The Advantages and Challenges of Building a Decentralized Cross-Chain Oracle Solution Using Uniswap

In the presentation below, Weißer Hase, Technical Lead at DeFi Wonderland, presented on the advantages and challenges of designing a cross-chain oracle solution using Uniswap V3.

Below is a glossary of key concepts mentioned during Weißer’s talk, intended as a supplement to his video presentation.

What Is Defi Wonderland?

DeFi Wonderland is a community of developers, researchers, investors, and other DeFi enthusiasts with the collective mission of fostering a decentralized and open financial landscape. The team works with prominent DeFi protocols such as Optimism, Reflexer, and Connext to push the boundaries of innovation in the DeFi space.

The Keep3r Network

The Keep3r network is a decentralized multi-chain job-matching protocol that connects projects that require external development services to individuals or teams, referred to as keepers, that can perform those services. It allows projects to outsource operations or computations like price feed monitoring, smart contract upgrades, liquidation assistance, etc., to external parties securely and efficiently.

Keepers must hold a minimum amount of KEEP tokens which are held as collateral and may be slashed if the individual acts maliciously. Each time keepers perform a job, they are rewarded in either ETH, tokens or the native token, $KP3R.

Cross-Chain Oracles

Cross-chain oracles are a type of oracle system that facilitates communication and data exchange between different blockchain networks. They serve as trusted intermediaries that foster interoperability by moving both data and assets between chains and monitoring the activities of various blockchains to report their conditions to other chains.

Implementing secure cross-chain oracles can be a challenging task but projects like Chainlink and Band Protocol, among others, are working on such solutions to meet the growing demand for interoperability as the DeFi ecosystem expands.

Liquidity Fragmentation

Liquidity fragmentation refers to the phenomenon where the liquidity of a particular asset or trading pair is spread out across multiple decentralized exchanges (DEXs) or liquidity pools instead of being concentrated in a single platform.

Liquidity fragmentation can reduce trading efficiency as it becomes more difficult to find a single liquidity pool with enough assets for substantial orders. Furthermore, it can lead to price discrepancies, interoperability challenges, and may expose DEXs to frontrunning, flash loan attacks, and price feed manipulation.

Ticks

A tick is a price level at which liquidity is provided, and each tick represents a specific price ratio between two assets in the trading pair. For example, if the trading pair is ETH/USDC, a tick might represent the price of 1 ETH in terms of USDC.

By providing liquidity at specific tick levels, liquidity providers facilitate trades between the two assets within the defined price boundaries.

Time Weighed Average Price (TWAP)

TWAP is a price-averaging method that reduces price volatility by calculating the average price of an asset over a set period. This is preferable to the spot price which represents the immediate value of an asset in the market and is vulnerable to flash loan attacks or price feed manipulation techniques.

TWAP is obtained by choosing a price point interval, e.g., 15s, summing the price points at those intervals, e.g., $20 at 0s, $22 at 15s, $18 at 30s, and then dividing that sum by the number of time points. For instance, the TWAP calculated from the examples would be $20.

Learn more about DeFi Wonderland:

Wonderland Website
Wonderland GitHub
Wonderland Twitter
Weißer Hase Twitter

The Blockchain Oracle Summit is the world’s only technical summit that dives deep into the use cases, limitations, and impacts of oracles on the wider blockchain ecosystem.

Leading speakers worldwide gathered in Paris to share their work and experience building and using Oracle solutions. Article by Michael Abiodun.