September 21, 2023 - 29 min read
Blockchain oracles are entities that connect blockchains to external data sources, allowing smart contracts to execute predetermined actions with accurate, real-world data. Oracles are needed because blockchains are closed systems and, therefore, cannot easily fetch data from the outside world. This issue is often called the oracle problem or the oracle dilemma.
In the context of Web3, decentralized applications, or dApps, are only as decentralized as their data sources, so if a dApp uses a centralized or semi-centralized oracle, it may not be decentralized in the first place. Therefore, truly decentralized oracles are needed to prevent centralized points of failure and ensure blockchain applications remain sufficiently decentralized.
Blockchain oracles are essential for DeFi and GameFi dApps, such as decentralized exchanges, blockchain games, borrowing and lending platforms, decentralized insurance protocols, and NFT marketplaces. However, they’re also crucial for more traditional applications, such as fetching the prices of conventional assets like stocks and bonds, gathering important supply chain data (including IoT data), and verifying ID data for governments and corporations.
In this comprehensive guide, we’ll discuss everything you need to know and blockchain and crypto oracles, including the oracle problem, how oracle decentralization works, the impact of oracle attacks and oracle exploits, different types of oracles as well as some of the top oracles in the industry today, from industry leaders like Chainlink and API3 to newer, more decentralized and secure protocols, like Supra.
As previously mentioned, the blockchain oracle problem represents a major limitation of traditional blockchain smart contracts, as these contracts cannot access external, real-world data upon which to execute predetermined actions.
The isolation of blockchains from real-world data can be beneficial, as it helps prevent issues like double-spending attacks, which occur when an individual or entity attempts to spend the same cryptocurrency twice, as well as limiting network downtime.
How oracles integrate real-world data onto blockchains. Source: Chainlink.
However, if smart contracts can’t access real-world data, they become fundamentally useless, as they have no information with which to execute. Therefore, blockchain oracles bridge the closed environment of blockchains and the open data environment of the real world.
Since blockchain applications are only as decentralized and secure as the data they utilize, centralized oracles present significant issues. Unfortunately, this is also the case for decentralized oracles that retain some degree of centralization, either intentionally or unintentionally. Specifically, using centralized oracles results in poor incentives for node operators/data providers, poor availability, and low correctness guarantees.
The staking structure and decentralized governance model for the API3 oracle network. Source: Aragon.
Effective blockchain oracles are accurate, highly decentralized, have low latency, fast finality, and a high level of accuracy. Oracle decentralization can be measured via several factors. These include:
Node Count, Consensus, and Cryptographic Verification
Oracle decentralization and effectiveness can be partially estimated by the number of unique nodes on an oracle network, how those nodes come to a consensus, how those nodes gather and report data (including the number of data sources used), and how that data is cryptographically verified on-chain. Generally, oracles with more unique nodes, those that use more data sources, and oracles that use secure cryptographic proofs, like ZK-Rollups, are more decentralized and hence more effective.
Oracle Latency and Finality
Latency is the time between sending a transaction to a network and the network’s first acceptance confirmation. In contrast, finality is the time it takes for the data to be cryptographically verified and published on-chain. Finally, oracle accuracy means that the data provided by the oracle is correct. An oracle can have low latency, but if it doesn’t have fast finality, this can significantly slow down smart contract execution, leading to slippage or other potential financial losses.
Staking and Incentivization
In most cases, decentralized oracle networks compensate their node operators with their network’s native token, such as LINK in the case of Chainlink or the $API3 token for API3. Node operators are rewarded for providing quality information while being punished for providing poor data. Protocols, applications, or entities that want to access the oracle’s data will also generally have to stake a certain amount of the network’s token to receive it.
In some cases, the tokens function as data payloads, which feed data from off-chain sources to smart contracts. During the process, each node will generally aggregate data from multiple sources, and a group of nodes together will do a meta-aggregation of the data to provide the final data to the end user.
In addition, we should note that the staking and voting process may also protect decentralized oracle networks from “Sybil attacks.” Sybil attacks occur when multiple entities create a variety of fake identities in order to manipulate the oracle’s consensus mechanism. However, there are still risks, such as “lazy validation,” in which some oracle nodes copy information from other nodes without actually engaging in the full verification process.
