The importance of Oracle Services in a Tokenised Economy

TOKENISATION:

Tokenisation has become a popular buzzword, heard frequently in the blockchain and digital space. Often in relation to cryptocurrencies and Decentralised finance. As this technology matures, we will see a dramatic increase in the adoption and implementation of tokenising assets, adding a new realm to the financial world as we know it today. Market trends indicate that there is a rapid increase in awareness of blockchain and an increased understanding of the opportunities that this technology presents.

There have already been significant amounts of investments into tokenising securities, with fiat currency being tokenised in the form of stablecoins (the current spearhead at the date of authoring this article). In addition to this, we are continuously seeing a rise in projects surrounding the tokenisation of commodities and other real-world assets. Eventually, any asset can and arguably will be tokenised, creating the ability for these to be tradable on public blockchains. As mentioned above, the upward adoption trend will accelerate as the awareness of the benefits increases in the market, however, this will also be fueled by the decreasing costs attached to switching to a decentralised model as the industry matures.

Simply put, tokenisation is the process of putting ownership rights and ownership history of an asset or security onto a public ledger and converting it into a digital token that can be traded and used in applications on a blockchain. The value of the digital token is determined by the market (ie: a willing buyer and willing seller), or by a peg to another value (or asset). Almost any asset can be tokenised, from financial instruments such as private companies, public companies, and funds (including those focused on real estate, debt, or fixed income) to commodities such as gold as well as extending to intangibles such as carbon credits, production, futures contracts, and royalties.

Tokenisation brings with it the same qualities as those inherent to blockchains.

a.?????This process simplifies the ease of purchasing, selling, and trading these digital tokens.

b.?????The security, trust, immutability, decentralisation, portability, and liquidity of tokenised assets are inherited from the underlying blockchain's stamp of authenticity of the technology.

c.??????Additionally, tokenising assets enables the tracking of provenance, fractional representation, and speed of transfer or sale.

This new era of tokenising assets will give birth to new secondary markets. Opportunities will arise to enable investment into innovative on-chain products, but this presents its own challenges in the current infancy of its lifecycle. Reliable off-chain data, specific to those underlying assets, is required for the implementation of large-scale tokenisation of real-world, income-producing assets. To put this into context, an internet browser is an incredibly powerful tool contingent on its connection to the internet. However, when the internet is off-line, this internet browser tool loses its effective functionality.

Tokenisation has the potential to drastically transform capital markets as we know them today. The move to the digitisation of all assets is in its early stages but is accelerating. Making trustworthy sources of off-chain data available to on-chain applications will enable widespread use of, and trust in, smart contracts across an ever-broader range of business opportunities.

SMART CONTRACTS:

The true core of the transformed business landscape in this new market being ventured into, being the tokenised future, are smart contracts and oracles.

As with the tokenised model, the principle remains true when applied to smart contracts. Smart contracts can only see the data that is already on-chain, such as transactions, tokens, and wallets, but cannot access token prices or any other information that are regarded as off-chain data. Sticking to the internet example. Oracles are the internet connection for smart contracts.

How Tokenisation Runs on Smart Contracts

Assets whose ownership rights have been represented as digital tokens operate on decentralised platforms and are controlled and managed by smart contracts. Platform decisions are guided by code (smart contracts) which are pre-programmed to execute automatically when certain market conditions are met. Smart contracts, which are visible and auditable by all, reduce the formality and costs traditionally associated with the use of a third party to manage and verify interactions.

For example, if we take a decentralised borrowing transaction, a user is able to post an asset-backed token as collateral (such as a stablecoin, gold, or any asset the application allows). This then allows that user to borrow against this collateral posted, in the time it takes to confirm the transaction on-chain. Without the need for loan officers, lengthy applications, or exorbitant fees. The interest rates and borrowing terms are all set algorithmically within the code of the smart contract.

When we start to discuss providing trust and transparency for these smart contracts, the recurring issue is that the smart contracts only respond to data that is inherent to, or has been delivered onto, a blockchain. Real-world information or off-chain data that impacts a smart contract is disconnected from on-chain environments. This highlights the inevitable need for a trusted and reliable source facilitating the input of the data onto the platform. This layer of infrastructure helps build an environment that can realise the full potential of smart contracts.

WHAT IS AN ORACLE:

An oracle serves as a bridge connecting the blockchain to the outside world, they are the link between off-chain information and on-chain information.?As blockchains cannot access off-chain data by themselves, oracles are a valuable third-party service that dramatically expands the use cases for smart contracts. They enable smart contracts to use information or data from the outside world?to make that data accessible on the blockchain. It’s important to emphasise that oracles are not the actual data. Rather, oracles are the tool that verifies external data sources and relays the information.?

Oracles act as an intermediary between real-world data and blockchain ecosystems. Mediators between the on-chain environment and the real world, they enable the creation of robust smart contracts that address a multitude of scenarios, such as allowing for fractional ownership of real estate or any other real-world asset. In addition, they convert off-chain data into a format accessible to the smart contract.

The accuracy and reliability of the data delivered from an oracle ultimately determines the security of the smart contract. If the data is wrong, as the result of manipulation or simply incorrect implementation, the smart contract can fail. The repercussions of this can potentially lead to catastrophic losses. In addition, if the data trail is not auditable and the methodology and sources are not transparent, the security of the smart contract similarly decreases.

Strengthening the Trust in Oracles

Historically, accountants have been trusted to provide accurate and reliable financial information about businesses to the public. The tools and techniques accounting firms employ have changed over time to keep pace with technological innovations. So, with this advancement in our financial systems, we need to continue to embrace change and adapt accordingly in order to deliver services of the highest standard to the public. The rapid innovation and disruption that blockchain presents, as we continue to see the development of new financial products and business models such as the tokenisation of traditional assets illudes to our responsibility to innovate and evolve our profession in line with the progression seen within these new markets.

An important and necessary part of this progression of our profession is validating new forms of financial data for clients and creating new methods in which data can be delivered to the intended users and markets. The act of validating and transmitting data through oracles networks to open, public blockchains and decentralised platforms extends the natural role of accountants in society.

The collection of single-source data, or use of trusted endpoints operated by known players (e.g. accounting firms) supports the overall growth of a decentralised ecosystem and is a net positive.

OUR ORACLE SOLUTION:

Blockchains, and the smart contracts that operate on them, need secure, reliable, and verifiable ways to access real-world data. Oracle networks alone cannot fill the gap.

Our Oracle solution?will enable businesses to bring important (off-chain) legacy enterprise data, asset reserves data, and other important financial data on-chain for use in their own decentralised applications and/or other open protocols. Serving as the middleware of trust and transparency for the next generation of the internet

Our world-leading oracle solution presents off-chain data from a known and trusted source to a blockchain network, strengthening trust in the decentralised ecosystem.