Chainlink Co-Founder Sergey Nazarov believes that improving the decentralization and scalability of oracle technologies is key to trusting the DeFi ecosystem.
Oracle plays a key role in the proper functioning of DeFI protocols by connecting them to real world data.
However, oracles’ trustworthiness is compromised in cases where they rely on a single data source to get information. For example, according to Nazarov, over-centralized oracles recently enabled five flash credit attacks, which resulted in DeFi logs losing around $ 40 million.
Flash loans, a form of credit that does not require collateral, can be used to manipulate the price of an asset and steal funds from a DeFi protocol.
“You don’t want to just do an exchange [as a price discovery source] and hope for the best because if that one exchange is trading thinly or if someone gets a flash loan (…) you will be able to have someone check the results on your DeFi log. ”
According to Nazarov, the only way to prevent such attacks is to ensure that the protocol’s pricing mechanism relies on multiple data sources. For this reason, Chainlink focuses on building decentralized oracle networks.
“We source data from many different data providers that connect us to hundreds of exchanges, so wherever the volume shifts, Chainlink can accurately display the exact global price,” he said.
According to Nazarov, a properly functioning oracle network should be able to scale according to the size of the value locked in the DeFi protocol.
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