2024: The Year of the Oracles? Why blockchains are nothing without Oracles!


What is an Oracle?

An oracle refers to a third-party service responsible for furnishing data to smart contracts operating on a blockchain. The information supplied by an Oracle encompasses a wide range, spanning from the present value of a cryptocurrency to the weather predictions for a specific location.

Why are Oracles so vital for the blockchain industry?

Oracles play a vital role due to the inherent limitation of blockchains, which are unable to retrieve data beyond their network. Smart contracts within a blockchain can solely execute code using the data present within the blockchain. Oracles serve as a crucial solution by enabling smart contracts to access external data, enhancing their versatility and utility.

Within the blockchain ecosystem, Oracles play a pivotal role by facilitating the interaction of smart contracts with the tangible world. Their applications span a diverse range, encompassing decentralized finance (DeFi), prediction markets, and insurance.

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Our top 3 Oracles for 2024.

1. Chainlink.

Chainlink functions as a decentralized oracle network, ensuring secure and tamper-proof inputs and outputs for smart contracts across various blockchains. As the current leading blockchain Oracle solution, Chainlink nodes retrieve data from multiple APIs, employing median-value consensus to calculate reference rates. While established as a reliable Oracle solution, Chainlink faces limitations in catering to applications demanding highly granular data feeds.

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2. Pyth Network.

Pyth Network, on the other hand, serves as another decentralized Oracle network, supplying tick-level data updates for blockchain markets. Utilizing Solana and Pythnet, Pyth computes median prices through an on-chain approach, distinct from Chainlink's off-chain methodology. Pyth sources data directly from first-party data providers, addressing the need for finely detailed data feeds in blockchain applications. Although still relatively new, Pyth has gained momentum with deployments on Ethereum and Optimism.

3. UMA.

UMA serves as an Optimistic Oracle (OO) with the ability to inscribe any ascertainable truth onto a blockchain. It communicates essential information about the world to smart contracts, enabling the settlement of contracts and markets that rely on such data. Referred to as a "human-powered truth machine," the OO is adaptable enough to navigate ambiguity, thereby broadening the design possibilities within the web3 framework.

The big picture: potential.

ChainLink has already proven to the crypto community that it is a strong Oracle, battle-tested during the recent crypto winter, and hardened as such. It is by far the biggest project by market capitalization and has just broken out above the very symbolic $10,124,357,053 valuation. Chainlink, developed by Sergey Nazarov, came into existence in 2014, but it wasn't launched until December 2017. This decentralized Oracle network was constructed atop Ethereum, a decentralized software platform, and officially became operational in May 2019. ChainLink tops all the boxes: Ethereum: check, first Oracle: check, biggest by market cap: check.

  • Coin Gecko Ranking: 13
  • Market Cap: $10,564,529,288

Pyth Network would be my second choice. However, since ChainLink already reached a $10 billion market cap, there might be more upside potential for a project, initially launched on Solana, the fastest altcoin during the start (relief rally: 10x) of this bull market. So what is Pyth? Pyth Network is a protocol that aggregates real-time market data from various sources and delivers it to smart contracts across 40+ blockchains. It has it is used by over 250 applications to secure $100 billion in trading volume. Pyth Network is powered by some of the world’s largest exchanges, market makers, and financial services providers who contribute their price data for use by smart contracts. Pyth Network uses an Optimistic Oracle, which means that the data is assumed to be correct unless someone challenges it. Pyth Network also allows users to pull the latest price onto their blockchain when needed. Pyth Network aims to make global markets universally fair, accessible, secure, and decentralized. The token seems to be in its price discovery stage after the initial dump immediately following the token launch. I expect some strong upward momentum this year. Expect Pyth to enter the top 40 coins.

  • Coin Gecko Ranking: 96
  • Market Cap: $763,263,482

UMA is an acronym for Universal Market Access, a project that aims to create a decentralized Oracle system that can bring any kind of data on-chain. UMA uses an Optimistic Oracle, which means that the data is assumed to be correct unless someone challenges it. UMA’s Oracle can be used for various purposes, such as creating synthetic assets, insurance products, KPI options, and more. UMA also has a token, also called UMA, that is used for governance and dispute resolution. UMA is one of the leading projects in the Oracle space, with a vision of making global markets universally fair, accessible, secure, and decentralized.

  • Coin Gecko Ranking: 166
  • Market Cap: $347,412,324

The other top 10 Oracles are:

  • API3: Ranking: 192, Market Cap.: $339,276,075;
  • Tellor Tributes: Ranking: 183, Market Cap.: $289,072,609;
  • Band Protocol: Ranking: 205, Market Cap.: $248,431,953;
  • iExec RLC: Ranking: 265, Market Cap.: $174,465,590;
  • Oraichain: Ranking: 340, Market Cap.: $103,708,083;
  • WINkLink: Ranking: 386, Market Cap.: $91,052,976;
  • XYO Network: Ranking: 450, Market Cap.: $74,064,518.

What is an Optimistic Price Oracle (OO)?

An Optimistic Price Oracle is a specialized Oracle for smart contracts, offering real-world data like asset prices. In contrast to traditional Oracles employing multiple validators for accuracy, the Optimistic Oracle assumes data correctness unless challenged. In case of a dispute, it relies on mechanisms like token holder votes to establish accurate information. This approach minimizes data delivery costs and latency, ensuring both security and reliability.

Personal opinion:

I expect ChainkLink to have positive price momentum if a spot Ethereum ETF hype is imminent, however, this can not be taken for granted. If so, Pyth Network and UMA will be the two best Oracle candidates for higher returns than ChainLink given its $10 billion market cap. There's just too much fat on the bone there. This is by far no investment advice, it is research that I do, and it is a hobby. Do not make any investment decisions based on my writing.

 

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