Accountability and Attributability
As we just mentioned, oracles that promote a high degree of accountability for data providers generally reward providers when they provide accurate, fast, and high-quality information while punishing them if they provide low-quality or false information. For instance, the best node operators may gain additional token rewards. In contrast, lower-quality or fraudulent node operators may see their staked tokens slashed, meaning that the network will actually take away part or all of their staked tokens. In serious cases, the node operator could be banned from the network. For accountability to work, attributability, or the ability to correlate a piece of data to the entity that provided it, is also necessary.
Ideally, decentralized oracles are decentralized at three levels, specifically, at the data source, individual node operator, and oracle network level. Essentially, the data gathering process begins at the raw data source, such as direct data from centralized exchanges like Coinbase or Kraken, or DEXs like Uniswap or Sushiswap. The next level of data gathering involves data aggregators, like CoinMarketCap and CoinGecko. To promote data decentralization, an oracle system needs to use a variety of these sources to ensure a diverse data set and accurate reporting.
The three levels of oracle decentralization, visualized. Source: Chainlink.
The next stage is at the node level, and, as we’ve already touched upon, a higher number of diverse nodes and diverse node operators generally leads to a higher level of decentralization. Oracle consensus methods are also essential. For example, as we’ll mention again later, oracles like Chainlink use groups of 13 static nodes, which can lead to manipulation, particularly if the node operators collude with each other offline. In contrast, newer oracle design models, like Supra, regularly rotate nodes after a certain time period in order to make collusion nearly impossible.
The last level of decentralization is at the oracle network level, which can involve several factors. With fully decentralized oracle networks, if a certain number of nodes want to change the oracle’s underlying infrastructure to improve systems or address problems, they can vote to do so.
Token distribution of Chainlink’s LINK token (as represented by numbers of wallet holders with various levels of LINK), indicating a highly uneven token distribution. Source: Dune Analytics.
Since many oracles are proof-of-stake protocols, the token distribution and overall tokenomics of an oracle network are also essential to consider. Even if the network has many distributed nodes, if just a few whales own most of the oracle’s native token, they may be able to execute 51% attacks and heavily disrupt the network’s operations. In contrast, more balanced token distributions can help ensure long-term oracle decentralization at the network level.
While oracles may be essential for blockchain applications, current oracles have significant limitations, and some of these limitations have led to oracle exploits, sometimes referred to as oracle attacks. Oracle exploits occur when oracles report false or inaccurate data, sometimes due to compromised data sources and other times due to purposeful collusion within the oracle network.
Oracle exploits can lead to significant losses for DeFi investors and traders. For example, if the real price of a cryptocurrency is $10, but a DeFi lending platform’s oracle reports it as $5, the platform’s users could be liquidated, potentially leading to millions of dollars of losses. In this case, the protocol is operating as intended, but since it’s using bad data, the result may be disastrous.
Total known oracle attacks and total funds stolen from oracle attacks, 2021-2022. Source: Chainalysis.
In a March 2023 report, blockchain analysis company Chainalysis estimated that DeFi protocols lost more than $400 million in 2022 from more than 40 oracle attacks.
Well-known oracle exploits include the October 2022 attack on Mango Markets, a DEX on the Solana blockchain, which resulted in $117 million in assets drained from the protocol. The perpetrator, Avraham Eisenberg, used one account on Mango to short almost 500 million $MNGO (the governance token for Mango Markets), selling the $MNGO on leverage. He used another to use leverage to buy the same amount of $MNGO. This significantly increased the asset’s price since the token lacked significant liquidity. Eisenberg’s second account now had $400 million in paper profits, and he used that to borrow even more $MNGO, draining the DEX of nearly all its assets.
Overall, protocols that allow the trading, borrowing, or lending of assets with lower market caps and less liquidity are significantly more vulnerable to oracle attacks. This is particularly the case if an asset is only traded on a few exchanges or if most of the trading volume of an asset occurs on just a few exchanges. In these cases, an oracle would only have a few inputs, giving it extremely poor market coverage and making price manipulation significantly easier.
In addition to manipulating prices on DEXs, oracle manipulations can lead to other issues, such as de-pegged stablecoins, protocol insolvency, and issues with automated asset management protocols.
While oracle exploits and market manipulation may seem to be the same issue and often result in similar consequences, their mechanisms and root causes are quite different. While oracle attacks result in the incorrect reporting of the real price of an asset, market manipulation actually changes the price of the asset itself.
