Decentralized Finance (DeFi) takes the promise of blockchain a step further and aims to transform traditional financial products into trustless and transparent protocols that run without involving intermediaries. Similar to how 2017 was the year of ICOs, 2020 was the year of DeFi, with more than fifteen billion dollars of total investments. The decentralized platforms utilize oracles to retrieve asset data from the external world, but their choice and management criteria are often unknown to the end-users. If oracles are poorly selected or managed, the funds of a rising number of investors are inevitably in danger. The issue, known as "the oracle problem", which makes real-world applications controversial and debated due to the loss of decentralization, had recently drawn attention to DeFi, given the crescent number of related hacks that caused the loss of millions of dollars held in DeFi projects. Through a multivocal approach that considers academic papers, whitepapers, preprints, and opinion posts, this study aims to shed light on the pattern that identifies the oracle problem in DeFi and outline the most promising ways to overcome the related weaknesses. This research supports the view that the oracle problem in decentralized finance bears specific characteristics which require standardization and appropriate economic incentives to be addressed.

The blockchain oracle problem in decentralized finance—A multivocal approach

Caldarelli G.;
2021-01-01

Abstract

Decentralized Finance (DeFi) takes the promise of blockchain a step further and aims to transform traditional financial products into trustless and transparent protocols that run without involving intermediaries. Similar to how 2017 was the year of ICOs, 2020 was the year of DeFi, with more than fifteen billion dollars of total investments. The decentralized platforms utilize oracles to retrieve asset data from the external world, but their choice and management criteria are often unknown to the end-users. If oracles are poorly selected or managed, the funds of a rising number of investors are inevitably in danger. The issue, known as "the oracle problem", which makes real-world applications controversial and debated due to the loss of decentralization, had recently drawn attention to DeFi, given the crescent number of related hacks that caused the loss of millions of dollars held in DeFi projects. Through a multivocal approach that considers academic papers, whitepapers, preprints, and opinion posts, this study aims to shed light on the pattern that identifies the oracle problem in DeFi and outline the most promising ways to overcome the related weaknesses. This research supports the view that the oracle problem in decentralized finance bears specific characteristics which require standardization and appropriate economic incentives to be addressed.
2021
11
16
7572
7603
https://doi.org/10.3390/app11167572
blockchain; decentralized finance; oracles; smart contracts
Caldarelli G.; Ellul J.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2318/1919391
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