San Francisco-based crypto asset exchange Coinbase has introduced its own price oracle in order to further enhance the resiliency of the price feed process.
An oracle is a price feed offered by a third-party. It provides real-world financial data to a decentralized network. Nearly all decentralized finance (DeFi) platforms depend on price oracles to provide services such as margin trading, derivatives trading, and lending.
DeFi protocols developed by the Uniswap team and Kyber Network have oracles that are frequently used when conducting trades.
But this price feed process is maintained or managed by a centralized entity. There’s also a certain level of risk involved when using this process, because the associated smart contracts are unable to verify whether the data being shared is accurate.
bZx, a DeFi lending protocol that uses Kyber Network’s price feed, recently experienced an oracle attack which led to the loss of 2,388 ETH, an amount valued at around $450,000 at current prices.
Coinbase’s management noted on April 23, 2020 that the exchange officially launched the Coinbase Oracle, a signed price feed allowing users to provide price data on-chain. The data comes from the Coinbase Pro API and is updated after every minute.
Users may use the Coinbase Oracle API to get signed price data for BTC-USD and ETH-USD trading pairs.
Obtaining data from an off-chain source such as a digital currency exchange normally requires traders to “trust” that the data provider is sharing the right or accurate prices. Users also have to trust that the signing key has not been compromised. But this is usually a challenging problem, “especially when stakes are high.”
When using the Coinbase Oracle, the data has been signed by the exchange’s private key, so traders are not required to trust the publisher of the data. The oracle uses the same key security methods as Coinbase itself, and everyone can check the accuracy of the data with the Coinbase Price Oracle public key. The oracle comes with a filtering feature that identifies and discards data points that are different from crypto asset’s expected volatility levels or most recently quoted price.
Uniswap Version 2, which will launch at some point later this year, is expected to make several modifications to its price feed model in order to make it too costly for hackers to manipulate or in some way compromise the oracle.