Andreas Park PRO
Professor of Finance at UofT
Crypto ORACLES
Instructors: Andreas Park and Zissis Poulos
Agenda for the presentation
- What is "off-chain" reality?
- How can smart contracts learn about it?
- The Oracle problem and solutions
What is "off-chain" reality?
Smart contracts need data
- Decentralized exchanges
- Token programming/management
- Lending/Derivatives
- Prediction markets
- Insurance
- Betting
- NFTs???
How do we feed external data to smart contracts?
- Trust a third party to write the data
- Goes against decentralization
- Natural failures
- link goes down
- website goes down
- API fails etc.
- Malicious
- betting outcome manipulation
- insurance fraud
- DeFi pool exploits
The Oracle Problem
- Do it in a way that respects decentralization and is failure-resistant
<standings: 7,3,8,4,2,1,6,5> + digital signatures
The Oracle Problem
- Do it in a way that respects decentralization and is failure-resistant
Disagreement?
Majority Vote
The Oracle Problem
- Do it in a way that respects decentralization and is failure-resistant
Multiple Values?
Report Median
1 ETH = $4780
1 ETH = $4789
1 ETH = $4781
The Oracle Problem
- Do it in a way that respects decentralization and is failure-resistant
1 ETH = $4780
1 ETH = $4789
1 ETH = $4781
DEXes can be used as on-chain price oracles
Time-Weighted Average Price (TWAP)
Challenges
- Participation incentives?
- rewards, payments...
Economic Questions around the oracle node ecosystem
- Incentives for honest reporting?
- penalties, collateral...
- Reputation?
- Uptime, correctness, penalty history, collateral amount....
- Does an oracle system need its own token?
- Control over tokenomics, development funding etc
- Integration/Interoperability with multiple blockchains
- But also, put yourselves in an attacker's shoes:
- Would you rather invest (supply as collateral) the oracle's token or ETH in order to attack the oracle network?
- Research question preview: find out about Chainlink's economics
Oracle Economics
Other applications
- Off-chain computation
- Verifiable randomness
- Cross-chain token wrapping
Crypto Oracles
By Andreas Park
