It is a fact that DeFi (Decentralized Finance) is developing rapidly and more and more widely applied in the blockchain ecosystem. Various media forums at home and abroad have seen a lot of big Vs and new users talking about DeFi and its relevant protocols. Defi is hotly discussed not only because the token price and the number of network users continue to grow, but also because people are deeply interested in game theory, token economy and the underlying network protocols.
This is the first time that DeFi has been sought after since the bull market in 2017, so let’s take the chance to discuss in more detail the significance of Oracle to it and how Oracle has become an important foundation of various DeFi technology stacks technically and strategically.
What is DeFi?
DeFi is a new subdivision of Blockchain, using smart contracts to recreate the traditional financial instruments, including loans, derivatives, exchanges, reserve assets, etc. In the DeFi mode, the financial system is no longer monopolized by centralized private institutions. Instead, it establishes a trust-free mechanism throughout the process with automatic running protocols, coordinates user interactions and decentralizes the back-end architecture. This new model can bring us advantages that the traditional centralized financial system cannot realize.
● Within reach — anyone can access the DeFi protocol, create smart contracts based on it, and monitor their activities anywhere. Traditional financial systems tend to restrict users’ access for their geographical location, local political control or complex investor regulations.
● Control and ownership are in the hands of users — DeFi users can act as buyers or sellers in financial transactions, that is, consuming services or providing services. In contrast, users in the traditional financial system have no choice but to buy financial services sold by large institutions; they are not allowed to earn money by providing services. As a result, most of the money is earned by institutions, with individuals getting no share. Even, users may suffer from huge losses arising from the collapse of traditional financial institutions.
● High degree of transparency — the code for the DeFi protocol is open source, so anyone can verify its security, interaction rules, and actual network use. However, traditional finance is often operated on a private server. Users can neither verify transaction processing nor control it. Large institutions, especially the financial derivatives institutions tend to grasp market trends more comprehensively because they have more access to the internal processes and data records. Therefore, individual investors often suffer from information asymmetry.
● Anti-censorship — decentralization of the back-end architecture means that financial transactions are calculated and stored in a tamper-resistant ledger that runs in a decentralized computer network where all computers run the same open-source software, constantly reaching consensus on the state of the network. However, the structure of the traditional financial system is centralized, so the control over transaction processing is also determined unilaterally.
● Automation — the DeFi tool is an automated market based on software protocols and driven by data. However, there are many intermediate and standby processes in traditional finance from data to process and then to operation. This leads to a transaction that takes several days from execution to the final delivery (that is, the user transfers all funds to an external account).
Data-Driven Security
Almost all DeFi applications are data-driven. The smart contract specifies the code logic and defines what the protocol will perform under certain input conditions. Smart contracts are written in Boolean logic (i.e. if X occurs, Y is executed), which is highly deterministic. So the effectiveness of the final execution depends on the quality of the data input. The quality of data input determines the results of contract execution, which is in line with the saying: “garbage in, garbage out.”
Each protocol needs to obtain the corresponding data to run normally. For example, users of MakerDAO can make a mortgage with Ether. However, there is a clearing mechanism for the loan. When the price of Ether is lower than a certain price, user’s account will not only be closed automatically, but also pay a 14% fine automatically. This automatic clearing mechanism enables MakerDAO to withstand the downward price risks, which however is based on the premise that the data received by the contract is accurate. The data should not only the reflection of the real market price, but also from the decentralized source, so as to avoid absolute unilateral control and fraud. If the data behind the protocol is false and easy to be manipulated, then the whole protocol will become invalid, and the smart contract will be no longer tamper-proof.
MakerDAO is not alone in facing such a challenge. Synthetix has also been caught in such a dilemma once. It has been troubled by the false data provided by Oracle. Synthetix is a decentralized derivatives platform. Users can mortgage SNX in smart contracts on the platform to conduct no slippage transactions. The smart contract is equivalent to a clearing house. Users can take advantage of the synthetic asset to take a position and do not need to hold real underlying assets. Synthetic assets no matter in the form of legal tender, virtual currency or bulk commodities should be closely linked to market data.
Synthetix needs accurate market data to price these synthetic assets at the time of the swap. Then they plan to trigger the clearing process based on the market price data. Without accurate data, the swap triggered by the SNX contract may completely deviate from the actual situation; or the excessively high leverage ratio in the future will pose a threat to the whole system.
This happened once in July 2019, when a faulty Oracle transmitted the wrong data, causing the trading robot to unwittingly earn nearly $1 billion. Fortunately, Synthetix at that time was still in the initial stage of development, so they could roll back the network and negotiate with users about this problem. Actually, such problems are not rare in protocols. Also, as the network value continues to rise, more and more people will exploit the loopholes for personal gain.
