Having established what a blockchain oracle is, how they function and the challenges they present, we can look at some practical examples to put all of this into perspective.
DEFI (Decentralised Finance)
DEFI has emerged as one of crypto’s most significant use cases, with the market capitalisation of the biggest DEFI coins touching over $170bn at the end of 2021. DEFI allows lending and borrowing, swapping and yield generation, all of which rely on real-time price data provided by oracles.
Gambling & Prediction Markets
There are many fully decentralised sportsbooks, casinos and prediction markets, each with its own oracle needs. Sportsbook and prediction markets need results data for grading, while casinos and lotteries need provably fair random events. These can all be provided by oracle services and confirmed on-chain.
Gaming
Gaming is providing the next decentralised frontier under the banner of the Metaverse. Though these are new types of virtual games, players can own what they create. When money is on the line, players want to be sure that the game isn’t rigged, so oracles enable verifiably random game-play experiences.
NFTs
NFTs are barely a few years old but have already seen significant innovation. One example is generative art, representing a unique collaboration between an artist and an autonomous system fed with random inputs from an oracle.
NFTs can also use external data from oracles – such as the time of day or temperature – to dynamically change. A character could wear sunglasses when it is sunny or change its background to night mode.
Insurance
Though DEFI has grown at a phenomenal rate, so have hacks that drain millions of dollars of value in minutes. Smart Contract auditing is a partial solution, but like in TradFi there is a growing demand for insurance products within DEFI. For a Smart Contract to establish the appropriate premium for funds locked within a protocol or group of protocols, they need to know the value of assets set via an oracle.
Input oracles could also pull in data from hardware sources – satellites or sensors – or software sources, such as legal or public registries, to establish the basis for a claim to be triggered. The process could also happen in reverse, where a condition within a Smart Contract or across different chains could trigger external insurance payments.
Leave a Reply