Crypto Narratives: The Oracle
The term “oracle” likely comes from the character of the same name in the Matrix sci-fi movies. Over the course of the movies, the character’s arc transitions from a lady with the power of foresight to that of an integral program that is essential to the running of the matrix system itself. Thus, in the crypto space, it is good to think of the role of an oracle program as being sapient to the core functions of blockchains, decentralized applications and their interactions with the off-chain world. Oracles provide the real time data that on chain entities need to function optimally. Essentially, oracles are a key narrative to get your head around in the crypto space. They are an integral part of blockchain function and they are not going anywhere in the near future. Thus, they present an interesting investment opportunity moving forward because they are the data lynchpin on which decentralized financial applications thrive.
Chainlink is the clearest example of an oracle that is ripe for investment. It is well established and operates across multiple blockchains. Blockchains lack application if they are not connected to the real world in some tangible way. Moreover, in order to function optimally, they need to function in real-time. For DeFi applications, it is essential that protocols have the latest possible data in order for their smart contracts to function optimally. Moreover, the potential use case for oracle data can allow for interactions between blockchains and many industries once they inevitably convert to the use of the blockchain as a core operation in their business model. Disconnected blockchains will forever stay in a crypto bubble. Oracles offer a decentralized and unmanipulated connection that synergize the off-chain and on-chain worlds.
In crypto, a core mantra is don’t trust, verify. At the heart of this mantra is decentralization. Increasingly, the blockchain interacts with businesses such as: insurance companies; fiat on- and off-ramps; the supply chain; collateralized lending protocols and more. This means that an intermediary is needed to ensure the integrity of companies, investors and the consumers of these financial products. Automated data that all stakeholders in decentralized markets can trust is vital to unbiased decentralized investment. In order to function as self-sovereign individuals, we need to be able to trust the veracity of the systems that we invest in. In this sense, oracles act as the key providers of information to the entire process. At present, we have a unique opportunity to invest in their growth and in ensuring that a decentralized vision of the future is realized. If centralized actors gain control of such powerful systems, then their ability to manipulate markets and price action may be unfathomable. Cardano is an example of a blockchain that has multiple oracle projects that are developing on chain (e.g. Charlie3 and OrcFax). Likely, are internal solutions to the need for oracles that can maintain the sovereignty and integrity of their specific blockchain.
Oracles, whether multichain or single-chain in function, act as a unique opportunity for early crypto adopters to invest in the future security of their decentralized investments. Long term investment in oracle products ensures that we are maintaining the latest possible off-chain data to our on-chain investments. This narrative might not be nearly as exciting as the potential price action of assets such as meme coins. However, oracles as an asset class are a vital part of blockchain and interchain infrastructure. It is paramount that investors be aware of the potential for centralized actors to become whales hoarding DeFi oracle tokens. We need our smart contracts to remain uninfluenced by inside traders and the financially corrupt. Oracles are somewhat new as an asset class, however they act as a vital systemic function against potential future corruption in decentralized products and systems. At present, DeFi is evolving with neobank projects such as Meld emerging and ambitious real world asset tokenization projects such as Xend and Defactor also emerging. The bridges between DeFi and TradFi are slowly being built and it is imperative that we invest in system security from a decentralized perspective to ensure the veracity and integrity of the smart contracts used to approve transactions within this emerging business model.
Disclaimer: this is NOT financial advice. I’m a cow and I like to eat cereal. Any knowledge gained from this post is merely incidental and you are responsible for your own financial decisions. Make investments wisely and make sure to do your own research.
Previous articles in this series are available on The DEx, The Meme and Stability and Sustainability.
