For the enthusiastic cryptocurrency observer, the sight of several large-cap tokens has more than tripled in value since November 2020 is a healthy sign that a bullish market cycle is underway.
In addition to a break in the price of Bitcoin (BTC), Ether (ETH) and altcoins, every bull market in the crypto industry is defined by one or two major themes that emerge as the driving force of the market’s enthusiasm.
In 2016-2017 there were ICOs, the growing popularity of collectible items like CryptoKitties and the widely held belief that blockchain was the solution to all the world’s problems.
In 2021, it is clear that DeFi is one of the main drivers of the current upward trend in the Ether price and altcoins that spanned the sector. While it may not be at the forefront of every analyst’s mind, oracle development is another component that is quietly building the essential infrastructure of the crypto market and many of the projects focused on integrating oracles have seen their symbolic prices rise in the past 12 months.
Oracles securely track, record and transmit various forms of data, such as price and turnover, to different networks and blockchain entities that are interested in the data provided.
Companies like stablecoin provider Paxos, decentralized exchanges like Uniswap and lending platforms like Maker (MKR) use oracles like Chainlink (LINK) to provide accurate information related to cryptocurrency.
The need for reliable and reliable data is growing in importance as DeFi continues to expand and the total blocked value reaches record levels on many platforms.
DeFi hacks demonstrate the need for oracles
In 2020, several DeFi protocols were hacked, costing investors millions of dollars, as flaws in unaudited codes allowed hackers to make their price changes.
These breaches bring to light the essential tasks of oracle providers, which are providing reliable discovery data up to the second price for cryptocurrencies. Having this data from a number of reliable sources decreases the possibility of mass manipulation and liquidation events, such as the Harvest Finance exploit, where hackers made $ 24 million in manipulating the price of stablecoins on the Curve DAO (CRV) platform.
Making prices and data feeds universally consistent or even synchronized is one of the ideal ways to deal with this problem, as each oracle today is structured differently in the way it provides data, consensus on that data and how prices are calculated.
With the price of Bitcoin continuing to reach new highs and the market value of DeFi reaching $ 57.45 billion, traditional investors are becoming much more interested in cryptocurrencies and pricing solutions are needed.
Here are some of the main projects focused on the oracle whose tokens have been making big moves in recent months.
Chainlink has the advantage of being the pioneer
The most well-known and established oracle project is Chainlink. Arising from the 2017-2018 ICO craze, the project led by Sergey Nazarov initially raised $ 32 million to develop a decentralized oracle network made up of node operators who are willing to provide smart contracts with access to external data feeds in exchange for 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 their price oracles for price discovery.
Similar to the Coinbase effect, there was a period of time when just the mention of being integrated with Chainlink would provide a brief period of price appreciation, as it was seen as a sign of legitimacy.
On March 16, 2020, shortly after the global financial markets were shaken by the emergence of COVID-19, LINK was traded for a low of $ 1.63 after being traded at $ 4.80 just two days earlier.
Since then, the price of LINKs has increased almost 15-fold to a new historical high of $ 35.69 on January 23, thanks in large part to the addition of LINK liquidity pools on Uniswap during the summer of 2020 from DeFi.
The bandwidth protocol offers data transfers between chains
The band protocol (BAND) is a cross-chain data oracle that was 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 aggregating real-world data and APIs, the Band protocol then provides that data for 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 increased from $ 1.09 to $ 17.51 in August 2020, before being corrected to less than $ 10. Currently, BAND is traded for $ 15.90 and on February 13 the altcoin hit its biggest high at $ 20.62.
Similar to LINK, the BAND token is used as a guarantee by validators that fulfill data requests and is the primary means of exchange within the BandChain ecosystem. Oracle nodes in the chain are also involved in the block production / validation process, adding a second function to the important data retransmission function.
In terms of what differentiates BAND from other oracle solutions, this is where the choice to develop in Cosmos came into the equation.
Currently, the Cosmos team is in the process of developing its Inter Blockchain (IBC) communication protocol, which BAND plans to use for data transfers between chains that will support interoperability between block chains.
Once developed, the Band protocol will be able to guarantee reliable data feeds across multiple blockchains while allowing simple creation of oracles without permission that allow anyone to start responding to data requests.
API3 brings DAO governance to the oracles
One of the most recent novelties in the oracle game is API3, which is a project governed by DAO focused on creating fully decentralized native blockchain APIs (dAPI). These dAPIs aggregate data from primary oracles that are “operated by some of the world’s leading API providers”, according to the API3 homepage.
API3 sees 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, allowing API providers to operate their own nodes, allowing smart contracts to establish a direct connection to APIs for the latest data.
The investor’s desire to play a role in the governance of blockchain projects has also emerged as one of the hot topics in this current bull market and API3 intends to capitalize on this growing trend.
The API3 token combined with API3 DAO gives token holders the ability to participate in ecosystem governance through stakeout tokens in the data feed insurance pool. In addition to the ability to vote on proposals, bettors have access to weekly betting rewards.
Since the distribution of the public token in early December 2020, the price of API3 has increased by 416%, as it rose from $ 1.56 on December 31 to an increase of $ 7.86 on February 13.
DIA focuses on oracles for DeFi
The DIA (Descentralized Information Asset) platform, which sees itself as an “open source data platform and oracle for the DeFi ecosystem”, pulls data directly from exchange APIs and other public sources to DIA servers and collects it in a database. data that is then hashed in the chain.
DIA data streams are available through oracles or APIs that provide DeFi protocols and other data providers with plug and play access.
Eventually, the DIA token will have control and control features that will be used to guide data collection and evaluation. The overall objective of the project is to become a reliable source of immutable and verifiable data for any market or asset linked to financial institutions.
DIA was launched in early August 2020 at the end of the first DeFi bull market. DIA got off to a quick start and increased from $ 0.80 on August 3 to $ 5.13 on September 2.
DIA currently trades at $ 2.79, after falling back from its $ 3.43 monthly high.
UMA uses ‘priceless’ derivatives to create financial contracts on Ethereum
Access to the Universal Market (UMA) addresses the issue of the oracle differently from other projects in space. Its price discovery is obtained through a library of synthetic assets, and any price disputes arising from registered financial contracts are handled by an optimistic oracle service known as Data Verification Mechanism (DVM).
UMA allows users to design and create self-executing and self-executing financial contracts on the Ethereum blockchain that are guaranteed by economic incentives. According to the project’s website, these “priceless” derivatives are “designed to guarantee adequate collateral by counterparties without using a chain price feed”.
When a price dispute is made for a financial contract that is registered on the platform, UMA token holders vote on the value of a price identifier on a historic timestamp through the optimistic Oracle service DVM. Token holders who participate 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, giving token holders the right to vote on changes to the protocol parameters and system updates.
In early February, the price of UMA soared, rising 300% from $ 11.06 on February 1 to a new record of $ 44.15 on February 4. the strong three-digit break.
Cryptographic investors who focus purely on profits would be wise to look beyond the action of the gross trading price through technical analysis and keep an eye on projects that generate value, as they tend to be the most profitable.
Oracles are a key piece of infrastructure for the growing DeFi ecosystem and offer added value through their staking, governance and liquidity potential to bring interoperability to blockchain networks in silos.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you must conduct your own research when making a decision.