Oracle provide direct service to applications DeFi. TVL (The total amount of assets locked in DeFi - Total Value Lock) is still growing day by day. This is one of the very good signs showing the potential of Oracle projects.
Today's post, T-REX will share with everyone about the topic of Oracle in DeFi. From there, it helps you have a better overview of the market as well as Oracle projects.
From there, you can analyze the potential of projects and make investment decisions for yourself.
In the writing, T-REX have quotes or get ideas from several sources. If you want to learn more, you can access each source. In addition, I also took many analytical infographics from T-REX Analytics Twitter, you can also go there to read it again.
What is Oracle?
To understand more about DeFi, T-REX wants to take a real-life example, so that we can easily visualize:
Imagine you are sitting in front of a computer screen and recording with a microphone. So how can the computer understand your voice and convert it to the listener?
When your words are presented in the form of sound, the microphone will retract and inside the microphone there is a relay unit that is input to the computer in the form of binary code 0101..
Computers can only understand it in binary form. And the Oracle I mentioned in this article, works almost similarly.
Back to Blockchain, smart contract. Blockchain as well as the calculator example above. Blockchain is cool smart contract are the lines of code that operate based on the "If-this, then-that" files (if this is the case, the result will be that).
So information such as news, temperature, and price can be understood by blockchain, we will learn through 3 different types of information as follows:
Information is divided into three types:
- Real World Data: Information from real life such as temperature, news found in newspapers or news bulletins.
- Crypto Market Data: Information on Coinmarketcap, Coingecko such as the price or daily fluctuations of tokens.
- Enterprise Services: Information to serve businesses. We often say blockchain for businesses. So how can businesses bring their information to the blockchain and process it on the blockchain.
The solution that came out was Oracle! It is an intermediary between putting the above 3 types of information into the blockchain and smart contract.
So we have a simple and easy to understand definition as follows:
- Oracle is a system that provides real-time data for blockchains and smart contracts.
- Thanks to Oracle, blockchain and smart contracts (on-chain) can interact with external data (off-chain).
The above are basic examples and definitions to help you initially understand what Oracle is. To understand Oracle more deeply, we will learn more examples and specific projects in the next sections.
So how will we classify Oracle projects?
Oracle divided into 2 types:
Type 1: Are Oracle Service Providers for other blockchains or projects that need information and data.
Eg: Chainlink, Band, Tellor, Dia, Nest, Zap these are the active providers and provide Oracle services for other blockchains. In addition, Dos Network is also an Oracle project, but it is not clear if they have provided the service or not, so I put them below the Oracle Services Providers column.
Type 2: As projects with their own Oracle solutions (Internal Oracle), they serve their own project needs.
For example, UMA is a protocol they build Synthetic assets and products. Augur: A decentralized oracle for the prediction market.
The importance of Oracle
The importance of Oracle in blockchain
I will take a specific example that I can refer to from CoinGecko for you to easily imagine.
Bob and Alice will bid Bitcoin on day X.
Alice bet the price BTC >$20.000.
Bob bet the price BTC
On day X price BTC = $21,000 and Alice is the correct bet.
In the case of NO Oracle, on day X Bob can completely cheat, making the final result BTC = $19.000 (
In the case of Oracle, the nodes in Oracle will compare and verify the input data and give the most accurate results. So Alice will be the winner.
So here you can see, the problems that Oracle solves include:
- Oracle puts information on the blockchain, thereby addressing the availability of the information.
- Solve data manipulation problem. Oracle nodes help to collate, verify and transmit validated market data to smart contracts, thereby giving the most accurate final results that we can completely trust.
- Protect the transparency of information.
So what is Oracle's need in DeFi? This is an important part so that everyone can trust and find out the growth potential of Oracle in the future. We will find out in the next sections.
The Importance of Oracle in DeFi
I will give you specific examples of using Oracle's Chainlink in DeFi:
From the Chainlink example, we can divide it into 4 types of DeFi projects that need solutions from Oracle:
- Synthetic Assets - synthetic assets.
- Lending and Borrowing - borrowing and lending.
- Asset Management - asset management.