In oracle attacks, the true market price is based on legitimate supply and demand factors, but the true price has been misreported, either accidentally or due to bad actors. In a market manipulation scenario, the oracle generally reports the true current price of an asset, even though that asset’s price has been manipulated. However, this still generally results in trader and investor losses. For instance, in the case of an oracle attack, the price of an asset could be $50, but the oracle reports it as $100. In contrast, in the case of market manipulation, the price of an asset could quickly change from $50 to $100, and the oracle would still report that price accurately.
Therefore, when building secure DeFi protocols and attempting to mitigate oracle attack risk, developers need to look at the specific market for the assets that will be traded, lent, or borrowed on the protocol. This includes examining factors such as trading volume, trading environments, and market depth.
While decentralized software oracles are required for true blockchain decentralization, they’re not the only oracles variations on the market today. For instance, while software-based oracles purely use data from online sources, hardware oracles utilize information from real-world, physical devices like IoT sensors. IoT sensors measure data points like temperature, speed, and location, which can be important for various industry applications, such as supply chain and logistics, manufacturing, and agriculture.
Other types of oracles include centralized oracles, input oracles, output oracles, compute oracles, cross-chain oracles, contract-specific oracles, and human oracles. In many cases, an oracle can be more than one of these types, depending on its specific design.
Software Oracles: Most of the oracle types discussed in this article (and mentioned below) are software oracles, meaning that they only interact with smart contracts and other computer programs and do not intake data from hardware devices like IoT sensors, networked thermometers, satellites, or other physical devices or infrastructure.
Hardware Oracles: Unlike software oracles, hardware oracles are specifically designed to gather data from off-chain physical devices, just like the previously mentioned IoT sensors, thermometers, or satellites. Hardware oracles, however, can be integrated with software oracles for specific applications, and may even be part of the same oracle infrastructure, contingent on its design structure.
Centralized Oracles: Centralized oracles are oracles that exist as a single, centralized entity, rather than a distributed network of node operators/validators that must come to consensus to cryptographically verify data and sign it on-chain. As we’ve discussed, there are many issues with centralized oracles, including security issues, hacking threats, and poor incentives to make data easily available and accurate within the desired timeframe. However, there are still some legitimate and effective uses for centralized oracles, particularly if data can only be obtained from a single source, such as a university using a centralized oracle to help record and confirm student and degree information.
Input Oracles: Input oracles are the most common type of blockchain oracles. They retrieve data from the off-chain, real-world sources and deliver it to blockchain smart contracts.
Output Oracles: Output oracles, unlike Input oracles, permit smart contracts to transmit commands to off-chain infrastructure and systems. For instance, an oracle could transmit data to an IoT system to turn the lights off or unlock a door in a home or business, or tell a bank network to make a payment after a certain event has been triggered.
Compute Oracles: Compute oracles are oracles that use off-chain computation to provide data that cannot easily be transferred on-chain. This is often due to financial, legal, or technical issues involving the data and how it’s sourced. Examples might include running zero-knowledge proofs to ensure data privacy or running a VRF (Verifiable Random Function) to ensure randomness for a GameFi or online gambling protocol.
Cross-Chain Oracles: Cross-Chain oracles are intended to read and write information between different blockchains. Examples can include bridging assets from one blockchain to another or supporting data sharing between different dApps or DeFi protocols, or even supporting one decentralized protocol that operates on multiple blockchains.
Contract-Specific Oracles: Unlike most oracles, which may be regularly used to provide data feeds to a project, service, or protocol, Contract-Specific oracles are used only once. For instance, a Contract-Specific oracle could be used just one time in order to help verify a specific financial or insurance transaction that does not require additional data or computation.
Human Oracles: Individual people can also provide important data to blockchain oracles. For example, a seismologist could provide earthquake predictions to a specific smart contract in order to help provide data to early-warning systems, helping save lives. Human oracles, however, are more likely to be manipulated by bad actors. So, to be secure, human oracles typically require a significant level of verification in order to ensure a reasonable level of accuracy. Verification methods could include blockchain-based biometric ID systems, specialized Soulbound Tokens, or other types of blockchain ID systems that can help ensure that the person providing the data really is who they say they are.
