For the astute cryptocurrency enthusiast, the sight of multiple large-cap tokens that have more than tripled in value since November 2020 is a healthy sign that a bull market cycle is underway.
Aside from a price breakout in Bitcoin (BTC), Ether (ETH) and Altcoins, every bull market in the crypto sector is defined by one or two key themes that emerge as the driving force behind market excitement.
2016-2017 saw ICOs, the growing popularity of collectibles like CryptoKitties, and the widespread belief that blockchain is a solution to every problem in the world.
In 2021, it is clear that DeFi is one of the main drivers of the current bull trend in ether prices and altcoins that spanned the sector. The development of oracles is another component that is quietly building the essential infrastructure of the crypto market, and many of the projects that focus on oracle integration have seen their token prices rise over the past 12 months.
Oracle tracks, records and securely transmits various types of data such as price and trading volume to various blockchain networks and entities interested in the data provided.
Companies like the stablecoin provider Paxos, decentralized exchanges like Uniswap, and credit platforms like Maker (MKR) use oracles like Chainlink (LINK) to provide accurate information about the cryptocurrency.
The need for trustworthy and reliable data is growing in importance as DeFi continues to grow and the total banned value hits record highs on many platforms.
DeFi hacks show the need for oracles
In 2020, several DeFi logs were hacked, costing investors millions of dollars as bugs in the unchecked code allowed hackers to grapple with price changes.
These violations shed light on the essential tasks of oracle providers who are supposed to provide reliable data until the second price determination for cryptocurrencies. When this data comes from multiple trusted sources, it reduces the possibility of tampering and mass liquidation events like the Harvest Finance exploit, in which hackers got away with $ 24 million by manipulating the price of stablecoins on the Curve DAO (CRV) platform are.
The universal consistency or even synchronization of prices and data feeds is one of the optimal ways to solve this problem, as each oracle is currently structured differently in how it obtains data, comes to a consensus on this data and how prices are then calculated.
With Bitcoin price continuing to hit new highs and DeFi market cap topping $ 57.45 billion, mainstream investors are becoming increasingly interested in cryptocurrencies and pricing solutions are needed.
Here are some of the best oracle-focused projects whose tokens have made great strides in the past few months.
Chainlink has the first mover advantage
The best known and most established oracle project is Chainlink. Due to the ICO madness of 2017-2018, the project, led by Sergey Nazarov, initially raised $ 32 million to build a decentralized oracle network made up of node operators willing to give smart contracts access to external data feeds in order to do so receive a reward in the form of the native LINK cryptocurrency.
LINK has become synonymous with DeFi as many of the price feeds that connect separate blockchains and decentralized exchanges use its price oracle for pricing.
Similar to the Coinbase effect, there was a period of time when the mere mention of the integration in Chainlink allowed a short period of price increase, as this was viewed as a sign of legitimacy.
On March 16, 2020, shortly after the global financial markets were rocked by the emergence of COVID-19, LINK was trading at just $ 1.63 after trading at $ 4.80 two days earlier.
Since then, LINK price has risen nearly 15-fold on Jan. 23, to a new all-time high of $ 35.69, in large part due to DeFi’s summer 2020 addition of LINK liquidity pools at Uniswap.
The tape protocol provides cross-chain data transfers
Band Protocol (BAND) is a cross-chain data oracle originally launched as an ERC-20 token in September 2019, but migrated to the Cosmos network in June 2020 with the release of Band 2.0.
The project specializes in the aggregation of real data and APIs. The tape protocol then delivers this data to on-chain applications and smart contracts to facilitate the exchange of information between on-chain and off-chain data sources.
In 2020, the BAND price rose from $ 1.09 to a high of $ 17.51 in August 2020 before correcting below $ 10. Currently, BAND is trading for $ 15.90 and on February 13 the altcoin hit an all-time high of $ 20.62.
Similar to LINK, the BAND token is used as security by validators meeting data requirements and is the main exchange medium within the BandChain ecosystem. Oracle nodes in the chain are also involved in the block production / validation process, which gives the important function of data forwarding a second role.
