The Future of Oracles: Connecting On-Chain and Off-Chain Worlds

Guest lineup:
Kaz Coral Finance COO
John Armonia Commercial manager
DuDU strategy of Parallel Finance

Guest introduction:
DUDU: I work in strategy at Parallel Finance and am also involved in the NFT ecosystem and space. I have nearly seven years of experience in this field, serving as a builder and creator, and have played some special roles in several well-known communities.

Kaz: I am Cass from Cora Finance. Cora Finance is essentially a high-end trading derivatives platform, and our mission is primarily to address the challenges of creating sustainable DeFi liquidity and capital-efficient markets through a convenient high-end trading candidate to solve liquidity issues. This includes our industry-leading partners such as Seabed Labs, CBO Benches, Google Benches, Capture VC by Finance, Momentum Capital, and Web C Labs.

John: Ammonia meta chain aims to build a super ecosystem for global blockchain enthusiasts with multiple gateways and integrated applications. Our platform is a highly scalable public blockchain built on a multi-chain infrastructure. Ammonia Maynet achieves parallelism and interoperability between multiple chains, paving the way for diversified applications in various fields and scenarios. These applications include multi-chain wallets, DeFi Gamify, NFTs, decentralized exchanges, social, metaverse, and more.

1. Overview of Oracle Basics:

In blockchain, an oracle is a critical technological component whose main task is to facilitate the interaction of data and information between the blockchain and the external world. Smart contracts cannot directly access or verify off-chain data or events, so the introduction of oracles addresses this limitation, allowing blockchain systems to obtain and utilize key information from the real world.
Main functions: Data provision: Providing external data to smart contracts, such as prices, weather, transportation information, etc. Verification and conversion: Validating off-chain data and converting it into a format that smart contracts can process. Triggering smart contracts: Executing smart contracts when specific conditions are met.
Challenges and considerations: Data credibility: Ensuring the credibility of the provided data to prevent erroneous contract execution due to inaccurate data. Security: Designing high security for oracles to resist potential malicious manipulation or data tampering. Credibility: Choosing oracles with high credibility is crucial for ensuring system robustness and reliability.

2. Introduction to Oracle Projects

DUDU: Chainlink, as one of the earlier projects in the industry, has a complex product line and a vast ecosystem, but there may still be issues with centralization and staking mechanisms in certain aspects. PluChain focuses on cross-chain operational mechanisms, emphasizing interactivity and ease of use, but may be less performant compared to Oracle. PYTH has made some innovations in lightweight and data streaming, adopting a pull method to improve efficiency during network congestion and addressing some issues of traditional oracles.

KAZ: The origins of Chainlink and its role in addressing the limitations of Ethereum, particularly in integrating smart contracts with real-world data, provide insights. Ethereum has driven the altcoin movement, but as more people began to use it, they also realized some shortcomings of Ethereum itself. To address these issues, Ethereum attempted to resolve them through the 2.0 version on its roadmap, but the implementation of Ethereum 2.0 has taken a long time. Subsequently, many other projects such as Solana, Ada, and Cardano have emerged to address these issues. The explanation of Chainlink's decentralized oracle network and its role in connecting smart contracts with real-world data sources is very clear. Node operators obtain data through APIs and adapters and relay it back to the main chain. Additionally, node operators are incentivized with LINK tokens for executing tasks, adding an economic layer to the network. Challenges faced by Chainlink, such as scalability issues and high gas fees, become more apparent as usage increases.

3. Technical Deep Dive Analysis

KAZ: The advantage of using centralized oracles is speed, as it relies on a single source of information, with each node obtaining information from that node. However, its weakness lies in the fact that if that centralized source is compromised or damaged, data will become inaccessible, creating a single point of failure. For decentralized oracles, nodes have their own authority and obtain information from multiple sources. However, the issue may be that it could be slower and may increase gas fees, as data needs to go through several steps, such as consensus verification, to ensure the legitimacy of the data. The trade-off between the two is that centralized oracles have advantages in speed and efficiency but carry the risk of a single point of failure, while decentralized oracles are more secure and distributed but may sacrifice some speed and cost efficiency.

John: The role of oracles in this ecosystem is to support decentralized applications (DApps) by evaluating existing data sources and traditional systems, as well as engaging in advanced competition. Decentralized oracles, often referred to as "Dons," enable the creation of hybrid smart contracts. This is a high-level smart contract where on-chain code and off-chain infrastructure are typically combined to support advanced decentralized applications that respond to specific events and interoperate well with traditional systems.

