In our previous article "What are the projects worthy of attention in the Web3 cloud service track?" (Part 1)" introduced some Web3 decentralized cloud service projects, and we will continue to introduce decentralized oracle projects in this issue.
Decentralized oracles are an important part of the blockchain and smart contract ecosystem. It acts as a bridge between the blockchain and external data sources. Oracles enable smart contracts to access data outside of the blockchain, such as real-world events, prices, or any other information that is not on the blockchain.
The Web3 decentralized oracle is designed for the Web3 environment covering decentralized applications (dApps) and protocols built on blockchain platforms such as Ethereum, BSC, Solana, Polkadot or Cardano. These oracles utilize the principles of decentralization, trustlessness and transparency to provide reliable and immutable data to smart contracts.
By utilizing multiple independent nodes or validators, Web3 decentralized oracles ensure data integrity and prevent single points of failure or tampering. They aggregate data from various sources including APIs, web scraping, IoT devices, and even other blockchains, and securely deliver it to requesting smart contracts.
Web3 decentralized oracles play a vital role in enabling smart contracts to interact with the real world, expanding their use cases and potential impact. Now, let’s explore some compelling decentralized oracle projects that are changing the future of blockchain.
Decentralized oracle network: ChainLink
Chainlink is a decentralized oracle network that enables smart contracts to safely and reliably interact with off-chain data and external APIs. The Chainlink network consists of a decentralized network of independent node operators known as oracles.
In the Chainlink network, oracles retrieve data from various sources such as APIs, traditional databases, and IoT devices. These data sources are validated and aggregated from multiple data sources by a decentralized set of independent node operators. Ensure data reliability and accuracy. Each data source has an on-chain address and functions that allow smart contracts to read data from that address.
Chainlink VRF (Verifiable Random Function) is a provably fair and verifiable random number generator (RNG) that enables smart contracts to access random values without compromising security or availability. For each request, Chainlink VRF generates one or more random values and generates cryptographic proof of how those values were determined. This proof is published and verified on-chain before it can be used by any consuming application. This process ensures that the results cannot be tampered with or manipulated by any single entity, including oracle operators, miners, users or smart contract developers.
Chainlink Automation enables smart contract functions to be conditionally executed through a highly reliable and decentralized automation platform. Built on Chainlink Automation, it can help businesses get to market faster without dealing with the setup costs, ongoing maintenance and associated risks of a centralized automation stack.
Chainlink Functions provides the ability to access off-chain computing without running and configuring your own Chainlink nodes, providing smart contracts with access to decentralized, trust-minimized computing infrastructure. The smart contract sends the code to the Decentralized Oracle Network (DON), and each DON's oracle runs the same code in a serverless environment. DON aggregates the results of all independent runs and returns the final result to the smart contract. The code can be anything from simple calculations to fetching data from API providers.
The Chainlink network has been widely used in different industries, including decentralized finance (DeFi), gaming, insurance, supply chain management, and more. It enables smart contracts to securely and efficiently access real-world data, expanding various use cases and capabilities of blockchain applications.
Cross-chain Oracle: Band Protocol
Band Protocol is a blockchain-based decentralized data oracle (Oracle) solution. It aims to provide a reliable, secure and accurate source of external data for decentralized applications. Band Protocol utilizes multiple data providers (Data Provider) and an incentive mechanism to acquire, aggregate and verify data, and provide it to smart contracts. This enables smart contracts to use real-time and accurate external data during their execution.
BandChain is Band Protocol's high-performance blockchain that provides cross-chain data oracle services. It allows smart contracts on any blockchain to securely access off-chain data. It is built on top of the Cosmos SDK and leverages Tendermint's Byzantine Fault Tolerant consensus algorithm to achieve instant finality.
Through the Inter-Blockchain Communication (IBC) bridging function, it provides cross-chain data oracle services for smart contracts on the blockchain. Through this function, the oracle results on the BandChain blockchain can be sent to other blockchains through the IBC protocol or a custom one-way bridge with minimal delay.
