from push to pull oracles, DeFi protocols can unlock a host of benefits, positioning themselves for long-term success in the dynamic blockchain landscape.

Practical Steps for Transitioning to Pull Oracles

For DeFi protocols considering the switch, here are some practical steps to facilitate the transition:

1. Evaluate Current Oracle Infrastructure: Assess your existing oracle setup and identify areas where push oracles may be leading to inefficiencies or increased costs. Understanding your current system’s limitations is the first step toward improvement.
2. Research Pull Oracle Providers: Investigate various pull oracle providers, with a particular focus on those that have a proven track record. Consider factors such as cost, latency, security, and scalability when making your decision.
3. Plan the Integration Process: Develop a comprehensive plan for integrating pull oracles into your protocol. This plan should include technical integration steps, potential challenges, and a timeline for implementation.
4. Test and Optimize: Before fully migrating, conduct thorough testing to ensure that the new pull oracle system functions as expected. Optimize the setup to maximize efficiency and minimize costs.
5. Educate and Train Your Team: Ensure that your development and operations teams are well-versed in the new pull oracle system. Provide training and resources to help them adapt to the new infrastructure.

Conclusion

Switching from push oracles to pull oracles is like trading in an old, clunky car for a Tesla. Pull oracles offer cost savings, reduced latency, enhanced security, and better scalability. With leading providers like Pyth Network setting the standard for high-fidelity, low-latency data, DeFi protocols have a clear path forward to a more efficient and secure future. By making the switch, protocols can unlock significant benefits and position themselves for long-term success in the ever-evolving DeFi landscape.