IS FLARE NETWORK A SOLUTION FOR ORACLE?
Today's DeFi market still relies on inaccurate or easily manipulated pricing mechanisms. Earlier, the Chainlink wstETH/ETH price feed on Arbitrum reported an inaccurate value, resulting in the liquidation of five positions.
A few months ago I wrote extensive blog posts about the weaknesses of today's Oracle systems and how Flare's Oracle solution #FTSO is different. The article discuss the current problems faced by the world of #DeFi and how the #FlareNetwork
can help solve them. Here are the key takeaways from the article.
Oracle is an integral part of decentralized finance.
Decentralized finance (DeFi) refers to the entire ecosystem of financial applications built on blockchain. It allows for conducting transactions without relying on banks or other financial institutions.
Oracle plays a crucial role in the DeFi sector, bridging the real world with the blockchain world. For DeFi applications to function and be valuable to people and organizations worldwide, they require real-world information such as price data.
The DeFi market still heavily relies on solutions that are not fully decentralized and do not provide 100% security. Solving this problem through Oracle is not easy, especially when building additional solutions on existing architecture. In such cases, we are unable to change the fundamental functioning principles.
The biggest challenge for Oracle is to create economic incentives for data providers to ensure the prices they provide are precise and accurate while preventing the temptation to falsify the data. With billions of dollars flowing through the DeFi market, there is a risk of malicious actors taking advantage of the situation to harm the network. However, if Oracles are financially incentivized to continuously deliver precise and accurate data, they will continue their work without succumbing to fraudulent temptations, as it will not bring them financial benefits.
Commonly used and considered standards in DeFi, Oracle providers do not address the fundamental problem of lack of trust stemming from a centralized data delivery system.
In the recent past, we have witnessed numerous failures and attacks on DeFi, often caused by weak points in the system, such as Oracle.
Ethereum, being the largest DeFi ecosystem, accounts for over 56% of the total liquidity in this market.
The biggest attack on the DeFi market in 2022 was the Ronin bridge attack, resulting in losses of 173,600 ETH and $25.5 million in USDC, which was valued at over $625 million at the time.
Similarly, in the case of the attack on the Compound protocol, which utilized exchange APIs, approximately $22 million was drained.
The exchange APIs themselves are not the source of the problem. However, the instability of the price data they provide can be problematic when large sums, worth millions or even billions of dollars, are at stake in secured positions or other derivative instruments. With the increasing adoption of tokenization, it becomes increasingly necessary to ensure a secure, accurate, decentralized, and trustless system for delivering prices from the real market. In the case of technology adoption by large financial institutions, the transfer of real-time price data to the blockchain will be a requirement for asset tokenization. A decentralized Oracle solution would be a perfect complement to decentralized finance.
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Flare Time Series Oracle (FTSO) is a decentralized oracle that provides Flare smart contracts with timely and accurate off-chain data.
#FTSO is an important part of the Flare Network because it allows smart contracts to interact with the real world. By providing access to off-chain data, #FTSO enables Flare developers to build applications that can solve a wide range of problems.
FTSO has several benefits, including:
FTSO has a wide range of potential applications, including:
As FTSO matures and its capabilities improve, it is likely to be used in even more innovative ways.
Currently, the FTSO protocol provides data to the blockchain in three-minute intervals. In the near future, the FTSO updated protocol will support 1000s of prices, but not all will be updated at the same time on a block level — they will have a regular update period for all of them but dapps would be able to request a price update (for a batch) that will then be updated on block level speed.
Please read full blog post here: