Oracles have become the Achilles Heel of DeFi – their failures represent the root cause of most hacks. Despite the critical role that the oracle layer plays, innovation within the space has alarmingly lagged behind the broader DeFi ecosystem’s meteoric growth since blockchain’s inception.
While oracles remain a lesser-known and understood tool, they are an integral part of DeFi infrastructure. To realize blockchain’s original vision of decentralization and transparency, we must prioritise oracle innovation.
Chronicle, the oracle that has secured $10B for MakerDAO, and secures DAI too, has taken up this mantle to provide:
More Security: Where other oracles operate with limited validators to save on cost, Chronicle provides the most reliable and secure data due to its infinitely scalable set of trusted validators.
More Transparency: The Chronicle provides a public dashboard of validator activity, bringing full data transparency.
More Resilience: By building natively on chains, Chronicle address the weakness of the wormhole model of other Oracles, providing protection against hacks.
Lower Cost: Chronicle has been able to eliminate the security vs cost trade-off faced by other oracles and lower costs by up to 80% vs Chainlink and 60% vs Pyth.
Nik Kunkel, the founder of Chronicle, has shared key insights with CI. Nik has explained how Chronicle is focused on raising the industry standard to make decentralization and transparency in DeFi a reality.
Our conversation with Nik Kunkel is shared below.
Crowdfund Insider: What encouraged your involvement in the oracle/and or DeFi industry?
Nik Kunkel: The vision of decentralization and transparency that DeFi promises has yet to be realized. After securing $20+ billion in assets for MakerDAO and DAI, I saw a need to expand Chronicle’s solutions beyond the MakerDAO ecosystem and deliver improved security, transparency, resilience, and cost-effectiveness across DeFi. Without these improvements, oracles will continue to be the Achilles Heel of DeFi – a single point of failure for the projects they support.
Without the innovations that Chronicle has delivered, DeFi will remain subject to hacks and technical inefficiencies that slow its adoption, preventing the Web3 community from enjoying the benefits it can provide.
Crowdfund Insider: There are concerns about the balance between decentralization and performance efficiency in oracle services, how do you think this can be managed, and how is Chronicle solving this?
Nik Kunkel: Oracles have historically faced a trade-off between cost and security. To remain cheap to operate, oracles compromised on security and decentralization by limiting the number of signers or data validators. To operate as highly secure and decentralized, there was a high gas cost to updating oracles. The latter was due to the use of the Elliptical Curve Digital Signature Algorithm (ECDSA), characterized by a linear relationship between signer and signature, meaning that increasing the number of signers resulted in a larger data package and correspondingly, a higher cost to post the oracle update on chain.
Chronicle is addressing this issue with Scribe, a novel oracle architecture that solves the trade-off between decentralization and cost by utilizing Schnorr Signature cryptography. Schnorr is able to aggregate signatures from a scalable set of data validators into a ‘super signature’ which can then be authenticated with ECDSA. This means that Chronicle is able to provide decentralization through a scalable set of data validators, increased security, and nearly constant prices on L1 and L2 protocols – representing prices as much as 80% lower than Chainlink and 60% lower than other competing oracle networks.
Crowdfund Insider: How does Chronicle ensure transparency and trust within the network for the wider community?
Nik Kunkel: As stated above, transparency is one of the core tenets of DeFi, yet there is often a lack of transparency in infrastructure components such as oracles. For example, all other mainstream oracle protocols do not permit users to view where the data is sourced. They are simply expected to blindly trust the oracle.
Chronicle addresses this with its on-chain data dashboard, The Chronicle, which allows any user to verify for themselves all data points provided by the protocol down to the exact prices that particular price feed oracles have used to calculate the reported aggregate value. The Chronicle raises the industry standard for transparency, delivering on one of DeFi’s core values.
Crowdfund Insider: In what ways do you envision Chronicle elevating the industry standard to enable decentralization and transparency in DeFi becoming a reality?
Nik Kunkel: As discussed above, Chronicle addresses decentralization through the use of the Schnorr Signature algorithm, which allows for a scalable validator set. And it addresses the issue of transparency through The Chronicle, making source data and validator identities fully accessible to every user.
Addressing these two issues will drive DeFi adoption by delivering on the core values of blockchain for a crypto-native audience and building trust with non-crypto-native audiences by protecting against hacks and offering full transparency of the inner workings of the data protocol.
Crowdfund Insider: Are there any industries or sectors that you see as particularly benefiting from oracle services?
Nik Kunkel: Oracles enable any use case that requires off-chain information. While they are currently known for providing price feeds, they also underpin the value of smart contracts and real-world assets (RWAs).
Oracles are the key to unlocking the benefits of lower transaction costs. For example, oracles could be used in the sale of property by verifying all the conditional information that a smart contract is dependent on, such as property details and proof of funds. If the conditions of the contract are met by the data the oracle has provided, the smart contract is executed and the oracle can update public records to reflect the sale. In this example, oracles eliminate the need for expensive intermediaries that are typically involved with such transactions.
Outside of DeFi, oracles also enable fun use cases such as dynamic NFTs, which could change in value or appearance based on real-world events verified by an oracle, or delivering verifiable randomness to power on-chain games and casinos.
Crowdfund Insider: What role do you see oracles playing in the mass adoption of Web3?
Nik Kunkel: Oracles will be crucial to the mass adoption of Web3 by building trust with non-crypto-native users. Currently, there is a lack of trust with these potential users due to the perceived complexity of Web3 and blockchain products and high-profile security failures. Chronicle hopes to address the latter.
Oracle failures are the root cause of most DeFi hacks. Due to a lack of innovation, some oracle networks still operate using bridges rather than deploying natively on the destination chain. This creates a massive risk: when the bridge fails due to a technological problem or a hack, the dApps that rely on the data provided by the oracles also go down.
By building natively on chains, Chronicle has undergone the innovation necessary to raise the standard for oracle security and data availability. By removing a key vulnerability, Chronicle will help build trust in DeFi products leading to wider adoption.
Crowdfund Insider: What is the future of blockchain oracles? What might we expect to see in the coming years?
Nik Kunkel: Blockchain oracles will remain an integral part of DeFi infrastructure. However, it is critical that decision-makers in the ecosystem understand the importance of picking the right oracle network to power their protocols. Choosing the right oracle is a crucial risk management decision, and will determine the long-term success of DeFi projects.
I hope to see a wider understanding of two things in particular. First, how in their current state, other competitors are failing to deliver on blockchain’s vision of decentralization and transparency. This should be a red flag to crypto natives who understand the importance of these aspirations.
Second, I hope to see decision-makers evolve in their understanding of the trade-offs they are currently facing from other oracles: low cost but low security vs high cost but high security. For the first time, Chronicle unlocks the fabled low-cost, high-security option. My hope is that developers gain an understanding of this innovation to absolve DeFi of the trade-off nobody wanted to make and provide a foundation for the long-term success of truly decentralized finance.