4. Application Cases and Real-World Scenarios

DUDU: Parallel Finance involves about $200 million in TVL. In our lending process, we frequently use Chainlink's oracles to obtain price information. This is crucial for our protocol, as we need to integrate off-chain data, including NFT transaction data, across different platforms and reflect it in real-time on our lending platform to determine liquidation prices and risks. Additionally, oracles play an important role in calculating interest, involving the interest of borrowers and lenders. Overall, the application of oracles in the decentralized lending industry, especially in the NFT sector, is quite extensive, particularly in NFTFI. In GAMEFI, we need operators to provide random numbers. We utilized Chainlink's functionality to achieve this. This random number is crucial for the playability, fairness, and anti-cheating of the game.

KAZ: Currently, the use of oracles in the gaming field may be relatively limited, but in DeFi applications, oracles play a critical role. Oracles are key in bringing real-world data onto the blockchain. By providing data on specific asset prices through oracles, smart contracts can execute loan agreements or certain options, demonstrating the practical application of oracles in securely and reliably bringing off-chain data onto the blockchain, thus enabling contract execution. Furthermore, in the gaming or gambling platform sector, where transactions occur on-chain but the outcomes of games or bets are available off-chain in real-time, oracles can fetch this data and relay it on-chain, ensuring the transparency and fairness of the process.

John: The foundational role of oracles in establishing verifiable networks and connecting blockchains is indeed crucial. Through oracles, we can connect blockchains that were originally isolated from off-chain data and computations, creating verifiable networks that enable interoperability between different blockchains. This is essential for building a collaborative and interactive blockchain network. Through oracles, different blockchains can interact with each other, facilitating collaborative operations and promoting the synergistic functioning of the entire blockchain ecosystem. Thank you for emphasizing the importance of oracle networks or platforms in driving blockchain interoperability.

5. Challenges of Security and Transparency

KAZ: Oracles reveal the fundamental limitations of smart contracts. Smart contracts, by nature, cannot directly interact with data and systems that exist outside the native blockchain environment. Resources external to the blockchain are often considered off-chain data, while data already stored on the blockchain is considered on-chain data. By deliberately isolating from external systems, blockchains can achieve their most valuable characteristics, such as stronger consistency regarding the validity of user transactions, thus preventing double-spending attacks and network latency threats. However, when secure interoperability with off-chain systems is required, additional infrastructure is needed, which is the role of oracles in building bridges connecting these two environments. Oracles play a key role in obtaining data from external environments and introducing it into blockchain systems while ensuring that this information is not tampered with. Addressing the oracle problem is critically important, especially considering that most smart contract use cases, such as defaults in finance, require access to off-chain data and event information. Therefore, cryptographic oracles expand the types of digital protocols that blockchains can support by providing a universal gateway to external resources while maintaining the valuable security characteristics of the blockchain. Various major industries can benefit from the combination of oracles and smart contracts, involving asset prices in finance, information in insurance, randomness in gaming, IoT sensors in supply chains, government identity verification, and more. Since the data transmitted by oracles directly determines the execution results of smart contracts, it is crucial to ensure the correctness of the oracle mechanism and that the execution of the protocol aligns with expectations. Before transmitting data to the blockchain or smart contracts, oracles should be able to quickly check and verify this data through external sources or algorithms. This mechanism can enhance the credibility of the data, ensuring that only verified data is introduced into smart contracts. This is vital for ensuring that contract execution is reasonable and secure.

6. Application Scenarios and Potential Markets

DUDU: As blockchain performance improves, the importance of oracles may decrease. This viewpoint does have some merit, as the current existence of oracles primarily serves to bring data from the traditional closed information world onto the blockchain for smart contract use. Performance and resource limitations are the main reasons hindering direct on-chain data. The situation of traditional information monopolies, where platforms like Bloomberg Terminal monopolize first-hand market data, is prevalent. In the blockchain world, the future trend may be to bring more first-hand information on-chain, gradually reducing the reliance on oracles. The application of oracles in DeFi and GameFi is extensive and also involves dynamic NFT forms and anti-fraud mechanisms.

John: Oracles play a crucial role in connecting blockchain-based smart contracts with off-chain data sources, expanding the application scope from simple price information to a broader range of fields. While price information is a common application case, the real potential lies in oracles enabling smart contracts to interact with various off-chain resources and real-world data. This versatility provides possibilities for applications across various industries, allowing smart contracts to execute based on real-world events and information. This is the significance of building bridges between the decentralized blockchain world and its vast external resources.

Kaz: The tokenization of physical assets is indeed gaining attention, as it brings greater liquidity and accessibility to traditionally illiquid assets. Oracles play a key role in this process by connecting the on-chain and off-chain worlds, providing real-time and accurate data about these assets. As blockchain technology matures, we are witnessing a shift from purely cryptocurrency-related use cases to more diversified applications. The ability of oracles to securely bring external data onto the blockchain is crucial for enabling smart contracts to interact with real-world events and assets.

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