In terms of what sets BAND apart from other oracle solutions, this is where the decision to evolve on Cosmos came into play.
Currently, the Cosmos team is developing the IBC (Inter Blockchain Communication) protocol, which BAND will use for cross-chain data transfers to support interoperability between blockchains.
Once developed, the tape protocol can ensure reliable data feeds for multiple blockchains while also making it easy to create unauthorized oracles that anyone can use to start handling data requests.
API3 brings DAO governance to oracles
One of the most recent additions to the Oracle game is API3, a DAO driven project that focuses on creating fully decentralized, blockchain-native APIs (dAPI). These dAPIs aggregate data from first-party oracles which, according to the API3 homepage, “are operated by some of the world’s leading API providers”.
API3 views oracles as a form of middleware positioned between APIs and smart contracts, which leads to increased costs and centralization. The project’s solution is to decentralize this process by allowing API providers to run their own nodes so smart contracts can connect directly to APIs for the latest data.
Investors’ desire to play a role in steering blockchain projects has also emerged as one of the most important issues in this current bull market, and API3 aims to capitalize on this growing trend.
API3 tokens in combination with the API3-DAO offer token holders the opportunity to participate in the control of the ecosystem by adding tokens to the data feed insurance pool. In addition to being able to vote on proposals, stakers have access to weekly stake bonuses.
Since the distribution of public tokens in early December 2020, the price of API3 has increased 416% as it rose from $ 1.56 on December 31 to a high of $ 7.86 on February 13.
DIA focuses on oracles for DeFi
The DIA platform (Decentralized Information Asset), which sees itself as an “open source data and oracle platform for the DeFi ecosystem”, pulls data directly from exchange APIs and other public sources onto DIA servers and collects them in one Database, which is then hashed on the chain.
DIA data streams are available through oracles or APIs that provide plug-and-play access to DeFi protocols and other data providers.
Finally, the DIA token will have staking and governance functions that will drive the collection and evaluation of data. The overall goal of the project is to become a trusted source of immutable and verifiable data for any market or asset tied to financial institutions.
DIA started in early August 2020 at the end of the first DeFi bull market. DIA got off to a quick start, rising from a low of $ 0.80 on August 3rd to an all-time high of $ 5.13 on September 2nd.
DIA is currently trading at $ 2.79 after pulling back from its monthly high of $ 3.43.
UMA uses “priceless” derivatives to enter into financial contracts on Ethereum
Universal Market Access (UMA) approaches the oracle problem differently than the other projects in space. Pricing is done through a library of synthetic assets with price disputes arising from registered financial contracts that are processed by an optimistic oracle service called the Data Verification Mechanism (DVM).
UMA enables users to design and create self-executing, self-enforcing financial contracts on the Ethereum blockchain backed by economic incentives. According to the project’s website, these “priceless” derivatives are designed to “ensure proper collateralisation by counterparties without the use of a price feed in the chain”.
If a price dispute arises due to a financial contract registered on the platform, the holders of UMA tokens vote via the optimistic oracle service from DVM on the value of a price identifier based on a historical time stamp. Token holders who take part in the validation process receive rewards in the form of UMA tokens from the requesting party.
The UMA token is also the governance token of the Universal Market Access Protocol and gives token holders the right to vote on changes to the protocol parameters and system updates.
In early February, UMA price collapsed, rising 300% from $ 11.06 on February 1st to a new all-time high of $ 44.15 on February 4th. Since hitting this new high, the UMA price has corrected sharply to $ 25 as traders took gains from the strong triple digit breakout.
Crypto investors who are solely focused on profits should look beyond the raw price movement of the trade through technical analysis and look out for value-adding projects as these are usually the most profitable.
Oracles are a key piece of infrastructure for the growing DeFi ecosystem and add value through their deployment, governance and liquidity pools that can improve the interoperability of isolated blockchain networks.
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