After the incident, Synthetix published a blog post saying that the team had realized the importance of securing Oracle data, and then announced access to the decentralized Oracle network.
In an interview, the CEO of Synthetix, Kain Warwick, said: “The Oracle problem poses a threat to DeFi protocols. Without Oracle, functions of DeFi will be greatly thwarted.” Oracle requires not only accurate data, but also high security to ensure its tamper-proofing. If the security of the oracle that triggers the contract cannot be guaranteed, then the security and value of the smart contract will help nothing.
What is Oracle?
Smart contract is one of the most important parts of modern Blockchain.
It is deployed on the blockchain and triggered automatically. After deployment, it cannot be modified even by developers. Such features make smart contracts the best decentralized solution to the traditional digital contract. However, the smart contract cannot communicate with data outside the Blockchain.
Given this, some developers have come up with a solution, called Oracle. Oracle links smart contracts with the off-chain world. Most of the existing oracles are centralized. In contrast, the decentralized OpenLink (OLink) boasts greater advantages over security. Now, let’s briefly talk about the Olink Oracle.
Introduction to OLINK
(1) OnlyChain is a set of 3.0 blockchain underlying technology application operating system (OC system, for short). The OC system proposes a blockchain ecosystem architecture, compatible with commercial applications in all fields and a high-performance system where the decentralized and semi-centralized applications can be quickly processed, thus achieving data compatibility and performance expansions. To keep abreast of the current DeFi boom, OnlyChain has also announced to establish the DeFi ecosystem.
(2) OpenLink is the first distributed oracle network based on the OC system. It is a vehicle that captures the value of DeFi ecology on OnlyChain. OpenLink has defined and realized a new on-chain price generation and digital value capture plan to solve the interoperability and data accuracy issues for the smart contract, which significantly enables it to be applied in many more industries. OLINK is exactly the ChainLink on the OC system.
What Can OpenLink Do?
1) Data integration: integrate trusted data and apply it to all DeFi projects on the OC system;
2) Data provision: provide trusted off-chain data to serve more scenarios;
3) Accelerate the construction of OC ecosystem and drive the on-chain value growth of OC system.
Issuance and Distribution of OpenLink
OLINK is the digital assets issued by OpenLink based on the ONS protocol of OC system. With a total supply of 20200114 OLINK, there will be no premining, no increase in supply, no cornerstone private investment but airdrops to communities, through which absolute fairness can be achieved.
OLINK is distributed entirely through the decentralized community airdrops and mining. Users obtain OLINK through the liquidity mining of the locked ONLY (the native currency on the OC system).
(1) Genesis Mining: stake ONLY into the smart contract. During Genesis Mining, the liquidity mining rewards will be automatically released by ONLY’s smart contract.
(2) Regular Mining: during the Regular Mining, ONLY pool, OLINK pool, OLINK-ONLY liquidity mining pools will be set up.
(3) Mining Timeline: Genesis Mining will formally kick off on January 23, 2021 and end on February 12, 2021, 3 weeks in total. Regular Mining of OLINK mining pool will start right after the end of Genesis Mining,
(4) Mining Fairness: during the Genesis Mining period, the mining reward will be distributed fairly according to the number of staked ONLY and the locked period. All mining rewards are calculated based on the smart contract. The smart contract of OLINK has already been audited by professional security audit authorities. The source code of the smart contract will be publicly disclosed when the project launches, ensuring that there will be no security risk involved in staking different assets.
Roadmap
Phase 1: Genesis Mining
According to settings of the smart contract, the mining reward will not be decreased and the staked ONLY cannot be unstaked during the Genesis Mining period. The Regular Mining will automatically start after the completion of Genesis Mining.
Phase 2: Regular Mining
According to settings of the smart contract, the increased price will lead to a decrease in rewards. The staked token can be unstaked anytime and OLINK can be claimed in real-time.
Phase 3: Ecosystem Integration
Integrate numerous DeFi projects into OnlyChain ecosystem.
Phase 4: Community Autonomy
OLINK holders can get involved in OpenLink community governance, including ecological development, technical mechanism adjustment and mining pool voting, etc. The more OLINK you own, the greater power you have.
Conclusion: The rise of DeFi has attracted various major public chains to fight turf wars for the DeFi market. We are not sure whether DeFi can embrace the final victory or not but the decentralized financial activities will surely come in the end.
Who can ultimately take the crown? Nobody knows. Time will tell us. Once the decentralized financial activities are realized, that will be a mega event for the cryptocurrency.
ABOUT US:
Official website:https://www.openfin.network/#/
