True DeFi users want decentralization everywhere possible.
But many projects are actually Fake-DeFi because they rely on centralized oracles.
These oracles are just one bad actor away from causing a multi-million dollar exploit.
The solution here is a truly decentralized blockchain oracle service such as Fetch Oracle.
The Fetch system, modeled after Tellor, utilizes a decentralized network of reporters to report data. The system uses simple economic incentives which reward correct data entry and penalize erroneous data entry.
The Fetch Oracle can provide a large variety of information for many use cases. Here are three primary examples:
The Fetch Oracle starts when a querier submits a request for data (e.g. Price of $PLS) and inputs a tip in FETCH Token.
The distributed network of data reporters, who have staked a certain amount of FETCH token, race to input the data in order to earn the tip.
If the data is correct, the querier is happy because they now have the data they wanted on-chain, and the reporter is happier because they are one tip richer.
If the data is incorrect, another party will “dispute” the data and it is then taken off chain and moved to a vote. If the disputer is correct, and the data is deemed erroneous, the disputer receives the entirety of the disputed reporter's FETCH stake.
By utilizes this model, Fetch relies on a fully-decentralized method of getting desired data on-chain without relying on a central party to input and verify information.
For a more technical explanation of how Fetch Oracle works, read the Whitepaper here.
The Fetch Oracle achieves decentralization by two fundamental design principles:
Centralized oracles typically have a limited pool of individuals who can input data and a similar limited pool who can edit data.
To the contrary, Fetch uses a distributed network of reporters who are all equal in the eyes of the system much like a decentralized blockchain. There is no central entity who can override data entry.
Liquid Loans has many different functions which require price feeds for PLS and USDL from a decentralized oracle:
So who gets to decide what the prices of PLS and USDL are?
Ideally, it would be a distributed network of nodes who are incentivized to input the correct information. And any information that is incorrect is amended and the provider is penalized.
This is necessary because there is plenty of financial incentive for bad actors.
Say an entity owns a large quantity of USDL and they are staked in the Stability Pool.
If this entity has the ability to enter the price of PLS at $0, all of the vaults will liquidate. As a results, the stability providers will end up with all of the PLS in the protocol at a hefty premium.
Therefore, ensuring that this is never possible is critical to the health and longevity of Liquid Loans.
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Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.
Connor is a US-based digital marketer and writer. He has a diverse military and academic background, but developed a passion over the years for blockchain and DeFi because of their potential to provide censorship resistance and financial freedom. Connor is dedicated to educating and inspiring others in the space, and is an active member and investor in the Ethereum, Hex, and PulseChain communities.