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What is Oracle?

What is Oracle? Oracle’s importance & trends in the future

What is Oracle? What is the importance and trend of Oracle in the future? Let’s find out through idolmeta.net article today.

In recent times, along with DeFi, Oracle also has strong growth in price & capitalization.

Oracle provides direct service for DeFi applications. TVL (Total Value Locked in DeFi – Total Value Lock) is still growing day by day. This is one of the very good signs showing the potential of Oracle projects.

In today’s article, I will share with everyone about the topic of Oracle in DeFi. From there, it helps you have a better overview of the market as well as Oracle projects.

From there, you can analyze the potential of projects and make investment decisions for yourself.

What is Oracle?

To understand DeFi better, I want to take a real-life example, so that we can easily visualize:

Imagine you are sitting in front of a computer screen and recording with a microphone. So how can the computer understand your voice and convert it to the listener?

When your words are presented in the form of sound, the microphone will retract and inside the microphone there is a relay unit that is input to the computer in the form of binary code 0101..

Computers can only understand it in binary form. And the Oracle I mentioned in this article, works almost similarly.

Back to Blockchain, smart contract. Blockchain as well as the computer example above. Blockchain or smart contract are lines of code that operate based on the “If-this, then-that” command files (if this is the case, the result will be that).

So information such as news, temperature, and price can be understood by blockchain, we will learn through 3 different types of information as follows:

Information is divided into three types:

  • Real World Data: Information from real life such as temperature, news found in newspapers or news bulletins.
  • Crypto Market Data: Information on Coinmarketcap, Coingecko such as the price or daily fluctuations of tokens.
  • Enterprise Services: Information to serve businesses. We often say blockchain for businesses. So how can businesses bring their information to the blockchain and process it on the blockchain.

The solution that came out was Oracle! It is an intermediary between putting the above 3 types of information into the blockchain and smart contract.

So we have a simple and easy to understand definition as follows:

  • Oracle is a system that provides real-time data for blockchains and smart contracts.
  • Thanks to Oracle, blockchain and smart contracts (on-chain) can interact with external data (off-chain).

The above are basic examples and definitions to help you initially understand what Oracle is. To understand Oracle more deeply, we will learn more examples and specific projects in the next sections.

Oracle classification

Here are some typical projects of Ceramic Oracle: Link, Uma, Band, Tellor, Dia,…

Some typical Oracle projects on CoinGecko

So how will we classify Oracle projects?

Oracle divided into 2 types:

Type 1: Oracle Service Providers for blockchains or other projects that need information and data.

For example: Chainlink, Band, Tellor, Dia, Nest, Zap these are active providers and provide Oracle services to other blockchains. In addition, Dos Network is also an Oracle project, but it is not clear if they have provided the service or not, so I put them below the column Oracle Services Providers.

Type 2: Projects that have their own Oracle solutions (Internal Oracle), they use to serve their own project needs.

For example, UMA is a protocol they build Synthetic assets and products. Augur: A decentralized oracle for the prediction market.

The importance of Oracle

The importance of Oracle in blockchain

I will take a specific example that I can refer to from CoinGecko so that you can easily imagine.

For example:

Bob and Alice will bet on the price of Bitcoin on day X.

Alice bets BTC price >$20,000.

Bob bets BTC price <$20,000.

On day X BTC price = $21,000 and Alice is the correct bettor.

In the case of NO Oracle, by day X Bob can completely cheat, making the end result BTC = $19,000 (<$20,000) and Bob will win due to cheating. Alice will lose.

In the case of Oracle, the nodes in Oracle will compare and verify the input data and give the most accurate results. So Alice will be the winner.

So here you can see, the problems that Oracle solves include:

  • Oracle puts information on the blockchain, thereby addressing the availability of information.
  • Solve data manipulation problem. Oracle nodes help to collate, verify and transmit validated market data to the smart contract, thereby giving the most accurate final results that we can completely trust.
  • Protect the transparency of information.

So what is the need of Oracle in DeFi? This is an important part so that everyone can trust and find out the growth potential of Oracle in the future. We will find out in the next sections.

The Importance of Oracle in DeFi

I will give you a specific example of using Chainlink’s Oracle in DeFi:

From the Chainlink example, we can divide it into 4 types of DeFi projects that need solutions from Oracle:

  • Synthetic Assets.
  • Stablecoins.
  • Lending and Borrowing.
  • Asset Management.

All of the above projects are quite familiar to us, people can go online and find out more detailed information of each project such as: Marketcap, or their need to use Oracle services like that which partly helps you to assess the potentials of the above projects.

We will analyze in more detail the needs and potential of Oracle in DeFi:

Considering the marketcap:

At the time of the study, the total market cap was at $365.8 billion, of which DeFi cap accounted for $11.2 billion (3.06%) and Oracle cap only $5.1 billion (1.36%).