In addition to distinct oracle types, such as input oracles, output oracles, and even hardware oracles, there are also several oracle design patterns, including publish-subscribe, request-response, and immediate-read.
Publish-Subscribe: Publish-Subscribe oracles distribute dynamic data that typically changes quickly, meaning that this type of oracle regularly “watches” for new data, such as asset price feeds, traffic data, weather and temperature data, and the like. In general, this means that it is either regularly being polled by an on-chain smart contract or via an off-chain daemon, a program running as a background process that is not under the direct control of users. This is the most common design pattern for most decentralized blockchain oracles.
How Request-Response articles intake requests, gather and verify data, and sign transactions. Source: Cointelegraph.
Request-Response: Request-Response oracles involve dealing with amounts of data that are too large to be efficiently stored in smart contracts, and, regardless, the end user will only likely use a certain portion of the data after requesting it. Request-Response oracles often consist of both off-chain infrastructure and on-chain smart contracts that can serve a variety of decentralized applications.
Immediate-Read: Immediate-Read oracles are designed to provide limited, fast information, often a specific ID code or a yes/no answer to a specific query. Examples of data often queried by Immediate-Read oracles include university degrees and academic certificates, ID codes for businesses and governments, and answers to questions, such as determining whether a person is over a certain age.
Some of the most common use cases of blockchain oracles include:
DeFi: Blockchain oracles are essential to almost all DeFi applications, including decentralized exchanges, DEXs, decentralized money market platforms, decentralized and algorithmic stablecoin protocols, and DeFi lending and borrowing platforms, just to name a few.
For instance, major DEXs like Uniswap and Sushiswap need accurate, real-time price feeds to enable effective and efficient trading while reducing potential slippage. It should be noted that protocols like Uniswap, Sushiswap, and Curve utilize Automated Market Makers (AMMs) to function properly. These AMMs allow users to place their tokens in liquidity pools for staking rewards in order to add liquidity to the DEX, and these AMMs and liquidity pools can only function correctly if they have real-time price data.
Synthetic asset protocols like Synthetix also use oracles to ensure that their synthetic assets remain pegged to the current price of real-world assets. Plus, DeFi borrowing/lending and money market protocols, like AAVE, also must utilize oracles in order to maintain desired collateral levels, as well as to know when to liquidate undercollateralized borrowers.
Additionally, decentralized and algorithmic stablecoin protocols like MakerDAO and Frax need price oracles in order to ensure the stability and collateralization of their native stablecoins. For instance, users that want to mint MakerDAOs DAI stablecoin generally need to provide 150% collateral in the form of ETH. To maintain this collateral level, Maker uses Chainlink’s price feeds to ensure their users provide sufficient collateral during the minting process.
GameFi and NFTs: Traditional ERC-721 NFTs are at the core of GameFi technology, but in the last few years, dynamic NFTs, particularly those minted using the ERC-1155 standard, have become increasingly important for GameFi applications. Unlike static NFTs, which do not change over time, dynamic NFTs can change their inherent characteristics based on in-game events (such as an in-game weapon becoming more powerful after beating a boss) or external, real-world events, such as the time of day. Oracles can also generate Verifiable Random Functions (VRFs) that are used to create verifiably random in-game events, such as randomized loot boxes or other gaming rewards.
In addition, oracles can also be essential for in-build NFT royalties and profit-sharing NFTs. NFT royalties allow the original creator of the NFT to receive a certain share of the revenue each time the NFT is resold. In these scenarios, oracles generally need to be used to fetch the resale price in order to compensate the initial creator properly.
It should also be noted that profit-sharing NFTs allow individuals or organizations to sell NFTs to raise money for projects with the promise that they will be compensated via the NFT’s in-build smart contract. A variety of musicians have already successfully used this model in order to raise money for tours without having to sign potentially exploitative contracts with record labels. However, it’s not just indie musicians that are doing this. In fact, in early 2022, the rapper Nas began selling NFTs that guaranteed users a share of the rapper’s streaming royalties.
Sustainability and Environment: Many private companies are now using blockchain technology to track the environmental impact of their operations and promote sustainability, CSR (Corporate Social Responsibility), and ESG objectives. Blockchain oracles can help accurately and securely provide data such as energy use, energy efficiency, carbon emissions, and pollution levels from sensor readings, satellite imagery, and AI and ML (machine learning) computation.
Data from oracles can therefore help rating agencies develop more accurate ESG ratings while helping companies become more energy efficient. Blockchain technology is currently also being tested as a way to buy, sell, and trade carbon credits, which can add additional liquidity and efficiency to carbon credit markets. In addition to corporate and institutional initiatives, oracles can help measure the environmental impact of individuals, potentially rewarding them for engaging in sustainable practices.
Insurance: Blockchain technology is increasingly being utilized by both the traditional insurance industry and new DeFi insurance protocols, like InsurAce, and oracles are an important part of this. To process claims, traditional insurance companies can utilize secure, accurate data from car monitors, satellites, weather records, and other sources, allowing them to process claims faster and more accurately. They can even provide automated claim payouts via smart contracts. In addition to traditional insurance use cases, crypto-focused insurance companies and DeFi insurance protocols can also use oracle-enabled smart contracts to verify claims and provide automated payouts, particularly in the case of DeFi and crypto-hacking loss insurance.
This chart demonstrates the economics and entities involved in fractionalized, tokenized real estate ownership and investing. Source: Supra.
Tokenized Real Estate: While not quite mainstream (yet), various companies in the real estate space are utilizing blockchain technology to transform and tokenize residential and commercial real estate. From home buying to institutional real estate investing, blockchain oracles can facilitate the process of price discovery and legal documentation while helping verify property ownership on-chain. In some cases, properties sold on tokenized real estate platforms may be structured as dynamic NFTs or even fractionalized dynamic NFTs, facilitating group real estate investments and automated crypto-based payouts.
Other Tokenized Assets: While real estate may be the most obvious asset tokenized asset that can benefit from blockchain oracle data, almost any asset can be tokenized. This includes traditional assets like stocks and bonds, as well as more exotic investment choices, such as shares in startups, fine art, wine, physical gold and silver, diamonds, expensive cars, and other valuable assets. Traditional stocks and bonds may need to be issued as security tokens, which are more heavily regulated by the SEC. In contrast, other assets may be issued as NFTs or fractionalized NFTs. Both security tokens and fractionalized NFTs often require live price data to create sufficient market liquidity, data that oracles can easily provide.
Enterprise Applications: Large corporations, non-profits, governments, and other institutions can also benefit significantly from oracles, which function as secure blockchain middleware, permitting organizations to connect their current data systems to blockchain networks securely. This allows data sharing and collaboration between different companies and facilitates interoperability between different blockchains.
Supply Chain: Today’s supply chains are incredibly fractured and inefficient, but blockchain technology is beginning to change all that, and oracles are an essential part of the process. IoT-enabled devices streaming live data to blockchain oracles can help track planes, ships, trucks, shipping containers, boxes, and individual items to ensure supply chain efficiency. This type of tracking can help significantly reduce supply chain issues, cutting customer costs and reducing fuel use, leading to less carbon emissions and pollution. In addition, oracles can help track food/agricultural and medical/pharmaceutical supply chains, helping to ensure food and medication safety.
Customer Rewards Programs: Customer reward programs are a popular way to increase customer engagement and brand recognition. However, it can be hard to effectively track customer activity and give customers interesting and desirable rewards. Blockchain oracles can be used to track customer activity across multiple platforms and can help businesses automatically reward their best customers with NFTs or cryptocurrency sent directly to customer wallets.
Blockchain Voting: Voting and election security has become an increasingly important (and increasingly controversial) topic in recent years. Individuals and groups of all political persuasions have often pushed for increased security and transparency– and oracle-empowered blockchain voting systems could be an ideal solution. While no system is perfectly secure, oracles can help accurately record and transmit voting information to highly secure smart contracts, generating tamper-resistant cryptographic proofs to verify voting data and transmit this data to the proper authorities and the public.
Gambling: It’s no secret that gambling is a multi-billion dollar industry that’s only grown in popularity in recent years. However, from state lotteries to online and real-life casinos, many players don’t quite trust “the house” to use fair winner selection methods or to provide adequate payouts to winners. In the case of betting on real-world activities, such as horse races or sports games, oracle-empowered smart contracts can use live, real-world data to improve player trust by sending the correct amount of cryptocurrency to a specific wallet when a player has won a bet. In addition, as previously mentioned, blockchain oracle-powered verifiable random functions (VRFs) can also provide guaranteed, cryptographically-verifiable randomness to lotteries and other prize draws.
