Decentralised Finance (DeFi) transforms traditional financial products into trustless, transparent protocols that run without intermediaries. Exponentially growing projects like Maker, AAVE, Compound and Synthetix require oracles to deliver critical fundamental data like asset prices. These oracles are one of the essential building blocks for a DeFi ecosystem to function and grow and must meet the requirements of a maturing market and DeFi’s promise of transparency and independence.
Accurate and reliable financial market data has been prevalent in the financial world. All financial products require market data. Access to financial data is controlled by a handful of providers such as Thomson Reuters and Bloomberg. These providers are not a viable solution to support the emerging world of decentralised finance.
The accelerating growth of DeFi platforms and products with their unique composability creates interdependencies and requires a solid source of asset pricing data. Today most DeFi products lack a pricing data solution and rely on non-transparent data sources. DeFi products either built their own oracles or rely on external solutions. The data provided by these oracles and the methodology used is non-transparent and creates substantial risks for investors. As discussed by Liu and Szalachowski(1), the methodologies of price processing by oracles are not clearly stated. Even the sources that the oracle retrieves from are ambiguous or unknown to the platform users.
This creates one of the biggest attack vectors for malicious actors exploiting technological and methodological vulnerabilities. The absence of accurate data is the breeding ground for price manipulations and already have led to a growing lack of confidence in the validity of basic market information on digital assets. Data sources that can be compromised and provide little transparency led malicious actors to manipulate oracles and exploited DeFi products that did not use a solution to mitigate this risk. Most recent an oracle attack manipulated a trusted value.
In this case, the flash loan drove up the spot price of ETH-sUSD on Uniswap (the oracle), which BZx used to determine the value of collateral in loans (see Oracle Manipulation by Qin et Al, Attacking the DeFi Ecosystem with Flash Loans for Fun and Profit).
The lack of transparency nurtures doubts about DeFi
Concerns about underlying methodologies of digital asset data have led to an increasing lack of trust in basic digital asset market information and question the sustainability of DeFi applications. Most DeFi applications and oracle provider do not publish sources or methodologies that are the backbone of the smart contracts holding hundreds of millions of capital .
Unreliable data, altered by malicious actors in traditional markets caused tremendous costs for investors. The outright rigging of market information (e.g. the LIBOR scandal) led to new risk-free rates implemented by the regulators.
We need to learn from these mistakes and the willingness of a few to exploit markets. We believe oracle providers that feed data into DeFi applications as well as the applications need to provide an adequate level of transparency and auditability to ensure efficiency and accuracy in pricing. Today in many cases a centralised, manipulable architecture is still prevalent.
DIA (Decentralised Information Asset) is an open-source, financial information platform that utilises crypto economic incentives to source and validate data. Market actors can supply, share and use financial and digital asset data.
As a Swiss-based non-profit association, it is DIA’s mission to democratise financial data, similar to what Wikipedia has done in the broader information space with regard to central encyclopaedias. DIA data sources and methodologies are transparent and publicly accessible to everyone. DIA uses crypto-economic incentives for its stakeholders to validate data sources when be added and throughout their usage.
DIA is essential both for DeFi and traditional finance
DeFi platforms like MakerDao, Synthetix, Ampleforth and their likes are particularly exposed to oracle vulnerability. As these platforms are envisioned to be autonomous financial protocols serving a variety of financial needs, they are critically dependent on transparent and accurate price oracles. DeFi platforms will migrate to third party solutions that are transparent and auditable to ensure the sustainability of their core product. DIA serves these needs uniquely.
Traders and financial institutes
Individuals or entities involved in any trading activity strongly benefit from open-source and trustworthy data. This includes fund managers, traders, individual investors and anyone else in the financial or crypto space.
Anyone aiming to provide accurate information on digital asset or financial markets can source highly reliable data from the DIA platform. This group comprises content suppliers such as financial news sites, crypto data platforms, market research institutes and more.
Regulators and financial authorities
Financial regulation and taxation authorities depend on reliable market data for solid decision-making and will be served optimally by the DIA platform.
How DIA works — explained step by step
- Data request: Stakeholders who seek a particular set of data that has not already been published on the DIA platform can publicly submit and fund a ticket to request that data. The successful provision of the data is linked to a bounty, which is paid by the data requester in DIA tokens once the information is validated.
- Data submission: Incentivised by the data request, data providers create scrapers, connect to APIs or on-chain data to provide the requested data.
- Validation: Data analysts verify the submitted code through a staking mechanism. If a submitted data is suspected to be wrong, anyone can challenge the submitted code through staking DIA tokens. The DIA community determines through a stake voting process who supplied the right solution and who will be rewarded with the stake in question. Additionally, bounties for finding errors, bugs, manipulation attempts or security flaws as well as for improving and building the overall platform structure and security are provided by the association.
- Data storage: Validated data is stored in an immutable, open-source database and published on the DIA platform.
- Usage: Access data through oracles (on-chain) or through APIs (off-chain). Historical financial data can be accessed free of charge, while DIA tokens are charged for accessing live prices or specific APIs. More details on github.com/diadata-org/diadata.
The DIA governance token
The DIA platform is an ecosystem that employs a governance token. DIA is managed by a decentralised community of DIA token-holders and their delegates. DIA governance tokens can be used to drive the collection of data, validate the data, vote on association relevant decisions and incentivise the building of the DIA platform itself.
DIA governance tokens are employed for activities including:
- Voting on governance issues
Any issue pertaining the association and its platform that has severe implications will be put up for voting by means of the governance token. Any token holder can participate and cast their vote.
- Funding data collection
Data seekers can put bounties on specific data needs. Data suppliers who build scrapers to source particular sets of data will be rewarded with a bounty upon completion of the work.
- Validating data through staking
DIA tokens can be staked to incentivise the validation of existing oracles, scrapers, methodologies and more.
- Incentivising platform development
The DIA platform will be developed by its community and token holders. Any feature that is desirable can be suggested, voted on, funded and worked on by the DIA developer community.
- Accessing live data streams and specific APIs
All historic data can be accessed free of charge, whereas access to live data streams and specific APIs can be purchased with DIA tokens.
Visit our website, to find more information about DIA and start using transparent oracles.