Relaynode SoCal: September 16, 2019 – Relaynode SoCal
Revisiting Crypto’s Oracle Problem
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This week Microtick launched a new decentralized oracle built on Cosmos Tendermint and UMA Protcol launched their token builder in which anyone can create tokens to track the price of anything. It feels like a good time to discuss decentralized oracles, an extremely important piece of infrastructure that is necessary to the development of decentralized finance (#Defi) and crypto more broadly. Why? Simply put, blockchains need accurate data from the outside world and oracles both capture and translate this data for use. Without oracles, key functions (like asset price discovery) would not be possible.
As an example, the price oracle in Maker, captures a reference price for ETH/USD, so that borrower collateral ratios can be accurately maintained. If someone borrows $100 DAI agaist $150 worth of ETH, and the price of ETH drops such that the ETH held in Maker’s CDP smart contract is now only worth $149, that borrower will have their collateral “swept” as a penalty. It is crucial that the ETH/USD rate used in Maker be accurate or borrowers could lose a lot of money.
The challenges that oracles face today is similar to those faced by layer 1 protocols: there is a tradeoff between censorship resistance and usability. As a result, most oracles choose usability over censorship resistance which leads to centralization. The weakest link of trustlessness in any decentralized application minimizes the trustlessness of the whole system. Because most oracle solutions are currently centralized, many dApps are de facto centralized. That’s why some think that a better name for #DeFi would be #OpFi or open finance.
The centralized price oracle is one of the most cited attack vectors for DeFi protocols like Compound. As Ameen Soleimani wrote last week, if an attacker had control of Compound’s anchor and post admin keys, she could set the price of any asset to an arbitrary value. Compound’s CEO, Ryan Leshner, acknowledges this and the team is working on a new design called the Open Oracle system to address these concerns.
So why aren’t there more decentralized oracles in the wild today? There are a few including prediction markets like Augur & Uniswap, and more coming like Amoveo. These are censorship resistant and properly align incentives among stakeholders, eliminating the attack vectors of oracles like freeloading (in which to reduce costs, smaller oracles in a decentralized network simply copy the data of a more established oracle). However, these decentralized oracles sacrifice usability for censorship resistance. Not only are they slow, but they also have liquidity challenges. In order to bootstrap a new prediction market, there needs to be sufficient capital interested in the outcome. Without sufficient capital at stake (liquidity), there is little incentive for stakeholders to participate in any given prediction market.
I know this is already a widely discussed topic in the space, and a bit of a 101, but the oracle problem is one of the most critical for the future of defi and worth further study. I hope to take more time in the future to write a deeper dive, but in the meantime you can check out Julien Thevenard’s writing on the subject or Phil Bonello’s report on Amoveo
Another week, another ETH Killer announced. This one had the Ethereum community wondering, “Et tu, Brute?” as it is going to be launched by Dapper Labs, the creators of Crypto Kitties. Some are excited by the prospect of an entertainment-specific chain with certain technical improvements over Ethereum, but others believe Dapper Labs should have built this on Layer 2, like Loom. And all of this leads back to the question I asked last week: for a Layer 1 protocol to be successful, does it need to secure a monetary premium?
The team at Staked launched the robo-advisor-for-yield (or RAY) this week. This is a tool that allows individuals to more passively participate in DeFi lending without having to monitor rates across different defi protocols. RAY will select the protocol that offers the best rate and trade in and out on your behalf.
There was a fascinating panel this week (that included Relaynode founder Chris McCann) about the future of crypto exchanges. In a previous Relaynode, I questioned whether the centralized exchange in crypto is comparable to the portals of Web 1.0 and DEXs to search — everyone thought that highly curated content was the future, but what users really wanted was a more organized way to have unbounded access to the long tail of information.
Gemini launched their custody business this week. This is an increasingly crowded space where the fees will likely move towards zero. However, expect custody to act as a loss leader for other services (staking, lending, etc). There continues to be exciting innovation in the space including multiparty computation (MPC) which improves the speed of action for institutions whose assets are in cold storage.