Below, we’ll list 15 of the top blockchain oracles in the industry today:
Chainlink is, by far, the largest industry’s largest blockchain oracle service. As of mid-2023, the protocol’s native token, LINK, had a market cap of over $4 billion, and at the height of the crypto boom in November 2021, LINK’s market cap was over $20 billion. Chainlink, which was launched in 2019, is used as a core oracle by many well-known DeFi protocols, including AAVE, Compound, and MakerDAO, just to name a few. In addition to its standard oracle services, Chainlink also uses its oracle infrastructure to provide verifiable random function (VRF) services, which are essential for various GameFi applications. The platform also provides proof-of-reserve services, which help protocols prove that they actually have the funds they say they do. This is especially important for centralized exchanges, borrowing and lending protocols, and collateralized stablecoins.
API3, launched in 2020, is another one of the largest oracle services in the industry today. API3 focuses on creating and distributing decentralized APIs, also known as dAPIs (decentralized application programming interfaces). It does this primarily by making existing APIs compatible with the decentralization standards of Web3 and doing so in a streamlined fashion that doesn’t overly burden developers. In contrast, networks like Chainlink typically use their own nodes as intermediaries to deliver data from external APIs to smart contracts, while API3 dAPIs aggregate data directly from first-party data providers.
These first-party data providers operate their own nodes, which API3 believes increases transparency and reduces third-party data tampering risks. Specifically, API3’s Airnode technology allows API providers to turn their APIs into dAPIs (decentralized APIs). The API3 network utilizes the protocol’s native API3 token and is currently utilized by exchanges like Kraken.
Universal Market Access, or UMA, which was founded in late 2018, is an Ethereum-based infrastructure that allows users to build their own DeFi protocols, with a specific focus on the derivatives market. UMA provides smart contract templates that make it easy for Ethereum developers to create a derivative for almost any asset imaginable. Specifically, UMA enables devs to create “synthetic assets,” or digital assets which track the performance and pricing of other underlying assets using smart contracts. UMA prides itself on the fact that it’s generally considered easier to use than oracles like Chainlink. Plus, UMA is fully open-source, allowing developers from around the world to contribute and improve the protocol as they see fit. UMA is governed by the platform’s native UMA token.
Band Protocol was one of the first blockchain oracle services to launch, as it was founded in 2017, around two years before Chainlink. Like most other oracle services, Band focuses on empowering dApps by enabling the exchange of information between on-chain and off-chain data sources. While Band initially used the Ethereum blockchain, it now uses its own independent BandChain blockchain, which was built using Cosmos SDK and is considered one of the more important blockchains that make up the broader Cosmos ecosystem.
This transition to Cosmos has helped lower gas fees for users while potentially increasing speeds. Unlike some decentralized oracles, which use traditional proof-of-stake consensus, Band uses delegated proof-of-stake consensus (dPoS), in which participants elect delegates who validate blockchain blocks. Today, Band Protocol has more than 90 node operators worldwide, all of which stake the protocol’s native BAND token.
Decentralized Information Asset, or DIA, is another open-source, cross-chain blockchain oracle service. DIA focuses on providing highly customized data feeds for users while incentivizing good behavior via its network of decentralized node operators. Currently, DIA provides coverage of more than 20,000 traditional asset prices, more than 6,000 digital asset prices, extensive NFT floor price data, and highly-detailed metaverse pricing and user data. As previously mentioned, DIA’s strong point is customization, as it allows developers to create data feeds with highly specific data sources, pricing methodologies, and filters.
DIA is currently on over 25 blockchain networks, including Ethereum, Solana, BSC, Polygon, Arbitrum, Avalanche, Polkadot, Fantom, Kusama, and Celo.
Nest Protocol is a decentralized oracle network that uses a reference system that it calls “quotation mining” in order to send off-chain data to on-chain smart contracts securely. There are three participants in the Nest Protocol network, price callers, miners, and verifiers.
Price Callers are dApps and other protocols which pay a fee to get data from Nest. Miners are participants who stake the protocol’s native NEST token and provide price information to Nest’s smart contracts. Verifiers accept quote price offers and lock up larger amounts of the NEST token in order to help verify the data. Devs can also use Nest’s Probabilistic Virtual Machine, or PVM, which offers similar functionalities as an EVM but offers a larger library of specialized data and price feed-focused smart contracts.
