For the avid cryptocurrency enthusiast, the face of multiple big-cap tokens has more than tripled since November 2020, a healthy sign that a bull market cycle is underway.
Apart from a breakthrough in the price of Bitcoin (BTC), Ether (ETH) and altcoins, every bull market in the crypto sector is defined by one or two key themes that emerge as the driving force of enthusiasm in the market.
In 2016-2017, there were ICOs, the increasing popularity of collectibles like CryptoKitties and the general perception that blockchain was a solution to every problem in the world.
In 2021, it is clear that DeFi is one of the key drivers for the current bull trend in Ether price and altcoins embracing the sector. While not facing every analyst, the development of oracles is another component that is quietly building the essential infrastructure of the crypto market, and many of the projects focused on oracle integration have had their award prices have risen over the past 12 years. months.
Oracles keeps track of different forms of data, such as price and trading volume, records them and sends them securely to various blockchain networks and entities interested in the given data.
Companies like the Paxos provider of stalecoin, decentralized wallets like Uniswap and lending platforms like Maker (MKR) use oracles like Chainlink (LINK) to get accurate information related to cryptocurrency.
The need for reliable and dependable data becomes increasingly important as DeFi continues to expand and the total value locked up on many platforms reaches record highs.
DeFi hacks demonstrate the need for oracles
In 2020, several DeFi protocols were hacked, which cost investors millions of dollars because the bugs in the unaudited code enabled hackers to change their price.
These breaches reveal the most important tasks of oracle providers, which are reliable, to the second price tracking data for cryptocurrencies. The fact that this data comes from several reliable sources reduces the possibility of manipulation and mass liquidation events, such as the Harvest Finance exploitation, where hackers earned $ 24 million by stealing the price of stable coins on the Curve DAO (CRV) platform manipulate.
Making prices and data feeds universally consistent or even synchronized is one of the optimal ways to approach this issue, as each oracle is structured differently in the way it obtains data, reaching a consensus on the data and how prices are then calculated.
As the Bitcoin price continues to reach new highs, and the DeFi market value is $ 57.45 billion, mainstream investors are becoming much more interested in cryptocurrencies, and price solutions are needed.
Here are some of the best oracle focus projects that have been moving strongly over the past few months.
Chainlink has the first advantage
The best known and established oracle project is Chainlink. As a result of the 2017-2018 ICO craze, the Sergey Nazarov-led project initially raised $ 32 million to develop a decentralized oracle network consisting of node operators willing to provide smart contracts with access to external data feeds in exchange for a reward in the form of the native LINK cryptocurrency.
LINK has become synonymous with DeFi, as many of the price offerings that connect separate blockchains and decentralized exchanges use the price oracles to discover price.
Similar to the Coinbase effect, there was a period in which only the mention of the integration with Chainlink would offer a short period of price appreciation, as this is seen as a sign of legitimacy.
On March 16, 2020, shortly after the rise of COVID-19 hit the global financial markets, LINK traded as low as $ 1.63 after trading at $ 4.80 just two days earlier.
Since then, the LINKs price has risen nearly 15 times on January 23 to a new high of $ 35.69, thanks to the addition of LINK liquidity pools on Uniswap during the DeFi summer of 2020.
Band Protocol Provides Cross-Chain Data Transfers
Band Protocol (BAND) is a data oracle across the chain that was originally launched as an ERC-20 token in September 2019, but transferred to the Cosmos network in June 2020 with the release of Band 2.0.
The project specializes in merging real-time data and APIs, the Band Protocol then provides the data to chain applications and smart contracts to enable the exchange of information between on-chain and off-chain data sources.
In 2020, BAND price rose from $ 1.09 in August 2020 to a high of $ 17.51 before being corrected below $ 10. BAND is currently trading at $ 15.90 and on February 13th, the altcoin reached a high of $ 20.62.
Similar to LINK, BAND tokens are used as collateral by validators that meet data requests, and are the most important exchange medium within the BandChain ecosystem. Oracle nodes in the chain are also involved in the block production / validation process, which adds a second role to the important function of data transfer.