Band Protocol also provides a collection of pre-built oracle scripts that can be used to create custom oracles for any type of data. Developers can also take advantage of the programmable oracle scripting feature to create custom oracle scripts using any programming language.
Besides that, another important product is the Band Standard Dataset, a set of pre-built datasets that can be used to create custom oracles for any type of data. It includes various datasets like financial data, sports data, weather data, etc. Developers can use these datasets to create custom oracles for their smart contracts without having to manually collect and verify data.
Band Protocol provides a secure, blockchain-agnostic, decentralized oracle framework for Web 3.0 applications. It effectively builds a trusted information bridge between Web 2.0 and the future Web 3.0 by connecting smart contracts with trusted off-chain data and ensuring data integrity through token economic incentives.
Peer-to-peer protocol: Augur
The Augur protocol is a decentralized oracle and peer-to-peer protocol. It aims to create a transparent and reliable platform where users can create and participate in prediction markets on a variety of topics, including sports, politics, finance, and more.
Augur is free, public, open source software, partly licensed under the GNU General Public License (GPL) and partly under the Massachusetts Institute of Technology (MIT) License. Augur is a set of smart contracts written in Solidity that can be deployed on the Ethereum blockchain.
The Augur protocol attempts to solve one of the most difficult problems faced by blockchain technology, especially in the field of smart contracts, namely the oracle problem. Augur oracles allow information to be migrated from the real world to the blockchain without relying on trusted intermediaries or third parties, and are free for anyone to use in any way.
Augur is accessed through a desktop client application, similar to interacting with an Ethereum or Bitcoin node. The main difference between the Augur Protocol and other prediction market platforms is the level of involvement of the development team and the Forecast Foundation.
In Augur, the role of the development team is limited to writing and maintaining the code of the open source protocol. The Forecast Foundation does not own or lead Augur, nor does it charge any fees from the use of the protocol, but supports and develops the free open source protocol Augur.
The developers of the Forecast Foundation and the Augur protocol will not create markets, conduct transactions on the Augur protocol itself, and cannot monitor, control, review or modify any operations performed on the Augur protocol. Instead, the Forecast Foundation encourages users to perform these operations in jurisdictions with appropriate licensing and guidance, and to comply with applicable regulations governing their actions performed on the Augur protocol, while requiring users to acknowledge that others' use of the Augur protocol may not be compliant, Users who use the Augur protocol do so at their own risk.
No single entity can modify, update, upgrade, review or make any kind of changes to the smart contract software. The Augur protocol does not preserve "administrator keys", "ownership keys" or other similar centralized features common in other early blockchain decentralized applications. Any changes to the Augur protocol would require a complete redeployment of the smart contract set, and require users to manually opt-in to migrate to it.
The Augur protocol provides a trustless decentralized infrastructure for prediction markets, enabling individuals to trade the outcome of various events based on their own predictions and insights.
Decentralized Finance Protocol: UMA
UMA (Universal Market Access) is an Optimistic Oracle and dispute arbitration system that can safely introduce any type of data into the blockchain. UMA's Oracle system provides fast and secure data verification for many projects, including cross-chain bridges, insurance agreements, custom derivatives and prediction markets, etc.
The Optimistic Oracle allows contracts to quickly request and receive data information, and acts as an upgrade game mechanism between the contract that initiates the price request and UMA's dispute resolution system (known as the data verification mechanism). Prices proposed by the Optimistic Oracle will not be sent to the data validation mechanism unless disputed.
If a dispute is raised, a request will be sent to the data verification mechanism. All contracts built on UMA use data verification mechanisms as a last resort to resolve disputes. Disputes sent to the data verification mechanism will be resolved within a few days - UMA token holders will vote on the correct result.
UMA is special because it allows users to create custom collateralized synthetic Crypto tokens that can track the price of almost any asset. In layman's terms, ERC-20 tokens can be used to trade any asset through UMA without actually holding the asset.
UMA plays an important role in the decentralized finance (DeFi) ecosystem, providing developers and users with the necessary infrastructure and tools. It realizes financial derivatives transactions and contract creation on a global scale through blockchain technology, and solves the access restrictions and centralization problems of traditional financial markets. It enables the creation of decentralized derivatives, prediction markets, insurance agreements, and other financial applications, expanding the space for development in the DeFi field.
