Your Intro to DeFi Oracles
We recently announced that we will be developing and launching a new product — the Lossless Security Oracle. To better understand what oracles do in DeFi we believe it’s best to have a crash course on the topic.
The Invisible Backbone of DeFi
An incredible amount of DeFi apps strongly rely on oracles — middleware entities that connect smart contracts to resources outside of their native blockchains. In simple terms, you could call it data collection from sources outside of your natural reach. They’re a 3rd party service enabling blockchain smart contracts to access real-world data. Without oracles, various chains are like computers without the Internet — valuable but highly limited of what they can do.
Oracles enable the networks to absorb reliable external information and interact with legacy systems, resulting in DeFi smart contracts that can respond to real-world, real-time events and integrate with established business processes.
According to ArbiSmart, “The oracle gives the smart contract the capacity to access a live feed of information that is not on the blockchain, such as real-time asset prices. DeFi oracles are layers verifying and then relaying critical on-chain data to the smart contract.”
How Oracles Work
Blockchains have no on-chain data saved which makes oracles essential. They can initiate queries through crypto exchange applications and retrieve the real-time data a blockchain needs.
And end-user does not have access to an oracle as it’s simply an intermediary that provides a service. Oracles have had a huge impact on the rapid growth of DeFi as they solve the issue of data reliability in trading.
DeFi oracle data can either be inbound or outbound: inbound data is sent to the smart contract from an external source, outbound data is sent vice versa — to the external sources from the smart contract. Oracles also represent a filtration system that verifies the trustworthiness of such info: a critical role when external inputs trigger the automation of high-value transactions.
Oracles are also experiencing an evolution, meaning that their function no longer lies only on price feeds. For example, “oracle networks can power parametric insurance contracts by delivering weather data from Google Cloud or Accuweather to trigger the settlement of a crop insurance claim.” Our team will be adding our own spin to that evolution by creating a Security Oracle.
Stay tuned for a detailed intro of what the tool will solve and be in charge of.
Lossless is the world’s first DeFi hack mitigation tool for token creators. Apart from Lossless’ known cyber security solutions and renowned professionals, the community also plays a role. With a tangible reward system, community members are also encouraged to explore new ways to detect hacks and fraudulent transactions.
Lossless protocol halts counterfeit transactions through various methods of fraud identification and automatically reverses any stolen tokens back to the original owner. Its solutions to the impending problems of cyber theft within the blockchain space are thorough and applicable within many protocols.