Are you ready to unlock the secrets of Oracles in the business sphere
In a world where financial transactions are moving at lightning speed, the role of oracles is becoming increasingly crucial. They serve as the bridge between real-world data and blockchain networks, enabling seamless integration of external information into decentralized finance systems. In an exclusive interview with Alexey Romanov, chief product officer (CPO), Hawex, we dive deep into the realm of oracles and explore how they are shaping the future of finance. Brace yourself for mind-blowing insights and intriguing revelations!
Today, we have the privilege of gaining insider knowledge about the remarkable potential of oracles in the business sphere. Are you ready to unlock the secrets?
What are Oracles and their function?
Let's start with what oracles are in simple language, and Romanov will help us with this:
“Data is the lifeblood of the business world. In a rapidly digitalizing economy, its role is more significant than ever before, notably in the realm of Decentralised Finance (DeFi). These financial systems depend on a type of data mediator known as an oracle, which supplies critical external data to the blockchain's smart contracts.
Think of an oracle as a data courier. Its job is to fetch data from various sources outside of the blockchain environment and deliver it to internal smart contracts. This data can range from financial statistics to real-time updates on the location of a shipment.”
Indeed, oracles are responsible for bringing real-world data to blockchain networks, ensuring accurate and reliable information for smart contracts and automated processes. Their ability to connect the physical world with blockchain technology makes them indispensable in revolutionising the future of finance.
Why are Oracles important for businesses?
What is more interesting is the influence of oracles on the financial landscape. How oracles transform the financial landscape, as well as what real-life examples can there be, Alexey Romanov told us:
“Oracles have already started to make significant waves across various industries. For instance, in the insurance sector, oracles enable instantaneous and automated claims processing by verifying real-time events. In supply chain management, oracles ensure transparency by providing real-time tracking of goods, reducing fraud and enhancing efficiency. Moreover, oracles are disrupting the lending industry by enabling decentralized lending and borrowing platforms, making them more inclusive and accessible to all.”
Of course, we would like to pay more attention to the field of crypto investments and real examples:
“As a savvy businessperson, you've diversified your investment portfolio to include digital assets, particularly cryptocurrencies. Given the promising growth and stability they offer, you've decided to leverage your cryptocurrency holdings as collateral to secure a loan through a Decentralized Finance (DeFi) platform. The interest rates and terms are more favourable than traditional banking options, so it appears to be a prudent financial decision.
However, here's the crux: the lending platform doesn't simply trust your assertion on how much your digital assets are worth; it needs an accurate, real-time valuation of your collateral. Enter oracles—they're the silent but crucial agents working behind the scenes, pulling real-time price data from multiple sources to inform the smart contract of the true value of your assets.
While you might not be directly interacting with the oracle, your financial success is intricately tied to their proper functioning. Understanding oracles and their significance in the DeFi space isn't just about technological interest; it's about safeguarding your investments and ensuring their growth in this new digital frontier.”
Applications of Oracles in business
Speaking about the direct application of oracles in business, there are many practical applications that we will sort out thanks to the expert opinion of Romanov and the research of Hawex, which can be trusted:
“Of course, there are many practical applications of oracles in business, consider the most common of them:
Decentralised finance (DeFi): Oracles facilitate DeFi operations by providing accurate, real-time price data for various cryptocurrencies and other digital assets. This information is crucial for minting assets such as DAI.
Derivatives and synthetics: Oracles offer necessary price information for managing synthetic assets or derivatives on multiple DeFi platforms.
Supply chain: By providing real-world data on goods moving through a supply chain, oracles help verify essential factors like the location, condition, and authenticity of goods.
Gaming: In the burgeoning field of blockchain-based games, oracles can use real-world data to influence game outcomes.”
The future looks incredibly promising for oracles. We envision a world where oracles become the backbone of decentralized finance, fueling innovations, and driving mass adoption. With advancements in AI, machine learning, and data analytics, oracles will evolve to deliver even more precise, reliable, and real-time data feeds. They will enable smarter decision-making, redefine risk management, and unlock new possibilities previously unimaginable. The future of finance lies in a symbiotic relationship with oracles, and Hawex is determined to be at the forefront of this transformation.
Security concerns with Oracles
However, like any other technology, oracles come with their set of challenges, the most pressing being security. Off-chain oracles grapple with trust issues as users need to place confidence in a limited number of third parties that feed data to the oracle. On-chain oracles face the challenge of data integrity due to their open nature, making them susceptible to manipulative practices.
Oracles' susceptibility to manipulation poses a significant risk in situations such as undercollateralised loans, where users can distort the Oracle data, allowing them to access higher loan amounts without additional collateral.
Preventive measures for Oracle security
Romanov shared with us preventive measures to ensure Oracle's security. What has been proposed to eliminate these problems?
“We have analysed this issue and identified several solutions:
Decentralised Oracle with delays: This solution involves an intentional delay in the system to prevent rapid price manipulation.
Speed bumps: A short delay between user entry and exit is introduced to discourage price manipulation attempts.
Time-weighted average price (TWAP): Uniswap V2's TWAP feature can resist oracle manipulation over extended periods, offering a more stable price in highly liquid pools.
M-of-N reporters: This approach involves multiple trusted entities submitting what they believe to be the correct price, improving price determination reliability.
Staking: This solution involves the use of collateral staking to ensure the quality of data provided by oracles, effectively holding them accountable for their data accuracy.”
“From the company Hawex we add that in the current financial climate, oracles play an increasingly essential role as a bridge between the real world and the blockchain. As the DeFi sector evolves, the success of many applications hinges on the robustness of its oracle systems. While the perfect oracle system is yet to be discovered, the solutions being developed now will undoubtedly shape the future of this dynamic space."
Thanks to Romanov and the Hawex company for the work done, for perfect research in the field of price oracles and for sharing your valuable insights! It has been an exhilarating journey to uncover the mysteries behind oracles and their role in shaping the future of finance.
Remember, the world of decentralised finance is evolving rapidly, and understanding the power of oracles is vital for staying ahead. Stay tuned as we continue to unravel captivating stories from the forefront of technological innovation.
Shagun Sharma is an independent business journalist.