Blockchains really only know themselves. That’s what blockchains are good at: knowing the current state of assets held by all blockhain users with confidence based on cryptographic verifiability. “[Blockchains] they don’t have the ability to talk to the outside world, so they aren’t able to incorporate that into their logic and into their contracts,” Kanav Kariya, a strategy director at Jump Trading, an algorithmic and high-frequency trading company, told the The Defant. So they need Oracles that collect data outside of the blockchain and feed that information so that the data can be used.
Oracles are essential for decentralized finance (DeFi), so the fact that major oracles projects are expanding their territory into a new blockchain, Solana, can be considered a good sign that DeFi will soon grow within this ecosystem. At the moment, much of the industry’s attention is focused on Solana, the proof of participation (PoS) network that operates with extremely fast transactions. It is the sixth largest blockchain by market capitalization, according to CoinMarketCap, despite only launching its mainnet in March 2020.
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“Solana is hot for developers right now, there are some reliable assumptions with the degree of decentralization, but so far it’s been amazing to see the ecosystem grow,” said Kevin Lu, of the business development team at Band Protocol, an oracle startup. Bitcoin and Ethereum are the only two truly indispensable blockchains. It remains to be seen whether a third party will make that list, but at the moment it appears that the network led by former Qualcomm student Anatoly Yakovenko is a good candidate. “If someone can reliably manipulate the oracle prices, it’s like knowing the future: they can tamper with the truth and trade against it for huge profits.” Oracles bring data out of the chain into the chain. These days, oracles are bringing up-to-date pricing data for different assets, collecting even second prices from across the market and feeding the blockchain that needs them. In the future, these tools may also provide other types of data, such as election results or rainfall, or flight arrival times. In true blockchain style, it is important that oracles are decentralized, with many nodes collecting observations and feeding them into the network.
If someone can reliably manipulate the oracle’s prices, it’s like knowing the future: they can move and trade against it with huge profits. $24.5 million was stolen from xToken in May using oracle manipulation, as just one example. The more participants in an oracle network, however, the more difficult it becomes to manipulate the results. Oracles are essential for decentralized finance. If, for example, a lender is borrowing such that the collateral should be some percentage higher than the qualifying loan, then oracles are needed to constantly monitor and make sure that the price of the collateral hasn’t gone down too much. This is just an example, but almost all DeFi apps need some kind of external data and that’s what oracles provide. So for Solana’s DeFi community, things are looking good as several oracles are either active in Solana right now or are ready on their devnet testing ground. For example, Band Protocol is active on Solana’s devnet and is just waiting for a partner to start the mainnet. And Flux Network, which is currently deployed in Near, is exploring the move to Solana soon, according to the team’s Niteesh Settypalli. Band is built on a Tendermint-based chain designed to be blockchain agnostic. Flux is designed with cost-effective built-in oracle data guarantees. “Solana is a big target market for all oracles,” Lu confirmed, predicting it would only heat up once more Ethereum Virtual Machine resources were deployed to the network.
Lu explained on the Telegram that he is waiting for a partner to launch, so he doesn’t needlessly waste gas fees before providing the services. Also, any partner will require customization. “Lots of nuances, but usually we just have the oracles live on Mainnet with a dedicated partner to get started when they’re ready,” said Lu. Chainlink, the company currently considered the leading provider of cryptography oracles, announced on Aug. 25 that it had moved its devnet pricing feeds to Solana’s core network. At the time, she did not announce partners for her data. Nate McCord, product manager for blockchain integrations at Chainlink Labs, told The Defiant, through a spokesperson. “We’ve received a lot of internal interest from DeFi developers looking to build with Chainlink oracles networks on the Solana blockchain.” McCord further explained that since Solana is a custom blockchain, it requires custom deployments and security audits after it goes live.
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“Integrating Chainlink natively with the Solana blockchain can significantly increase the rate at which Solana developers can build secure, high-throughput DeFi applications, giving them direct access to reliable off-chain computing and data,” Anatoly Yakovenko, CEO of Solana Labs , said in a press release about the launch. Pyth is also recently live on the main Solana network, but unlike the others he started there. “Pyth is built in Solana in our view because Pyth is a fast oracle and a fast oracle needs a fast blockchain,” said Jump Trading’s Kariya.
Kariya explained that an extremely fast blockchain is needed to run very fine-grained oracles like what Pyth intends to provide. He said that a simple oracle takes several price feeds and simply averages them. Pyth goes further and damages each feed with a confidence interval, making a much more complex calculation that everything needs to happen in the chain extremely fast. “Solana allows this higher performance aggregation at a very good resolution,” said Kariya. It is currently running price feeds on Solana for encryption and actions. Pyth’s structure is also attractive. It is a collaboration between many of the leading market players in cryptography, market making and liquidity provision, such as CMS, FTX, Coinshares, Jane Street, Cumberland, Genesis, Susquehanna International Group and Jump Trading, which incubated the project.
Most of the project’s contributors are uploading data to Pyth so that it has the most complete market image possible, which developers can use. While Pyth started in Solana, he will use Solana’s Wormhole Bridge to move to other chains. “Solana serves as a basic denominator that then allows for distribution to other networks,” Kariya said. In Kariya’s opinion, this high-fidelity data is in the broad interest of everyone at DeFi. The basic measure of health for any DeFi project is its total locked value; that is, how much have liquidity providers (LPs) trusted the protocol as they seek throughput? These protocols are lost without the LPs. High-quality data calculated at high speed protect liquidity providers (LPs) from arbitrageurs, explained Kariya, who can take advantage of small discrepancies in the market. When they do that, the LPs lose. As good as last year was for Solana, however, it’s not the only blockchain to be watched as the next home of DeFi. “Solana has had great success this year overall, no doubt. I think Avalanche is on its heels with recent public incentives,” said Lu. Disclosure: This reporter has a small amount of SOL. Warning: The text presented in this column does not necessarily reflect the opinion of CriptoFácil Read also: Bitcast: Axie Infinity and disruption in the gamer world is a crypto podcast theme Read also: TradingView Column: Crash in crypto market could be an opportunity Read also: Ethereum Network Burns $830 Million in EIP-1559 Implementation Month