Augur is a decentralized protocol that allows users to create decentralized prediction markets and bet on the outcomes efficiently. To power these prediction markets with accurate data, Augur, launched in 2018, also developed a decentralized oracle service that can cryptographically verify the outcome of real-world events, such as sports games and elections.
As previously mentioned, Augur’s smart contracts also allow individuals to bet on event outcomes and settle their bets in ETH. Like many other oracles on this list, Augur is fully open-source, and its Ethereum-based Solidity smart contracts can be used, audited, and modified by anyone.
Augur uses both ETH and the protocol’s native token, Reputation (REP), which is used by reporters (i.e., node operators) to resolve disputes and clarify event outcomes. Reporters can lock up (i.e., stake) their tokens in an Augur smart contract, and the consensus of a group of reporters determines the “true” outcome of an event and who is paid as a result.
HAPI is a decentralized cybersecurity protocol that allows users to create powerful, trustless oracles. HAPI uses off-chain and on-chain data from various sources, including compiling data on compromised wallets and malicious actors, and can easily be integrated into DEXs and other DeFi protocols to prevent money laundering, theft, and other illegal or fraudulent activities.
HAPI enables anyone to report bad actors using the Reporting and Alert System in real-time, data which is streamed to their powerful live-monitoring RCI (Report and Check Interface). By staking a small amount of HAPI tokens, users can ensure that the address of an entity they are about to interact with has not previously engaged in malicious activities.
Tellor, which, like Chainlink, launched in 2019, is another permissionless blockchain oracle service. Tellor features two main types of data feeds, Spot Price feeds, which provide live market data from existing APIs, and Custom Price fees, which can be heavily modified to meet specific client requirements. The Tellor network consists of nodes called reporters, which monitor and relay data from Tellor’s oracles, and, much like other oracle networks, earn rewards in the form of the protocol’s native TRB token.
One unique benefit of Tellor is its’ automated dispute resolution protocol, which is designed to solve oracle data errors automatically. Reports are charged a small fee in order to resolve disputes, which encourages reporters to provide new and accurate data as quickly as possible so the dispute can be resolved quickly and efficiently.
XYO is a highly specialized, Ethereum-based oracle platform that uses a large, decentralized node network to source information about the current location of a person or object. Unlike most other oracles, XYO allows smart contracts to confirm the location of an entity, which can be important for various functions, such as supply chain management and insurance. XYO uses a unique consensus algorithm referred to as “proof-of-origin” in order to confirm the location of an entity.
The XYO Network consists of four physical components; sentinels, bridges, diviners, and archivists. Sentinels function as location witnesses, while bridges interpret geospatial data by transmitting the information from sentinels to archivists, which store the data and send it to diviners. These devices can be used for analysis and solving specific questions and problems.
Umbrella Network is another cross-chain, decentralized oracle service that utilizes the Delegated Proof of Stake (DPoS) consensus mechanism. Umbrella Network allows oracles to scale inexpensively using several powerful cryptographic techniques, including Merkle trees, Layer-2 networks, and transaction batching. Utilizing these methods, Umbrella can aggregate and bundle thousands of smaller transactions into one transaction, significantly reducing fees.
Just like Chainlink and other major decentralized oracles, node operators participate in the network and obtain rewards via staking the protocol’s native token, UMB, which, interestingly, is available as both an ERC-20 token on the Ethereum blockchain and a BEP-20 token on BNB Smart Chain (formerly known as Binance Smart Chain).
DOS Network is a decentralized, cross-chain, Layer-2 oracle network that focuses on providing access to real-time data feeds, specifically focusing on smart contracts that rely on urgency. DOS can finalize off-chain transactions in one second or less, while on-chain transactions can generally be finalized at the same speed as the specific Layer-1 protocol utilizing DOS’s oracles.
DOS is designed for unique use cases, including integrating complex off-chain computation data, like machine learning training and 3D rendering, into blockchain applications. Other, more standard applications of DOS include providing price feeds for algorithmic stablecoins and crypto derivatives, helping crypto lending platforms determine interest rates, empowering DEXs for cross-chain swaps, and helping provide randomness for blockchain-based games and casinos.
