The World Economic Forum and Chainlink, the decentralized oracle network, today proposed an open-source standard for connecting data sources to blockchain smart contracts. In a nutshell, Chainlink advocates for…Chainlink!
Decentralized oracles, run by a series of decentralized (but hand-picked) nodes, work together to help smart contracts verify the veracity of data from an external source.
A decentralized oracle could, say, confirm to a blockchain-based toaster that the timbre of your stomach’s growl is of a sufficiently deep grumble to prime bread for your breakfast.
Decentralized oracles, though, are more commonly used to send price feeds to smart contracts. Decentralized finance protocols use oracles to verify that the prices of cryptocurrency derivatives reflect the value of crypto spot exchanges.
The paper, penned by Sergey Nazarov, the co-founder of the biggest decentralized oracle network, Chainlink, and Punit Shukla, the blockchain project lead for the WEF, outlines an open-source framework to help non-blockchain systems talk to smart contracts.
The paper, “Bridging the Governance Gap: Interoperability for Blockchain and Legacy Systems”, argues in favor of services like Chainlink, which features as a case study.
It recommends that businesses join open-source communities that build interoperability frameworks, adopt a decentralized oracle network that works across all blockchains, access to high-quality APIs, are powered by cryptocurrencies, and vet high-quality node operators.
The idea is that if these oracles are of sufficient quality, blockchain applications and protocols will be able to depend on the data that’s fed through them. That’s important to DeFi protocols, which handle billions of dollars in investors’ money.
DeFi protocols that tried to rely on centralized price oracles have been hacked for millions upon millions in virtual magic money. In the past few months, Harvest Finance lost $34 million, Cheese Bank lost $3.3 million; Akropolis suffered a $2 million loss; Value DeFi lost $6 million; and Pickle Finance lost $20 million.
“The paper highlights some of the key considerations for both financial institutions and government IT initiatives, demonstrating their ability to become ‘blockchain-enabled’ using their existing IT infrastructure with the help of a blockchain oracle such as Chainlink,” said Nazarov in a statement.
These services are “what Chainlink has already been doing for some of the world’s leading enterprises for many years now,” he said, adding that an increasing number of companies want to use decentralized oracles, “like Chainlink.”
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