All of the above projects are quite familiar to us, people can go online and find out more detailed information of each project such as: Marketcap, or their need to use Oracle services like that which partly helps you to assess the potentials of the above projects.
We will analyze in more detail the needs and potential of Oracle in DeFi:
Oracle Applications in Blockchain/Defi
Oracle applications in blockchain or DeFi are divided into two categories: Data Feed and Price Feed. We will explore each part in detail.
Provide information for 3rd party applications and services.
The project provides information to 3rd parties. The information includes:
- Price of Yahoo Stock.
- Weather information.
- Information about gas prices of Ethereum.
- Price information for Coinecko.
- Bitcoin Block Hash.
Next, I will analyze in more detail about each project, I will analyze through 3 typical Oracle projects: Chainlink, Band Protocol and Tellor. These are 3 projects that represent different token designs in Oracle. I will analyze more closely how tokens are designed in each specific project.
Oracle on Blockchain
Chainlink takes real-life data into Chainlink. In the Chainlink is operated through information processing nodes to give the final result to the customer.
The data entered into the Blockchain through ChainLink is considered a condition to activate the Smart Contract to work and produce an output data (a payment, a certificate of ownership, a request for data transfer, etc.).
Below is a representative model of Oracle projects at the moment:
Data Provider (data provider) -> Add to chainlink for processing by nodes -> Customers (platform blockchains, DeFi projects, ...).
Copper LINK tokens are used to pay for nodes operating in Chainlink. Paid by the customer.
Example: Price ETH offered by many different suppliers with a certain difference. So how to choose the most accurate final price to offer to customers?
This problem is solved through nodes operating inside Chainlink. Active nodes create the decentralized nature of data, from which information is presented in a more intuitive and accurate way, increasing the reliability of information.
Band Protocol's operating model is similar with:
Data Provider (data provider) -> Put in Band Protocol for processing by nodes -> Customers (platform blockchains, DeFi projects, ...).
In addition, Band Protocol is also different from other projects because Band Protocol (BAND) is a Blockchain Protocol project.
Therefore, the BAND coin designed and used in the platform of Band Protocol is also different from other Oracle projects. It has more features and uses.
Band features are used to:
- Use BAND to become validators.
- Authorize or vote for validators.
- Join Bandchain Governance.
- Change fees for transactions.
As everyone knows, in order to assess whether Oracle service providers can thrive or not, they must be evaluated based on the criteria of the number of customers they are providing services to and the amount of information that customers have. the item needs to be processed.
Oracle project evaluation criteria
- Number of customers/partners using Oracle solution: Assess whether their projects are working well or not. This is the first indicator that should be considered and evaluated for a project.
- Project growth: In addition to increasing the number of customers, consider how the projects themselves offer solutions to Oracle, are being adopted and improved on a daily basis, from It assesses the potential of the project.
- How tokens are designed, used, buy/sell demand: Since the tokens inside the Oracle solution's ecosystem have different designs, so let's take a look to evaluate and make decisions right investment.
Eg: Link is used purely for payment in chainlink, while Band is used in Bandchain, which is a private blockchain, so it has more features and uses, Trb is used for pretty basic purposes but different points. Its difference is to be mined daily or use TRB to become a miner and earn more TRB.
- Market Cap: It is calculated as the number of coins at the current time multiplied by the current price. This criterion can be applied to evaluate the development space and growth of the project in the future. With a low market cap project, we can fully expect that it can increase in the future. Simply put, we can compare projects of interest with rival projects with the highest marketcap in the market to determine how much growth can be achieved.
- TA (technical analysis): Identify suitable buy and sell zones to minimize risks and maximize profits.
Through the information on T-REX, we hope to be able to partly answer everyone's questions and concerns related to DeFi and Oracle projects. From there, it helps you to have more information in an overview and more accurate way to evaluate the potential of an Oracle project.
Above are T-REX research & analysis, based on experience & market research. Not to be considered investment advice.
However, the potential Oracle, it may not be the upcoming trend and in fact does not need to be the trend. Oracle is an obvious and ever-present need in both DeFi, Blockchain and in real life outside. The potential for Oracle projects is still great.