Decentralized Data Provider: API3
API3 is a decentralized oracle project that aims to provide a secure and decentralized data source for blockchain applications. API3 stands for "Application Programming Interface Cubed".
The goal of API3 is to bridge the gap between traditional API (Application Programming Interface) data providers and blockchain smart contracts. It enables smart contracts to securely access off-chain data, such as real-world information, without relying on centralized oracles and avoiding single points of failure.
The Airnode protocol is a key component of API3 technology. It is an oracle node protocol that defines how decentralized applications send requests to oracles and receive responses. It is used to access real-world data and services in blockchain-based Web3 applications.
The protocol works by utilizing a decentralized network of data providers, known as Airnode operators, to acquire and deliver data to smart contracts. These data providers are incentivized through a staking mechanism to provide accurate and reliable data. API3 employs a unique staking and governance model designed to ensure data integrity and prevent data manipulation or fraud.
Maximum Extractable Value (MEV) is a hidden fee to blockchain users, bringing in over $1 billion in revenue. And OEV (Oracle Extractable Value) serves as a complement to the API3 data source, enabling decentralized applications (dApps) to benefit from the MEV opportunities they generate.
API3's approach focuses on building trust and transparency in the oracle process. It aims to build a more secure and decentralized ecosystem for obtaining off-chain data (for various applications including DeFi, insurance, supply chain, etc.).
In general, API3 aims to subvert the oracle field by providing a powerful and decentralized infrastructure for blockchain applications to achieve the goal of accessing and verifying off-chain data.
Decentralized martingale network: NEST Protocol
NEST Protocol is a decentralized oracle protocol based on the Ethereum blockchain. More specifically, it is a decentralized exchange infrastructure known as a martingale network. It uses smart contracts to eliminate market makers and liquidity providers, and provides traders with virtually unlimited liquidity through risk sharing.
Its core concept is the martingale algorithm, which is an investment strategy based on the law of cost averaging in speculative trading. The protocol utilizes smart contracts to implement martingale strategies, allowing users to manage trading risk and funds through continuous increase or decrease of positions.
NEST Protocol does not involve traditional market makers or liquidity providers, but directly trades with counterparties through smart contracts. The aim of this is to increase the transparency of transactions, reduce costs, and reduce the risks associated with traditional exchanges and liquidity providers.
NEST Oracle is a decentralized non-cooperative game network that determines the final price through arbitrage and two-way options. It brings random information from decentralized price streams on-chain. Quotation participation requires the preparation of valuation assets, quotation assets, quotation fees and collateral assets.
The smart contract will compare the prices of all liquidity providers, accept the best offer on behalf of the user, and execute the trade. It acts as a gateway between users and liquidity providers, ensuring best execution and atomic settlement.
NEST Protocol is designed to execute martingale strategies through smart contracts. Users can use the protocol to manage transaction risks and funds, and conduct transactions directly with counterparties, increasing transaction transparency and reducing costs.
epilogue
In this article, we introduce some important decentralized oracle infrastructure. These projects provide reliable external data sources for blockchain applications and promote the development and wide application of smart contracts.
Chainlink is one of the most well-known decentralized oracles out there. It provides safe and reliable data services for smart contracts through a huge node network and flexible data source selection mechanism. Projects such as Band Protocol, Augur, UMA, API3, and NEST Protocol have also made remarkable achievements in their respective fields.
Through these decentralized oracle infrastructures, we can see their important role in promoting the development and innovation of blockchain technology. They endow smart contracts with more powerful functions and flexibility, enabling various application scenarios to be realized.
Whether it is innovation in the financial field, intelligence in insurance, security in the Internet of Things, or transparency in supply chain management, decentralized oracles have brought new opportunities and changes to these fields.
With the continuous evolution of blockchain technology, we can expect the widespread application of these decentralized oracle machine infrastructures in more fields. By ensuring the reliability, security and accuracy of data, they will play an important role in building a more decentralized, transparent and trustworthy future.