A follow-up on smart contract
What are Decentralized Oracle Nodes?
Decentralized Oracle Nodes are designed to enhance & extend the capabilities of smart contracts on a target blockchain/mainchain
A DON aims to offer these resources with strong confidentiality, integrity, and accountability
DONs are formed by a committee of oracle nodes that cooperate to fulfill specific jobs and choose to establish a long-life relationship to provide persistent services to clients.
With the DONs application, developers can create efficient off-chain data for their smart contract
The role DONs in Defi
To have a perfect understanding of the role DONs play in Defi, we will have to explore a major use case which is Data feeds.
- DATA FEEDS: Price feeds are feeds reporting prices or asset- cryptocurrency, commodities, forex, indexes, equities, etc.
According to their exchange or data aggregation services such as feeds, today help us secure billions of dollars in on-chain value through the use of Defi systems.
A Defi protocol that uses DONs and example
MONEY MARKET: A money market can be best described as a kind of market where companies and government meet their short-term borrowing needs.
In staying with Defi, when we talk about the money market we are talking about the act of lending and borrowing a digital asset.
Now let's take a good example at one of the most prominent money market products in Defi- @Aave
@Aave is a decentralized non-custodian liquidity market pool where the users can participate as suppliers or borrowers. Suppliers provide liquidity to the market to earn a passive income, while borrowers can borrow in an overcollateralized (perpetually) or undercollateralized (one-block liquidity) fashion.
What we want to focus on is the modus operandi of how @Aave can achieve the the below functions as a non-custodian product.
Before @Aave can achieve(these functions); the value of users' debt and collateral to aid in preventing toxic loans from being opened or automate liquidation & prevent undercollaterization OR use proof of reserve to audit tokens backed by off-chain assets in protecting users from fractional reserve activities
For easy implementation of all of the above by the smart contract of @Aave, it will have to find a way of sourcing for off-chain data that helps in triggering all of these efficiently.
This is what happens;
- First, Raw data is pulled from centralized and decentralized exchanges like @Binance, @coinbase, @ftx, @Uniswap, @Shushiswap
- Then it's aggregated at the DONs level before it is revealed to the smart contract for execution.
A simple and good Oracle that can make all of the above work is @Chainlink
With all of these in place, @Aave can execute most of its smart contract functions effectively, just with the use of a decentralized Oracle.
We’ll continue from here in our next post
