65 6.7 Cryptos Data Middleware: Oracles With Bitcoin, there is no reliance on any external data. Bitcoin transactions are native to the bitcoin blockchain, and the protocol is blissfully unaware and unconcerned with the world outside of its ledger and network of nodes. But how does Augur settle an on-chain sports bet, or MakerDAO liquidate an undercollateralized CDP based on an ETH price drop? They use oracles, middleware that connects blockchains to off-chain data sources. Augurs REP uses a designated reporter system that rewards oracles for providing accurate information on real world events, and allows for a dispute arbitration process whenever results include some sort of subjective interpretation. Thats good for bets where lengthy settlement times are acceptable, but DeFi applications require more timely and continuous data to power markets 24/7. If youre building synthetic tokens that aim to provide exposure

Even if youre pulling from other on-chain data sources (e.g., Uniswap exchange rates), you still need to manage risks associated with market manipulation (e.g., using a flash loan to blow up an illiquid market pairs exchange rate). Chainlink curates feeds from multiple data resources, and serves as a critical data translator without introducing trusted third parties into crypto transactions. They make it more difficult and expensive to manipulate reference data. We dont consider Chainlink DeFi per se, but its an important project given most DeFi exploits have had to do with bad reference data infrastructure and risk controls, and most protocol builders learn the hard way that its tougher than it looks to maintain reliable oracles. Chainlink has become the leading project most think of when they hear about oracles given

There are other decentralized oracle network projects (weve written about them), but Chainlink has become the de facto choice for teams looking to outsource oracles, and its hard to ignore the sixth largest asset by market cap. 66 Thats not to say Ive been able to wrap my head around how LINK is traded as an asset: its currently at $5 billion in liquid float, with 60% of the remaining supply held in reserves to incentivize partners and capitalize the protocols core contributors. Its in many respects a smaller (but still massive) version of XRP with respect to how it has traded and been marketed. Zeus Capital, an anonymous short-selling research firm, wrote a widely circulated expos

I wont link to the report because some of the conclusions were spurious, and some of the accusations bordered on libel. But the report did have a couple of substantive points. Namely, around Chainlinks broken LINK economics. Today, LINK is merely a payment token. In other words, its competing to be valued like commodity money you must hold to host oracle nodes and/or pay for reference data contract calls. But like most 2017 utility token projects, theres no reason to hold LINK for any period of time: if you really need LINK for payments, you can hold other more liquid monies and hop in and out of the less useful, less liquid payment token as needed. When it comes to staking LINK for network security, the issue is that ChainLinks fee model doesnt seem stable or scalable. Fees have been proposed, but not yet implemented on a per transaction basis, as