In the world of “interests”, it is important that truth is not monopolized by anyone.
Decentralized protocols have grown in popularity as a viable alternative to traditional centralized systems. People are recognizing the flaws in centralized authority and adopting open, decentralized and trustworthy systems. However, for a decentralized protocol to be truly open and transparent, an infrastructure is needed that helps to reliably access offline real-time information.
There is no doubt that we live in a world where one can only share false information and declare it to be true. Oracle appears to be a solution to the dilemma of the “infrastructure” of the emerging decentralized web. Oracles are the essential blockchain infrastructure that facilitates communication between offline and on-chain protocols.
Oracles are essential for most decentralized protocols, especially decentralized finance. Decentralized finance (DeFi) protocols rely on oracle networks for real-time on-chain data and event-based outcomes because the blockchain itself has no native way to access data off-chain, and decentralized applications (dApps) such as insurance Products, algorithmic stablecoins, financial derivatives and prediction markets must function smoothly.
Oracle gathers real-world data from external sources, such as market prices, weather data, location data and currency rates, and puts it on a blockchain, allowing smart contracts to act on it. They can also provide data from different series.
When a protocol is not decentralized, oracles are often third-party services or application facilities that the user interacts with manually. These do not follow the notion of decentralized protocols and are, for the most part, centralized. Centralized oracles can be easily controlled and used for selfish purposes. Blockchain oracle aims to provide multiple reliable data sources to achieve complete decentralization.
To achieve this, blockchain oracles combine cryptography and incentives to create systems that allow different nodes to reach consensus on shared data. However, it can be vulnerable to decentralized protocols. Manipulation can occur when using normal value-feed oracle systems, and there have been several high-profile incidents, one of which was when lenders on the DeFi platform Compound were liquidated for US$103 million due to a malicious oracle exploit. went. The failures of 3AC, Celsius and BlockFi emphasize the importance of enabling true decentralization as a means of increasing transparency and trust in the financial system.
While the bear market continues to weigh heavily on crypto and DeFi alike, a new course must be drawn if DeFi is to survive and prosper. However, Oracle will be one of the most powerful drivers of this growth.
Band Protocol is one of the decentralized oracle protocols that pave the way for the future development of the DeFi ecosystem. The Band protocol provides a “community-curated” data source that dApp operators can use to manage and curate data feeds to solve oracle problems and provide smart contracts with reliable data feeds. The band has garnered a lot of attention since its inception in 2018 and is known as one of the best decentralized oracles in the business.
Another Oracle protocol worth mentioning is the QED protocol. QED is the next generation decentralized oracle solution for the blockchain sector. 0rigin built a robust economic model called QED to connect various blockchains, smart contracts and off-chain data sources. Delphi Oracle has been live and running for over three years. QED is a battle-tested and proven iteration of Delphi Oracle.
Given that QED is the first Oracle solution to address the technical and business aspects of the Oracle protocol, it has a distinct value proposition. Furthermore, QED has built a robust economic model that sets it apart from other blockchain protocols by guaranteeing the accuracy of real-world data on-chain.
Because the QED protocol is blockchain agnostic, it can be extended and integrated with any open blockchain. On the business side, QED has established a financially sound recourse mechanism that allows clients to use external collateral that is provided to them in case of systemic risks. Finally, it is important to remember that the QED network never uses system tokens as collateral and instead always uses external collateral.
conclusion
Centralization has resulted in several security flaws in the current Oracle protocol and the DeFi ecosystem as a whole. Because of that flaw, hackers stole about $1.3 billion in 2021. There have also been instances where a “centralized” oracle resulted in discrepancies in market prices and data across platforms. We saw the Venus Protocol being exploited by unscrupulous actors, worth $11 million, as hackers take advantage of Venus’s fluctuating rates. Decentralized oracle protocols, such as the QED network, are the future of the DeFi industry and will help investors during the current phase of extreme market volatility and bear markets in the cryptocurrency space.
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