Rethinking Decentralized Oracles: Why The System Needs a Different Approach For Higher Security

There are now over 3000  decentralized applications on the Ethereum blockchain, attesting to the adoption of DeFi and oracles over the last decade. The development of new EVM-compatible blockchains such as Avalanche and Fantom is also an essential factor to consider for mainstream adoption and the growth of on-chain decentralized applications.

For the most part, this is just the beginning, as DeFi has a long way to go, which means more decentralized applications will go on-chain. There is a need for oracles to provide reliable access to accurate and real-world data on the blockchain. 

What is an Oracle?

An oracle is a protocol that allows smart contracts to interact with external data. They are third parties, and a transaction may expose previously simple transactions to external influence. By removing blockchain’s trustless nature, the current state of oracles in the blockchain industry effectively invalidates the entire system.

This article will focus on the current state of oracles and why a drastically different approach regarding security is required.

The Security State of Oracle Protocols

In 2021 alone, hackers stole over $1.3 billion through oracle and bridge hacks, resulting from security flaws in existing Oracle protocols. The blockchain is designed to be a trustless and permissionless network by nature. Still, the introduction of Oracles creates a connection to a third party for external data, which hackers exploit.

In addition, the vast majority of Oracle protocols are decentralized in name, as hackers use their centralized servers to attack decentralized applications integrating these oracles on-chain. These exploits prompted the creation of decentralized oracles, which operate in the same way that blockchains do by utilizing distributed ledger technology to tighten security and reduce hacks caused by centralized oracle protocols. 

The decentralized oracles approach has proven to be quite effective in securing smart contracts and enabling seamless off-chain data verification. Smart contracts cannot access and handle updated information and actual data on their own without oracles, demonstrating the importance of oracle protocols in the long-term sustainability of blockchain technology and DeFi, and why upgrading oracle security is critical. 

A Decentralized Oracle Protocol

The goal of introducing QED is to solve problems inherent in existing oracles and blockchain systems models, as security and decentralization are at the forefront of its operations.

First, QED issued QED tokens to oracles on its protocol to achieve complete decentralization. Oracles can use the tokens to run and own a portion of the platform. The QED token system has aided in creating accountability and eliminating the risk of collusion in the ecosystem. However, the platform’s Oracle can only determine the fee required to carry out the contract and cannot make other arrangements. 

With 1400+ actions per hour, DelphiOracle is the most widely used Oracle on WAX-io. QED is a battle-tested and proven iteration of the Delphi oracle, operational for over 3.5 years. Every financial transaction on the QED protocol is entirely decentralized and trustless. The QED protocol is blockchain agnostic, meaning it can be integrated with and scaled on any public blockchain. QED uses distributed ledger technology to maintain its commitment to a decentralized oracle solution. 

Furthermore, QED’s novel approach to the decentralized Oracle sector has established it as the ideal solution to the sector’s flaws. 

QED’s economic model distinguishes it from existing Oracle protocols because it focuses on both the technological and commercial sides, both of which are important for delivering and aggregating real-world data for smart contracts. 

On the commercial side, QED has implemented financially dependable recourse mechanisms, allowing clients to use external collateral provided by QED that may have occurred due to systemic risks. To eliminate underperforming oracles, QED also employs automated reliability scoring. QED uses distributed ledger technology to maintain its commitment to a decentralized oracle solution. 

Final Thoughts

Blockchain technology, particularly smart contracts in DeFi, requires oracle protocols to function optimally; however, without addressing issues of security and decentralization in existing oracle protocols, it may impede the long-term growth and mainstream adoption of DeFi due to constant hacks by bad actors in the space. Decentralized oracle protocols would pave the way for the next generation of blockchain oracles, providing the ultimate level of security and complete decentralization.

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