In Decentralized Finance (DeFi), accurate external data is vital since DeFi products, especially lending platforms, rely on real-time asset prices. Price Feeds fulfil this need, bridging DApps with current asset values. However, the reliability and transparency of these feeds are critical concerns, which we'll explore in this article.
What are price feeds?
Oracle price feeds provide real-time data streams, often pertaining to the price of assets, to smart contracts on blockchain networks. These feeds are channeled through oracles, intermediaries that bridge blockchains with external data sources. This bridge is necessary as blockchains inherently cannot fetch external data directly.
Why do price feeds need to be transparent?
In the realm of Decentralized Finance (DeFi), transparency of price feeds is paramount as the essence of DeFi is trust. By offering a source of on-chain verified price feeds, developers and dApps can bypass centralized intermediaries and verify the data directly on the blockchain. This transparency allows all participants to ascertain the source of the data, minimizing the chances of manipulation.
Centralized systems inherently bear vulnerabilities to attacks or manipulation. On the other hand, on-chain systems are more resilient due to their decentralized nature. Notably, every modification on the blockchain is logged, ensuring that all actions are transparent and accountable.
For decentralized applications (dApps) and smart contracts, having on-chain price feeds simplifies operations. Instead of integrating multiple, disparate external data sources, dApps can tap directly into these on-chain feeds, making data retrieval more straightforward and efficient. Many oracles, which provide these feeds, stake tokens as a commitment to the accuracy of their data, further bolstering trust in the system.
Issues of non-transparent price feeds?
While transparency is a cornerstone in the crypto and DeFi space, non-transparent price feeds reintroduce elements of centralization and associated vulnerabilities. Once compromised, the repercussions are felt across entire platforms.
The absence of transparency paves the way for potential manipulation, amplifying financial risks for participants. Opaque systems not only complicate troubleshooting but can also introduce economic disparities, unsettling market stability. From a developmental perspective, such unclear feeds hinder the growth and potential of the ecosystem.
Here are some noteworthy cases of exploits with non-transparent price feeds:
The Black Thursday on MakerDAO (March 2020): On March 12, 2020, commonly referred to as 'Black Thursday,' the MakerDAO platform faced a severe crisis. Rapidly declining ETH prices led to a cascade of liquidations. Due to Ethereum network congestion and a sudden drop in ETH prices, the oracles couldn't update the price feeds efficiently. Some users exploited this inefficiency, bidding on the liquidated collateral for zero DAI, essentially getting it for free. This resulted in around $8 million worth of ETH being lost.
Synthetix Oracle Incident (June 2019): Synthetix, a synthetic asset issuance platform, faced an oracle attack where a trading bot exploited a price feed error. The bot was able to siphon off over 37 million sUSD (Synthetix's stablecoin) by capitalizing on the erroneous exchange rate that the oracle provided.
How Entangle is making price feeds transparent & trustwrothy?
One primary concern in the DeFi space is the reliability of price feeds, especially when derived from a single data source. A centralized data point is susceptible to manipulation and doesn't fit well with the decentralized ethos of the blockchain world. Entangle addresses this by pulling price data from several sources, eliminating the dependency on any one point and reducing the risk of data skewing or manipulation.
Another challenge is the transparency of how prices are calculated and updated. To counteract this, Entangle has integrated the aggregation and calculation process directly into an on-chain smart contract. This means every step of the calculation is transparent, verifiable, and free from external interference. By performing these operations on-chain, Entangle ensures that users and stakeholders can trace and verify the derivation of the prices at any given moment.
Entangle directly addresses the crucial challenges of data reliability and transparency that many oracle systems face. This not only empowers Dapps to safeguard their users but also paves the way for innovative use cases, such as fully on-chain derivatives. As a testament to this, Entangle's Oracle system enables the unique offering of our native Dapp, Liquid Vaults - a solution that simply wouldn't be feasible without such a trustworthy and transparent Oracle.