According to CoinGecko, the DeFi market cap is around $110 billion despite the effects of the bearish period. The blockchain sector has grown into a global network that is gaining mainstream adoption every day, with DeFi at the forefront. However, certain roadblocks to blockchain innovation are impeding the industry’s growth. These flaws are to be expected, as every great innovation has a flaw in its user experience before progressing to the next level.
Although blockchain is a safe, permissionless, and trustless system, it would be useless in the real world if it couldn’t access off-chain data. In order to deliver a better user experience and boost productivity, blockchain must be interoperable and able to communicate with one another. Oracles are used to fetch external data because Blockchain cannot interface directly with real-world data. Oracles, in a nutshell, are blockchain technologies that enable smart contracts to communicate with external data.
It’s worth noting that Blockchain Oracles are a way for blockchains and external databases to communicate. Oracles appear to be the missing piece needed to push the blockchain industry, particularly the decentralized finance (DeFi) ecosystem, to the next level. Let’s take a closer look at decentralized oracles and how they can assist the blockchain industry in achieving true decentralization.
Decentralized Oracles & Blockchain Networks
Blockchain technology is intimately related with the third iteration of the internet, Web 3.0. Oracles allowed the decentralized Web 3.0 ecosystem to communicate while maintaining its key principles of security and transparency. One of the challenges with integrating oracles with the blockchain is that it defeats the purpose of the blockchain, which is trustlessness.
However, ensuring that oracles connected to the blockchain are decentralized and not managed by a central system or authority is one way to overcome this. Hackers stole about $1.3 billion in 2021 alone through oracle and bridge attacks, which were caused by security weaknesses in current Oracles, as hackers exploited a single point of failure in these centralized Oracle protocols.
DeFi is one of the Decentralized Oracles’ key applications. Decentralized Oracles enable DeFi networks to make use of current market data and digital assets. Blockchain oracles give prices to peg the value of tokens to real-world assets on synthetic asset protocols, while automated market makers (AMMs) employ price oracles to assist concentrated liquidity at the current market price to increase capital efficiency.
Decentralized oracles have been shown to be an effective option for securing smart contracts, facilitating interoperability and offering seamless off-chain data verification, resulting in a secure network for users.
An example of these Decentralized protocols is Chainlink, the largest decentralized oracle platform in market capitalization. The protocol connects smart contract platforms to oracles, allowing for the flow of external data like as price feeds and other vital information. The fundamental issue with Chainlink is that it is not completely decentralized, posing a serious security and efficiency risk.
The Band Protocol, a blockchain-agnostic decentralized oracle network that allows decentralized apps (DApps) to receive external pricing and event data feeds, allowing them to communicate across blockchains, is a protocol worth mentioning.
Another protocol worth noting is QED. The goal of the QED network is to solve problems inherent in existing oracles and blockchain system models by implementing a fully decentralized protocol. QED first issues QED tokens to oracles on its protocol to achieve complete decentralization. Oracles can use the tokens to run and own a portion of the platform.
The QED token system has helped to promote accountability and eliminate the possibility of collusion in the ecosystem. The platform’s Oracles, on the other hand, can only determine the fee required to complete the contract and cannot make any additional agreements.
DelphiOracle is the most popular Oracle on WAX-io, with over 1400 actions per hour. QED is a battle-tested and proven iteration of the Delphi oracle that has been in service for over 3.5 years. On the QED protocol, every financial transaction is entirely decentralized and trustless.
The economic model of QED distinguishes it from existing Oracle protocols because it focuses on both the technological and commercial sides, both of which are critical for delivering and aggregating real-world data for smart contracts.
The QED protocol is also blockchain agnostic, meaning it may be used with and scaled on any publicly available blockchain. QED uses distributed ledger technology to maintain its commitment to a decentralized oracle solution. In addition, QED’s unique approach to the decentralized Oracle sector has positioned it as the best solution to the industry’s shortcomings.
Although decentralized Oracles are the next stage in unlocking Web 3.0’s growth, the oracle networks must be fully decentralized. Oracle networks such as QED and Band Protocol are perfectly positioned to provide true decentralization to the blockchain ecosystem, enhancing security and efficiency.
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