In terms of what distinguishes BAND from other oracle solutions, it is the choice to develop on Cosmos that has come into comparison.
Currently, the Cosmos team is developing its Inter Blockchain Communication (IBC) protocol which BAND intends to use for cross-chain data transfers that will support interoperability between blockchains.
Once the Band Protocol is developed, it can ensure reliable data feeds on multiple blockchains, while also enabling the simple creation of unauthorized oracles to enable someone to start serving data requests.
API3 brings DAO management to the oracles
One of the recent additions to the oracle game is API3, which is a DAO-controlled project focusing on the creation of fully decentralized, blockchain-native APIs (dAPI). These dAPIs collect data from first-party oracles operated by some of the world’s leading API providers, according to the API3s homepage.
API3 sees oracles as a form of middleware positioned between APIs and smart contracts, leading to increased costs and centralization. The solution to the project is to decentralize this process by enabling API providers to operate their own nodes so that smart contracts can establish a direct connection with APIs for the latest data.
Investing investors to play a role in managing blockchain projects is also one of the key topics in this current bull market, and API3 wants to capitalize on the growing trend.
API3 token combined with the API3 DAO gives token holders the ability to participate in the management of the ecosystem by inserting tokens in the data pool insurance pool. In addition to the ability to vote on proposals, strikers have access to weekly rewards.
Since the spread of public tokens in early December 2020, the price of API3 has risen 416% as it rose from $ 1.56 on December 31st to a high of $ 7.86 on February 13th.
DIA focuses on oracles for DeFi
The DIA (Decentralized Information Asset) platform, which sees itself as an “open source data and oracle platform for the DeFi ecosystem”, pulls data directly from exchange APIs and other public resources to DIA servers and collects it in a database which is then attached to the chain.
DIA data streams are available through oracles or APIs that provide access to plug-and-play with DeFi protocols and other data providers.
Eventually, the DIA token will have features that can be used to collect and value data. The overarching goal of the project is to become a reliable source of immutable and verifiable data for any market or asset linked to financial institutions.
DIA starts in early August 2020 at the end of the first DeFi bull market. DIA started fast, rising from a low of $ 0.80 to an all-time high of $ 5.13 on August 2nd.
DIA is currently trading at $ 2.79 after retreating from its $ 3.43 monthly high.
UMA uses ‘invaluable’ derivatives to make financial contracts on Ethereum
Universal Market Access (UMA), approaches the oracle issue differently from the other projects in space. Its pricing is obtained through a library of synthetic assets, with any price disputes arising from registered financial contracts handled by an optimistic oracle service known as the Data Verification Mechanism (DVM).
UMA enables users to design and create self-performing, self-sustaining financial contracts on the Ethereum blockchain that are secured by economic incentives. According to the project’s website, these ‘precious’ derivatives are ‘designed to ensure proper collateralisation by counterparties without the use of an unlimited price stream.’
When a price dispute is made by a financial contract registered on the platform, UMA token holders vote on a historic timestamp on the value of a price identifier by the DVM-optimistic oracle service. Token holders participating in the validation process receive rewards in the form of UMA tokens from the requesting party.
The UMA token is also the driving force behind the Universal Market Access Protocol, which gives token holders the right to vote on changes to the protocol’s parameters and system upgrades.
In early February, the UMA price shed a tear and rose 300% from $ 11.06 on February 1 to a new everyday high of $ 44.15 on February 4. As the UMA price reached its highest level, the UMA price sharply adjusted to $ 25 as traders discussed gains, the strong three-digit breakthrough.
Crypto investors who focus purely on profits would be wise to look beyond the price price of trading through technical analysis and to keep an eye on projects that deliver value as it is the most profitable.
Oracles are an important piece of infrastructure for the growing DeFi ecosystem and offer added value through their potential, management, liquidity potential to bring interoperability into hacked blockchain networks.
The views and opinions expressed herein are those of the author only and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading movement involves risk. You must do your own research when making a decision.