Oraichain is the industry’s first AI-powered data oracle. Like most other oracles, entities requesting data from the Oraichain network send requests to node operators (validators), which gather and confirm data from external AI APIs.
AI providers can sell their AI services to users via Oraichain’s AI marketplace, where providers are rewarded with ORAI tokens. Common AI services that are provided through the marketplace include AI-based yield farming, face authentication, and price prediction services. Overall, Oraichain helps solve the problem of integrating AI into smart contracts since current smart contracts generally cannot run AI models due to their complexity, as well as due to the significant processing power and data storage limitations of current blockchains.
Bridge Oracle is the first decentralized oracle on the TRON network. Like many other oracle networks, Bridge uses its native Bridge Oracle (BRG) token to incentivize a distributed network of node operators to gather data and quickly respond to client requests. Bridge Oracle is currently limited to operating on the TRON network, and its’ limited interoperability is perhaps its’ biggest drawback. However, Bridge does shine regarding data pricing, as clients often pay less in BRG tokens when compared to paying for decentralized data fees on other oracle networks.
We’d be missing out on something important if we didn’t add Supra into the mix of top blockchain oracles, and, while we might be biased, Supra has been recognized by investors and the public as a vitality important project and one with qualities that make it stand out in the crowded blockchain oracle space. Supra utilizes a consensus mechanism that makes it significantly more decentralized than other oracles and significantly less prone to oracle manipulation, particularly when compared to competitors like Chainlink.
For example, unlike Chainlink, which uses groups of 13 static nodes to determine the price of an asset, Supra’s consensus mechanism uses groups of nodes referred to as “tribes” and “clans.” Tribes are larger groups of nodes, while clans are smaller groups of nodes, and there are multiple clans within each tribe.
To prevent collusion, Supra regularly rotates which nodes are assigned to each tribe and clan, exponentially increasing security and decentralization. Like Chainlink, Supra is a fully cross-chain oracle, and its testnet is already deployed to 25+ major blockchains, including Etheruem, Solana, Avalanche, Polygon, Optimism, Sui, Aptos, and many more.
This graphic demonstrates how using KGZ polynomial commitments allows auditors to verify the validity of given values using a public key. Source: Supra.
In addition, Supra uses some of the most secure cryptographic proofs in the industry to verify data. In particular, Supra uses KZG commitments, also known as Kate, Zaverucha, and Goldberg Commitments, or simply Kate Commitments, a type of polynomial commitment scheme that enables efficient and verifiable secret-sharing schemes which both enhances security and allows for a massive level of potential scalability.
Specifically, ZKG commitments allow oracles to securely batch many transactions into a single transaction, including batching transactions with extensive and complex data sets. KZG commitments and other parts of Supra’s infrastructure have allowed Supra to become the fastest oracle by transactions-per-second (TPS). In addition to its speed, Supra also has fast finality, being able to reach full finality within 2-3 seconds, significantly faster than most other oracles.
Also, like Chainlink, Supra has released a powerful, privacy-preserving verifiable random function (VRF) service, which can empower a variety of blockchain applications, and has a wide array of GameFi use cases, including creating randomized loot boxes, facilitating truly random lotteries and player rewards programs.
While they may seem highly technical and are essentially a form of enterprise middleware, oracles have never been more critical to the successful growth of the blockchain and cryptocurrency industry. In recent years, the increasingly high number of large-scale crypto hacks, scams, and rug-pulls has eroded public confidence in cryptocurrency and blockchain technology. Fortunately, oracles are increasingly playing a role in providing additional security and transparency to dApps and other blockchain platforms.
Specifically, well-designed, decentralized blockchain oracles can help prevent oracle attacks, collusion, and market manipulation schemes, while providing essential data services across various industry applications, from the DeFi and GameFi sectors to traditional industries like logistics, supply chain management, and insurance.
Overall, it’s not an exaggeration to say that oracles are the glue that holds the blockchain, DeFi, and crypto industry together, and the developing process of newer and better blockchain oracles holds the key to creating a fully trustless, permissionless, and open digital economy.
The increased security and trustlessness created by increasingly decentralized oracles can empower the blockchain and crypto industry to grow exponentially and gain mainstream adoption. That, in turn, can help create increasingly positive economic, environmental, and social impacts for businesses, governments, and, perhaps most importantly, ordinary people worldwide.
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