How Important Is Oracle In DeFi?

in Project HOPE3 months ago

The understanding of blockchain technology through research, crypto-education, engagement, and crypto-discussion will activate some new discoveries that provide solutions to some centralized aspect of the technology.
One of the core features of blockchain is decentrality.
Let's do some study here:

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What Does Oracle Mean To Blockchain Technology?

This is a device (any) that connects a deterministic blockchain with off-chain data.
Check out this case study for a better understanding:
The working principle of blockchain as a distributed ledger used node to validate every transaction. Node on each network must be able to find the same end result given the same input. If on the other hand, a node looks to validate a transaction and another node makes, this may result in a different result, which is one of the problems of blockchain.
E.g. When Peter sends $20 to Lisa, $20 is subtracted from Peter account and $20 is added to Lisa account. If you check out with each node of the same network, it can as well reproduce this same transaction and get the same result.

Think about an imaginary blockchain that validates each other's transaction using APIs. For example, sending a variable amount based on the price of BTC or ETH to Lisa from Peter's account.

The process will be,
Call the contract, the API get the price of BTC or ETH and finally send that amount to Lisa. In other for nodes to verify this, they must call this API for accuracy.
This is getting clearer.....
Have you factored out when the API is tampered with into this principle, like hacking which can make all the nodes get a different result? Should this happen, none of the nodes would agree upon what the actual state of the blockchain is anymore. This is the reason blockchains are designed to be entirely deterministic.

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Blockchain Connection To The Real World

Blockchain connection to the real world is what brought in DeFi and there is no way we talk about DeFi, we subtract the use case of Oracle.
In November 2020, Razor Network raised about 3.8 million dollars to show to the real world of the crypto reason for more blockchain oracle. Read more.
Razor Network is a truly decentralized oracle network for a decentralized prediction market, insurance, synthetic assets, stable coins, lending, atomic swap, finance and identity. The network consists of validators who stake their tokens in other to provide data to the network, remember the function of an oracle on a blockchain, which is to provide data to a blockchain.

The whitepaper of the Razor Network reveals the core function of the network. It comprises of a set of smart contracts, that can run on any Ethereum compatible blockchain and relies on the underlying blockchain for providing censorship resistance, security from network partition attacks, and many other solutions. The Razor Network explainer reveals more

In conclusion, the real world of blockchain is getting clearer and understanding of solution on ground to be able to know how to navigate is important. This is the first drop on this topic, expect more info about this.