The recent explosion of Decentralised Finance (DeFi) has elevated the interaction of real-world events and blockchain technology from exotic jaunts to mission-critical components. As the appetite of traditional establishments for leveraging this technology continues to grow, so has the need for infrastructures that allows them to safely plug real-world data on to the blockchain.
For all the “smarts” appended to its name, smart contracts possess neither the intelligence nor ability to discern what is right in front of them. Rather, its perceived ingenuity is in its ability to autonomously execute value exchange without any third-party interaction. Despite this, there is no denying the exciting developments and opportunities smart contracts have ushered in, laying down the foundation for a new economic model. Smart contracts have drastically reduced counter-party risks, improved efficiency, reduced manpower cost, and eliminated opacity in the exchange of financial values.
As smart contracts are oblivious to real-world events, there is the need to connect them to infrastructures that can supply the external information they require. This infrastructure, which should be able to query, retrieve, and verify external data sources for specified data, is known as an Oracle.
The Oracle Problem
Like their namesake from Greek mythology, Oracles supply smart contracts with the information by peering beyond the veil and fetching the required data from the real world through web APIs and feeds. Through oracles, smart contracts can “see” the world around them, bringing real-world data interaction on-chain. This, though, introduces a new problem; with its ability to make smart contracts see the world around them, oracles wield considerable influence over what the contract processes, an influence that invalidates the operation if compromised — regardless of scale.
The inherent ability of oracles to interface between off-chain and on-chain data stands to catalyst the real-world utility of blockchain technology. However, the single-point-of-failure introduced by its reliance on centralized sources and third-party authorization continues to undermine its adoption.
Unlocking this bottleneck is what we’re building at Flux Protocol
Flux Oracle is the backbone of a fully permissionless and decentralized infrastructure for working with and resolving off-chain data on the blockchain. This Oracle has been uniquely designed for flexibility without security trade-offs while being robust enough to scale with economic guarantees.
Data requests sent through the network are validated and settled by validators who have to put up collateral in the network’s native asset to simultaneously secure the network while making it difficult for malicious actors to corrupt data requests. This mechanism is proportionately correlated with the Total Value Secured (TVS) by the protocol, incentivizing validators to resolve data requests honestly and disincentivizing malicious actors from resolving outcomes incorrectly. When a data request needs to be settled, validators stake the network’s token to earn the data request fee in question. If there is more value secured by the protocol, validators are rewarded from the increased data request fees. When less data is secured, the fees drop to disincentivize malicious actors as less value stands to be gained, incentivizing data request providers to leverage the Oracle cheaply.
The economic guarantee mechanism is based on fluctuating data request fee model that increases or decreases according to the amount of value locked in the protocol. Doing this ensures that validators are proportionately incentivized to resolve data outcomes correctly.
However, economic incentives may not be a good enough deterrent — some folks simply want to watch the world burn regardless. This is why the economic guarantee is complimented by a challenge period and a settlement process. For every data request, users can customize the timespan for challenging the result fetched by the Oracle. Validators monitor all data requests, a process that can be fully automated to validate sources and settle requests. If an incorrect data response is detected, the response can be challenged. To do so, the validator stakes their token on the outcome they deem correct according to API data from their own response.
Flux Oracle is not only capable of handling, settling and finalizing real-world data for the open market, but can also be utilized by other protocols to aggregate data for their custom needs unlocking the walled garden bottleneck that has been stifling the blockchain’s potential.