No sooner had Cardano launched smart contracts than its Chainlink integration was announced.
"Without the external financial market data that oracles provide, you can’t really build defi," explains Sergey Nazarov, "Most of defi is built using the ‘hybrid smart contract’ model, which combines on-chain code and off-chain systems using oracle networks."Ĭlearly other blockchains developers are singing from the same hymn sheet. A swathe of stablecoins – Paxos’ PAX, TrustToken’s TUSD, and even BitGo’s Wrapped Bitcoin (WBTC) – leverage Chainlink Proof of Reserve oracle networks to prove the collateralization of their tokenized assets, ultimately protecting users from fractional reserve practices or black swan events.Īs the more traditional commodities come onto blockchains (tokenized stocks, oil, precious metals, etc), proof of reserves is likely to become a necessity for asset issuers. In this sense, oracles can function as autonomous auditors, monitoring for fraudulent activity in real-time. Oracles also provide data about the market price of collateral assets in Maker Vaults, enabling the platform to know when to trigger liquidations. Protocols such as Maker, for example, depend on a price feed to determine the value of the underlying collateral backing the asset. The First Product-Market Fit: Price Feedsįor many, oracles are synonymous with their first product-market fit application – price feeds – which are commonly used in defi transactions, particularly those related to loan issuance, derivatives, and stablecoins.
LINK tokens, meanwhile, are used to pay node operators for their work, with prices set according to market demand for the data itself. "Tens of billions of dollars are secured by Chainlink across the leading defi, lending and gaming protocols, across multiple chains throughout the blockchain industry," says the protocol’s Co-Founder Sergey Nazarov, "In some chains that are focused on defi, Chainlink secures as much as 90 percent of their value locked within dApps."Ī chain-agnostic platform with its own Top 20 native asset ( LINK), Chainlink’s oracle infrastructure features a Sybil-resistant network of independent, orcale nodes that fetch data from a range of off-chain sources, before aggregating the information off-chain and delivering it on-chain to be consumed by smart contracts. If Ethereum leads the blockchain race, Chainlink is in pole position among oracles at present, with over $40 billion worth of smart contract value secured by its network. Chainlink’s decentralized network of oracle nodes aggregate multiple external price feeds and provide medianized reference prices to enable developers on Acala to build smart contracts around secure external data.Īs with blockchains, competition between oracle providers is fierce: virtually all networks profess themselves to be the safest, most user-friendly, and easiest to integrate. Last month, the Acala platform integrated Chainlink, the most widely used decentralized oracle network (DON) in defi, to power the launch of its parachain. Once you get listed and you are an oracle contributor, you can submit price feeds on the blockchain for free." "So that's why we took this customizability and said, oracle transactions on Acala will be free.
We should be incentivizing and rewarding them instead of charging them gas fees. It should be prioritized and it shouldn’t be liable for typical gas costs, because the oracle providers are actually contributing to the network. So what we do with Acala is, we think oracle transactions are very important. In a recent appearance on the ZK Podcast, he explained: "When the Ethereum network is congested, oracle transactions are actually competing with all other transactions out there. One person who recognizes the need for reform in oracle transaction processing is Ruitao Su, co-founder of Polkadot’s liquidity hub Acala. When the cost of obtaining the most recent price data gets prohibitively high, low-cost alternatives – Binance Smart Chain (BSC), Algorand, Solana, etc., start to look more appealing.
While Ethereum remains the market-leading defi blockchain, it has at times suffered from serious network congestion and skyrocketing gas fees to process transactions.