Blockchain Oracle Innovations & the 2023 Blockchain Oracle Summit (Part 2)

In the first part of this series, we introduced oracles, cross-chain bridges, zero-knowledge proofs and other key blockchain developments. We emphasized a need to discuss not just their capabilities but their limitations through avenues like the upcoming Blockchain Oracle Summit (BOS), which is scheduled for July 21-22, 2023. In conclusion to the first, this article will focus on cross-chain interoperability, multi-chain oracle networks and the necessity of oracles for the growth of DeFi. Let’s dive in.

Oracles, Bridges & Interoperability

The world of DeFi is fraught with rug pulls and hacks, and while there are many reasons for these hacks, a prevalent one is the exploitation of vulnerabilities in cross-chain bridges and oracles. Both of these pieces of infrastructure connect siloed blockchains either to the real world or to other chains and, in doing so, increase the functionalities provided by smart contracts. However, the growth potential of these technologies is hampered by the hacks and losses surrounding them. In 2022 alone, DeFi protocols lost close to $403.2 million in 41 separate oracle manipulation attacks, while analysis revealed that cross-chain bridge hacks have accounted for 69% of the total crypto stolen in 2022.

Losses like this prove that there is a need for more conversations and education about the good and bad sides of these key technologies. This education must begin with asking the right questions: why are bridges even needed? What are the trends in cross-chain communication, and what medium is available to discuss these topics?

The main reason this infrastructure is needed is the blockchain trilemma and the rise of scaling solutions like sidechains and layer 2 chains. Scaling solutions aim to increase the scalability of a network while retaining the security and decentralization of the parent chain. Without bridges and oracle networks, these chains would be unable to communicate with each other or access real-world data.

Cross-chain bridges enable the transfer of data and digital assets across different blockchains, thus facilitating a more interconnected and interoperable ecosystem. In addition, interoperability ensures that users can trade and transfer funds across different blockchains with greater ease. Oracles act as intermediaries between blockchains and external data sources by providing avenues for exchange between blockchains and third-party services. This ensures that smart contracts can examine, verify, and validate resources from external services for use on blockchains.

Together, bridges and oracles ensure that blockchains remain connected to other chains and can access real-world data like weather forecasts, sports results, price feed updates or data from other blockchain networks. These data unlock new use cases like on-chain insurance, prediction markets and lending & borrowing platforms.

Oracles should occupy a prominent position in critical web3 dialogues, and that is why the Blockchain Oracle Summit is committed to the demystification of oracles and the overall growth of the blockchain ecosystem through panel discussions like the one on the role of oracles and bridges in a multichain world where speakers from Gelato, BNB Chain, Pragma Oracle, Interchain and Connext Network will discuss current trends in cross-chain messaging and what the future holds for oracles and bridges.

Other talks at the upcoming summit focusing on bridges and interoperability include Witnet’s Tomas Ruiz’s presentation on the challenges of developing a truly multi-chain oracle network and how to guarantee that oracles perform well across different on-chain environments. Mario Cao, Head of Research at SEDA, will also present on the technicalities of designing a multi-chain native decentralized oracle. BOS23 is set to spark innovation through research and discussions between experts and enthusiasts alike.

The Importance of Oracle Networks in DeFi

Earlier, we explained how important oracles and bridges are for interoperability. Interestingly, these data-providing mechanisms are even more crucial in Decentralized Finance (DeFi), where protocols rely on oracle networks for real-time price data and events-based outcomes. This is because decentralized applications (dApps) such as algorithmic stablecoins and financial derivatives require the information provided by oracle networks to work smoothly. In line with this dependence, DeFi networks require oracles with the highest level of security and accuracy.

Uniswap V3 TWAP is one of the more decentralized oracle solutions, but with the recent merge, there is a threat of losing manipulation resistance and a search has begun in the industry for possible solutions. TWAP means Time-Weighted Average Price, and this type of oracle solution is highly secure because it is reliable and can exclude short-term price manipulation by averaging out price data fetched over a longer time period.

Before The Merge, in order for the Uniswap V3 TWAP to be manipulated, the hackers had to source hundreds of millions of dollars while losing a massive amount to fees. Secondly, the TWAP mechanism ensures that hackers must select the time window for the desired pricing before interaction. This means that attackers trying to raise the pool’s price to a desired level must hold that price for a longer period, thus preventing massive fluctuations in short periods contrary to the attackers’ intentions.

Moreover, the next miner in the Proof-of-Work consensus mechanism is unknown until the network accepts the block. Therefore, potential manipulators can not guarantee that they would be able to back-run their own transactions cheaply. Unfortunately, the Ethereum network’s switch to Proof-of-Stake (PoS) means that manipulators can now simply wait until their own validator is chosen to validate the next block.

Regardless, there is currently not enough economic incentive to manipulate TWAP, and more robust oracle mechanics are being researched, like the TWMP (Time weighted median price), which would require that pools be manipulated for over half the blocks in the period and make manipulations impossibly expensive. This research paper by the Uniswap Labs team provides an in-depth analysis of the possible threats and solutions for TWAP oracle manipulations post-Merge. One of the researchers of the paper, Xin Wan, will speak on the subject at the upcoming Blockchain Oracle summit.

Other speakers to look out for at this year’s Summit includes 0xGorilla from Price Oracle, who will present a case study on achieving secure on-chain solutions for price feeds post-merge. Rick Pardoe, Co-founder of Liquity, will also present his latest research findings on evaluating DeFi oracles, while representatives from stablecoin protocols Angle and Gyroscope will elaborate on the challenges they have faced with integrating oracle networks. Furthermore, Yaron Velner, the CEO of B.protocol, will present extensively on how to scale the DeFi ecosystem securely with oracles.

These presentations promise to be highlights of the summit.

This two-part series has centered on unique innovations surrounding Oracle networks, and there is an apt quote from Rick Pardoe, Co-founder of Liquity (and speaker at BOS two years in a row) that wraps it all up:

“The perfect decentralized price oracle is still elusive. Several teams have tried to build it – most make compromises in some form or other. We hope that further research and discussion sparked at BOS can open the door for the arrival of an oracle truly worthy of the “DeFi” mantle!”

To learn more about BOS23, click Here for the full agenda or Get Tickets Now!