If we divide the total market capitalization of $365.8 billion into 32 cells, the total capital of DeFi occupies only 1 cell, the total capital of Oracle is only half of DeFi and 1/64 of the total capital of the market.

You can see, in terms of marketcap, DeFi and Oracle projects are still small, so they have the potential to develop in the future or not.

We will consider more of the following issues:

Within a year, the amount of assets locked in DeFi increased 20 times from $534 million to $11.2 billion. This is a huge increase in the Crypto market.

The amount of assets locked in DeFi reflects part of the attraction from the project to the outside cash flow into these DeFi projects.

DeFi and Oracle projects have a good growth rate, the market cap is still small, if this growth rate is maintained, the development potential of DeFi or Oracle projects in the future is huge, opening up new opportunities. Investment opportunity with high return.

Oracle Applications in Blockchain/Defi

Oracle applications in blockchain or DeFi are divided into two categories: Data Feed and Price Feed. We will explore each part in detail.

Data Feed

Provide information for 3rd party applications and services.

Band Protocol project example

The project provides information to 3rd parties. The information includes:

Price of Yahoo Stock.

  • Weather information.
  • Information on gas prices of Ethereum.
  • Price information for Coinecko.
  • Bitcoin Block Hash.

Price Feed

Offer pricing for other DeFi projects. DeFi projects use prices to apply to their system, from which they can give results or execute orders such as lending, borrowing or liquid.

Chainlink and Nest are offering prices for some of the pairs as above

Next, I will analyze in more detail about each project, I will analyze 3 typical Oracle projects: Chainlink, Band Protocol and Tellor.

These are 3 projects that represent different ways of token design in Oracle. I will analyze more closely how tokens are designed in each specific project.

Oracle on Blockchain

Notable Oracles:

Chainlink

An overview diagram of how Chainlink works

Chainlink takes data outside of real life into Chainlink. In the Chainlink is operated through information processing nodes to give the final result to the customer.

The data entered into the Blockchain through ChainLink is considered as a condition to activate the Smart Contract to work and produce an output data (a payment, certificate of ownership, request for data transfer…).

Below is a representative model of Oracle projects at the moment:

Data Provider (data provider) -> Add to chainlink for processing by nodes -> Customers (platform blockchains, DeFi projects,…).

The LINK token is used to pay for nodes operating in Chainlink. Paid by the customer.

Decentralized Data Model

Example: The price of ETH is offered by many different providers with a certain difference. So how to choose the most accurate final price to offer to customers?

This problem is solved through nodes operating inside Chainlink. Active nodes create the decentralized nature of data, from which information is presented in a more intuitive and accurate way, increasing the reliability of information.

Band Protocol

An overview diagram of how Band Protocol works

Band Protocol’s operating model is similar with:

Data Provider (data provider) -> Put in Band Protocol for processing by nodes -> Customers (platform blockchains, DeFi projects,…).

In addition, Band Protocol is also different from other projects because Band Protocol (BAND) is a Blockchain Protocol project.

Therefore, the BAND coin designed and used in the Band Protocol platform is also different from other Oracle projects. It has more features and uses.

BandChain 

Band features are used to:

  • Use BAND to become validators.
  • Authorize or vote for validators.
  • Join Bandchain Governance.
  • Change fees for transactions.

As everyone knows, to evaluate Oracle service providers can grow or not, must be evaluated based on the criteria of the number of customers they are providing services to and the amount of information that customers have. the item needs to be processed.

Next, I give the difference between Band Protocol and Chainlink based on the supported blockchain of these two projects.

Difference between Band Protocol and Chainlink in terms of supported blockchain

Currently Band Protocol is supporting 7 different blockchains with a total cap of $138 million. Chainlink is supporting 72 different blockchains with a total of $3.558 billion cap. This is a huge difference between the two projects.

It can be seen that Chainlink is the leading project, they are at the forefront of this Oracle segment, so they themselves also have a certain advantage in the market with a large capitalization.

But Band Protocol with a total capitalization of $138 million, is a better investment opportunity for us assuming Band can achieve the same total capitalization as Chainlink. This is the growth potential of new projects compared to leading projects.

COSMOS Ecosystem

Cosmos with ATOM coin, is a built-in ecosystem with a lot of projects inside.

There are many big projects such as: Binance Chain, Terra DeFi, Kava DeFi,… and others. In which Band Protocol is the only Oracle project built on the foundation of Cosmos.

If Band was the only solution to provide Oracle solutions for projects built in Cosmos, what would happen?

If Band gets all the customers in Cosmos and provides Oracle solutions to all the projects in the Cosmos ecosystem, the advantage of the Band Protocol project and the potential for growth can be clearly seen. of blockchain platforms when owning Oracle projects.

Tellor

This is a new Oracle project, with a completely different token design. So what’s the difference?

Overview diagram of how Tellor works

Tellor will also need data providers like other projects, but the difference is that these data providers will not be called information providers as usual, but themselves will be called miners. – people who get information from the outside using hardware devices.

