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How Band protocol brings data to the Blockchain

While Blockchain technology represents a great way of transacting value without an intermediary and storing information in a tamper-proof way, life happens outside of a blockchain. This means that blockchain platforms that need information from the “real world” need a trustworthy data-source to receive information.

Oracles do exactly that. They provide a way for blockchains or smart contracts to interact with external data; they bring together on-chain transactions with off-chain data. They work both ways, inbound as well as outbound. Inbound oracles provide a blockchain with information on what happened externally, while outbound oracles report events on-chain to the outside world.

When looking at many DeFi liquidity pools, traders will notice that prices of assets often diverge from the prices at which the same assets trade in markets outside of the pool. This is mainly because ratios for liquidity pools are set, and there is no mechanism in place to report price feeds from outside markets.

Arguably, blockchain platforms could rely on a data provider such as Bloomberg for price information, but that would indeed defy the point of DeFi.

Decentralized on-chain oracles like BAND protocol solve the problem of relying on a central institution for data feeds while offering solutions that can be used across different blockchains. Band was launched in September 2019, initially on Ethereum but has since moved on to run on the Cosmos ecosystem. Band protocol is focusing on providing services to DeFi.

As outlined before, DeFi apps often need trustworthy and tamper-proof price feeds to work. However, applications can go well beyond simply price feeds if one considers the vast opportunity lying in prediction markets. With Band’s oracle, developers can access real-world data, including sports events, weather conditions or simply random numbers. Band protocol is bridging the gap between validators of transactions on-chain and things happening off-chain. The oracle provider makes it easy for developers to build their own oracles with WebAssembly and is working alongside other tech giants such as Google and Microsoft on defining standards for APIs as part of the OpenAPI initiative.

APIs = Application Programming Interface, an interface that allows different software and hardware components to interact with each other. In crypto, exchanges will often offer APIs that allow traders to connect their own bots. This way traders can easily automate their trading and don’t have to go log-in to their exchange accounts to execute trades anymore.

The easiest way for the average user to interact with Band that doesn’t want to build a custom oracle is by using its native token: BAND. BAND is used to pay for transactions on the band platform, for governance and as a reward for validators. BAND can also be staked or be delegated to a validator to earn rewards. Unlike many cryptocurrency projects that will burn tokens to ensure their scarcity, Band is using an inflationary model on the token which is designed to gradually reduce the value. It might seem counterintuitive at first glance, but Band is using this model to encourage users to stake more tokens. The goal is to have 66% of all BAND staked at any point in time.

The annual inflation rate changes based on the target. For this year, the team behind Band is focusing on improving the core tech stack, integrating with more blockchain networks and growing their community. For the second half of 2021they’re planning to launch BandChain Phase 2 which will give more flexibility to data providers to monetize on their use of the band protocol.

While Chainlink remains the biggest provider of oracle services to the crypto-world so far, with more and more dApps looking for alternatives that aren’t built on the congested Ethereum Network, Band has a fair chance to capture more market in the near future.

BAND can now be traded against Bitcoin on Bitcoin.com Exchange.

You can learn more about BAND on their website.

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Naomi Oba

Naomi Oba

Social Media Manager @Minima — passionate about financial education, blockchain, books and food.

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