Chainlink co-founder Sergey Nazarov believes that increasing the decentralization and scalability of Oracle technologies is key to ensuring trust in the DeFi ecosystem.
Oracles play a key role in the proper functioning of DeFI protocols by connecting them to real-world data.
However, the reliability of oracles is compromised in cases where they depend on one data source to retrieve information. For example, according to Nazarov, overly centralized oracles enabled five recent flash attacks, causing DeFi protocols to lose about $ 40 million.
Flash loans, a form of loans that do not require collateral, can be used to manipulate the price of an asset and steal money from a DeFi protocol.
‘You don’t want to trade once [as a price discovery source] and hope for the best, because if that one exchange is sparsely traded or if someone gets a flash loan, (…) then you’re in a position where someone checks the outcomes in your DeFi protocol ”.
According to Nazarov, the only way to prevent such attacks is to make the protocol’s price discovery mechanism dependent on multiple data sources. Therefore, Chainlink focuses on building decentralized oracle networks.
“We source data from many different data providers that connect us to hundreds of exchanges and so Chainlink, where the volume shifts, can accurately reflect the correct global price,” he said.
According to Nazarov, a functioning oracle network should be able to scale accordingly by the size of the value locked in the DeFi protocol.
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