So what is TRB used for?

  • Reward miners (Data providers) after they provide information to Tellor.
  • Payment for data access.
  • Need to buy and stake TRB to be eligible to participate as a miner.

Compare Oracle projects by each Blockchain platform

DeFi projects are built on the foundation blockchain

The ecosystem of ETH DeFi and Oracle projects is growing very strongly with the number increasing more and more. Followed by Polkadot, Cosmos and Tron.

In it, I want to talk more about the Bridge project. As you know, Tron is one of the projects in the top 20 of Coinmarket cap, Bridge is the first Oracle project on the Tron platform, but has not done an ICO or released a token.

So we can see that this is a project worth paying attention to and learning more about.

Compare Oracle projects in terms of number of customers

Number of customers of Oracle projects (data on September 13)

Number of customers of Oracle projects (data on 9/10)

In terms of customer growth rate of projects from September 13 to October 9, DIA ranked first from 2 to 7, followed by BAND from 19 to 25 and LINK from 202 to 236.

In terms of quantity according to 09.10 data, there is a big difference in quantity, with Link leading with 236 customers, then Band with 25 customers, Dia 7 customers and other projects.

Please pay attention to the customer growth rate.

If the projects still maintain such a growth rate, in the future, Band and Dia have the opportunity to catch up in the number of customers using their services like the leading project Chainlink.

Token growth rate

Figures Growth rate from April to May 2020

BAND has the highest growth with +3033%, then TRB +2106%, Nest +1780% and finally Link +485%.

In fact, the tokens of the Oracle project all increased sharply between the end of August and the beginning of September due to the strong influence of Yield farming.

Partly because the DeFi trend & most of the Oracle tokens are also DeFi, so benefit from this DeFi or Yield Farming trend.

Maybe the hot growth trend of Oracle tokens has passed, in my opinion this is also the time to purge and keep really good projects & applications.

In the following section, I will present the criteria for choosing an Oracle project to invest in.

Oracle project evaluation criteria

  • Number of customers/partners using Oracle solution: Assess whether their projects are working well or not. This is the first indicator that should be considered and evaluated for a project.
  • Project growth: In addition to increasing the number of customers, consider how the projects themselves offer solutions to Oracle, are being adopted and improved on a daily basis, from That assesses the potential level of the project.
  • How tokens are designed, used, buy/sell demand: Since the tokens inside the Oracle solution’s ecosystem have different designs, so let’s take a look to evaluate and make decisions right investment.

For example:

Link is used purely for payment in chainlink, Band is used in Bandchain, which is a private blockchain, so it has more features and uses, Trb is used for pretty basic purposes. But its difference is that it is mined every day or uses TRB to become a miner and earn more TRB.

  • Market Cap: It is calculated by the number of coins at the current time multiplied by the current price. This criterion can be applied to evaluate the development space and growth of the project in the future. With a low market cap project, we can fully expect that it can increase in the future.
  • Simply put, we can compare projects of interest with rival projects with the highest marketcap in the market to determine how much growth can be achieved.
  • TA (technical analysis): Identify appropriate buy and sell zones to minimize risks and maximize profits.

Predictions about upcoming Oracle trends

  • Oracle will be increasingly important, especially in the DeFi & Blockchain ecosystem, the capitalization will continue to grow in the long term. As analyzed above, Oracle’s marketcap is only 1/64th of the total marketcap of the whole market at the moment. The development space in front is huge. Whether by the end of 2020, how much will the total marketcap of Oracle projects reach, you can make your predictions and comment below the article to discuss.
    Chainlink is still the leading Oracle project and retains its strength and stable growth momentum.

Tron Network will have their own Oracle project(s).

  • There will be an Oracle project built on the Solana platform, dedicated to the SOL ecosystem. Solana has announced on its homepage that it has integrated Chainlink’s Oracle into Solana’s platform. This is a project worthy of attention with great development speed, strong ecosystem, if the Solana project builds its own Oracle solution, we can expect it to be a potential and profitable project. This could be a good investment opportunity in the future.
  • Binance Smart Chain has also been mentioned a lot by Binance & CZ recently. It seems that this time, they are looking to promote & expand the ecosystem of Binance Smart Chain (BSC). As the ecosystem grows, the need for a separate Oracle solution is understandable. I predict, CZ will soon have their own Oracle project for their BSC. I also wouldn’t be surprised if the project was listed for IEO on Binance Launchpad.
  • Oracle will standardize and purge gradually. We actually don’t need too many similar projects to apply blockchain in real life, as well as the trend of yield farming, there have been many projects that have gone into oblivion, which is a sign of purification. The gradual Oracle projects will also be similar, gradually purified and have a certain standardization.

Summary

Through the above information, I hope to be able to partly answer the questions and concerns of everyone related to DeFi and Oracle projects.

From there, it helps you to have more information in an overview and more accurate way to evaluate the potential of an Oracle project.

 

 

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