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📢 The oracle criteria for Liquity v2 🔵

Given their pivotal role in providing reliable, timely, and tamper-proof external data, choosing the right oracle for Liquity v2 is of paramount importance. 

Let's break down the key aspects to consider when choosing the right oracle for v2, and contextualize them with the incumbent providers in the space.

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Decentralization and Immutability:
A decentralized oracle minimizes single points of failure and reduces the risk of data manipulation. Immutability ensures that once data is added, it cannot be changed, guaranteeing the integrity of the data. For the level of decentralization we aim for in v2, an oracle with strong decentralization is preferred; i.e. as little admin control as possible.

Compatibility:
Liquity v2's ideal immutable nature necessitates oracles with guaranteed endpoints that do not change. 

Latency:
In DeFi, protocols that have an element of leverage (like v2),  real-time or near-real-time data is crucial. 
High latency can lead to exploitable inefficiencies, like front-running, which can erode trust and financial stability (more on this later).

Track record:
A reliable and battle-tested oracle is preferable to ensure accuracy and prevent potential vulnerabilities.

Crypto-economic guarantees: 
The oracle’s consensus mechanism needs to have guarantees in place in order to avoid potential attacks.

Attack costs and trust assumptions:
The oracle's security is vital, along with trust assumptions in the network where the system will be deployed (e.g., Mainnet). 

Node decentralization & presence on Ethereum mainnet:
It is essential that the nodes are as decentralized as possible. The oracle should also have a presence on Ethereum mainnet.

So taking all of this into account, is there one oracle that can solve it all?
/LiquityProtocol/status/1691845067198112218/photo/1

As you can see from the infographic above, there is no oracle that is perfect - they all have different trade-offs. 

In our initial research, there were two that stood out when it came to the decentralization and immutability aspects  - Tellor & Uniswap v3 TWAP. 

Both however, have two 'deal breakers' which wouldn’t work for Liquity v2.

In Uniswap’s case, the concern stems from liquidity guarantees; once v4 launches, will the liquidity on Uniswap v3 stick? Considering the goal for us is to build a protocol that stands the test of time, it definitely is a huge concern.

In Tellor’s case, there is the 'price dispute' period.  Tellor’s price feeds have a dispute policy where prices can be disputed for a period between 10-20 minutes, to allow time for any 'fake' prices to be weeded out.  

As a reminder,  v2 will have a component of leverage built into it, which requires price feeds to have low latency; waiting for 10-20 minutes unfortunately becomes a deal-breaker.

So considering all this, why is having a low latency oracle & a solution to front-running critical to v2?

Join us tomorrow to find out!

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Twitter

Some thoughts on this graph:

a) tellor is green on second to last one (cough @LiquityProtocol )
b)  and why not green on cryptoEconomic?  what could be green?  
c). it's amazing that only two are decentralized and no one cares.  I remember 2 or 3 years ago, chainlink fans would…

Some thoughts on this graph:. a) tellor is green on second to last one (cough @LiquityProtocol ).