Blackrock’s CEO noted that there is over $70 trillion sitting on the sidelines in cash right now. Imagine a fraction of this capital chasing yield by flowing into the DeFi space 🙂
Maker also posted more info on the new Dai Savings Rate + initial values. The DAI savings rate or DSR will add another tool for the Maker community to manage rates within the Maker ecosystem.
Wave Financial — Consulting Associate (Full Time)
Ikigai — Analyst (Part Time)
WAX — Senior UX Designer (Full Time)
CryptoMondays LA (Free)
When: Monday, September 16th, 6–9P
Where: Upstairs Space 1212 Restaurant on 3rd Street Promenade in Santa Monica
LA FinTech Mix & Mingle ($11–22)
When: Tuesday, September 17, 2019, 7–9P
Where: Cross Campus Santa Monica, 929 Colorado Ave, Santa Monica, CA 90401
Regular LA FinTech meetup including a demo by Julian Kopald who will introduce Prodoge a P2P crypto invoicing, point of sale, and marketplace platform. He will also discuss the future of Doge Cash and Dogecoin.
Introduction To Handshake (Free)
When: Wednesday, September 18, 2019, 7–8P
Where: Beach House CoWork 2219 Main St · Santa Monica, CA
Handshake’s first meetup in Los Angeles. Intro to Handshake plus technical overview. Tieshun Roquerre, founder of Handshake may be in attendance to answer questions.
When: Wednesday, September 18, 2019, 6:45–9:15P
Where: BlankSpaces, 9414 Culver Blvd, Culver City, CA
Morality in Tech Panel ($36 *10% of proceeds to the Jewish Federation*)
When: Thursday, September 19, 6:30–9P
Where: Lois Lambert Gallery, 2525 Michigan Ave. E3, Santa Monica, CA 90404
I’ll be speaking on this panel for what I hope will be a lively discussion around values-driven technology. Joining me on the panel will be Janice Taylor CEO of Mazu and Dr. Jessica Carbino, the former Sociologist for both Tinder & Bumble.
When: Tuesday, September 24, 2019, 6:30–8:30P
Where: 301 Arizona Ave, Suite 200, Santa Monica, CA 90401
Join the shEOS and Sense.Chat teams as they welcome WAX.io Strategic Advisor Malcolm Casselle to Sense Headquarters to discuss recent & upcoming developments on WAX (Worldwide Asset Exchange)
When: Wednesday, September 25, 2019, 7–9P
Where: Pepperdine University: West LA Graduate Campus, 6100 Center Dr, Los Angeles, CA
2nd official meetup of IBREA in Los Angeles including a fireside chat with Suzy Truax from eXp Realty and a Reasi demo
When: Thursday, September 26, 2019, 6–9P
Where: Cross Campus Santa Monica, 929 Colorado Ave, Santa Monica, CA 90401
Decred technical and governance overview plus special keynote from Jake Yocom-Piatt of Company Zero and Project Lead @ Decred.
When: Sunday, October 13, 2019, 4–10P
Where: Boomtown Brewery, 700 Jackson Street Los Angeles, CA 90012
Kick off event for LA Blockchain Week — RSVPs limited, so recommended to sign up early
September 16–18 — Shanghai Blockchain Week & 5th Global Blockchain Summit (Shanghai)
October 18–19 — Eurasia Blockchain Summit (Turkey)
September 23–25 — CryptoSprings (Palm Springs)
Sep 30-Oct 1 — Korea Blockchain Week (Seoul)
October 5–6 — Cryptoeconomic Systems (Boston)
October 8–11 — Devcon 5 (Osaka, Japan)
October 8–10 — World Digital Mining Summit (Germany)
October 12 — MinerSummit 2019 (China)
October 15–16 — Crypto Invest Summit (Los Angeles)
October 19–20 — The Lightning Conference (Berlin)
October 21–23 — ACM: Advances in Financial Technologies (Zurich)
October 23–24 — CordaCon (London)
Oct 28 — Nov 3 — SF Blockchain Week (10% off with RelayNode)
November 4th-5th — Stellar Meridian (Mexico)
November 12th-13th — Capital: Global Coinmarketcap Conference (Singapore)