The blockchain oracles are essential players in the blockchain ecosystem. They wield more power than the protocol developers and miners. However, most people misunderstood the blockchain oracles since they suffer from security vulnerabilities and constant misuse. Endorsing and licensing professional oracles is essential in improving the blockchain ecosystem’s overall health.
A more transparent oracle use is in the future smart contract constructed by crypto trading venue FTX and other betting platforms that allow individuals to place bets on who will be the next US president. The oracles were supposed to be in media outlets like CNN calling for one of the presidential candidates to be declared the winner. There has been confusion surrounding who won the presidential elections in traditional media and social networks. Hence, the betting platforms opted to solely rely on themselves to have the final say concerning the matter. This created a conflict of interest when it came to announcing the winner.
To keep the trading open, the platforms kept changing the expiry date and nature of their future contracts. FTX provided unhappy TrumpWin token holders a chance to roll over their losses to the TrumFeb contract on 9th Feb 2020. The contract would expire while Trump is still in office on the 1st of Feb 2021.
The trick of allowing users to continue playing accumulating even more significant debts is viral among bookmakers who are mafia- associated. The problem gets more significant when it comes to decentralized future contracts. The DeFi smart contracts cannot rely on the CNN news and rely on the blockchain oracles simultaneously. The automated system can be used in transmitting real-world information on the blockchain. Since they are poorly maintained, coded, and can easily be compromised, they cost the DeFi ecosystem millions daily.
Over $142 million were stolen from Value, Origin, Akropolis, Harvest, bZx, and Defi, and other platforms. This was caused by leveraging the flash loans and other techniques to change the underlying tokens’ price purchased at a lower price in 2020.
A total of $90 million was liquidated on the lending platform compound due to the potential exploit of Coinbase, one of the oracle data sources. Coinbase is where DAI/USDC cost was artificially increased by 30%. The price increase triggered liquidation as the numbers of loans were suddenly under the liquidation ratio.
Regardless of whether it is fraudulent or incompetence intent, the problem remains the same. An Oracle is never reliable as long as it remains under the control of trading/betting platform creators. Similarly, we value journalists’ professionalism and independence. We also need to hold out oracles in the same way.
There is never an easy solution to this fundamental problem. However, one way you can use it to approach and mitigate risks is to license oracles. This will promote accountability and professionalism in their work.
The services can also be expanded past pricing information to compliance reviews and security audits acting as stamps of approval for the good-willing blockchain products. This will help in doing away with the need to inspect all the regulated blockchain products. Licensing oracle will help create the right incentives and accountability for participants in the market.
Every independent oracle in the decentralized network retrieves data from an off-chain source bringing it on-chain. The data will be aggregates so that the system can determine the value of truth for the particular data point. The decentralized oracles play an integral part in solving the oracle problem.
Chainlink refers to the framework of selecting the independent network of nodes connecting data from the real world to the blockchain. This will make it possible for smart contracts to get to their actual potential.
