Analysis on the Application and Prospects of the Oracle Industry

Finance is always one of the most practical application scenarios, and there is no exception in the blockchain industry.

DeFi (Decentralized Finance) is a representative of blockchain finance that mainly refers to decentralized lending, that is, digital currency users can mortgage their digital currency to the DeFi platform to obtain interest, and they can also borrow from the DeFi platform. DeFi is one of the few popular projects in recent years.

When the public chain is still competing with each other in the traditional market, DeFi has already marched marched into the vast potential market. Recently, the scale of DeFi lock up has continued to rise, reaching approximately US$1.23 billion, and the competitiveness has gradually concentrated. According to relevant data, the number of ETH lock up is approximately 3.54 million, accounting for 3.2% of its total supply; while the number of EOS lock up is approximately 82.61 million, accounting for 8.11% of its total supply. In the lock up market, the lock up scale of Maker is approximately US$450 million, with a market share of 37%, which it’s the highest market share rate. The lock up scale of EOS REX comes next with approximately US$230 million, with a market share of 19%; while the lock up scale of Edgeware is approximately US$150 million, with a market share 13%. The other platforms take up the market share of 32%, with the lock up scale of US$390 million.

The development of DeFi is rapid, and the public has paid an increasing attention to DeFi. The internal reason is the rise of financial services with digital currency as the main body with self-controlled private keys, which is also an embodiment of the diverse application ecology. Among them, Oracle plays an indispensable role in DeFi.

In 1939, Alan Turing, the father of computer, put forward the concept of Oracles and hypercomputation in his doctoral dissertation. Oracle machine is more powerful than the Turing machine and can answer some questions that cannot be solved by calculation. Oracle machine is more like a data-based derivation, for example, it can predict questions such as “who will win the presidential election in the future".

As the blockchain technology has entered the era of smart contracts, Oracles also ushered in new opportunities. Blockchain network cannot independently collect external information, and the oracle mechanism is the mechanism by which information outside the blockchain is written into the blockchain, making oracle become the interactive interface between blockchain smart contract and the external world. With Oracles, real-world data can be found and verified, and later be submitted to smart contract in an encrypted manner. Oracle allows certain smart contracts to react to the uncertain external world, and can be simply understood as a pre-processor for external data or a third-party data agent.

Due to the differences in the technologies used by different Oracles, the classification standards vary. Among them, Random Oracle represented by Themis is a rising star with a broader application potential and market prospects from the perspective of technical characteristics and product advantages.

Can Random Oracle Lead the Trend?

With the rapid development of the DeFi industry, Oracle has attracted great interest and popularity. On July 13, the price of Token LINK of the Oracle project ChainLINK reached over US$8, with a 24-hour increase rate of over 30%. Since March 12, the price of Token LINK has increased by over 400%, and its market value has surpassed EOS.

The boom of LINK is inseparable from the prosperity of the DeFi industry. The total market value of DeFi has risen from less than US$10 to US$8 billion in 60 days. Although the rise is partly due to the COVID epidemic and the weakening global economic situation, it is certain that DeFi has come to its time, and the industry explosion of oracle, the core of DeFi, is inevitable.

It is worth mentioning that Oracle has a far greater potential. In addition to DeFi, Oracle can be applied in many other practical scenarios where blockchain applications need to interact with off-chain data. Base on the difference of Oracle project technology, the application prospect of Random Oracle is the most promising.

The traditional random number generation method is centralized, and the specific value of the random number is related to the physical state of the specific machine. The random number on the blockchain needs to be distributed, yet VRF requires randomness, making the two hard to integrate. To solve this problem, Random Oracle came into being.

In addition to the combination of mainstream public chains, DeFi and Random Oracles, Themis mainly focuses on random number oracle, in-chain asset price oracle, computational oracle and other application scenes, including letting cryptocurrency be precisely linked to legal tender; pricing a package of tokenized assets or securities; incorporating interest rates into smart financial derivative contracts; event trigger based on precise SI (International System of Units) time measurement; working as a weather forecast based insurance fee calculator; predicting market trends and sports betting-related contracts; interoperable functions; gas price predictors etc.

In the market of finance, insurance, betting, and the Internet of Things etc that concerns trillions of dollars, Themis can play an important role.

Insurance: Users purchase aviation delay insurance, crop insurance and other insurance on the insurance platform and Themis can introduce external data sources for such events, so that smart contracts can make decisions about whether to settle insurance products according to the agreement.

Gambling: Ensure the fairness, real-time and safe payment of the games through smart contracts, which is more of advantages compared with traditional centralized casinos. The most important thing for non-centralized casino applications is the unpredictable and verifiable random number input. In this field, Themis is highly integrated with the application scenarios.

Internet of Things: A blockchain-based Internet of Things application can transmit off-chain sensor information to the blockchain through Themis, allowing the smart contract to trigger the next action after verification.

Financial lending: Financial lending allows users to mortgage crypto assets to borrow fiat currency or other encrypted assets. The platform can use Themis to monitor the margin ratio of the collateral, and will issue a warning and trigger the liquidation process when the margin is insufficient. At the same time, Themis can import the credit rating of the borrowers to the system to determine the corresponding loan interest rate.

In all, it is obvious that with the maturity of the technology and products in the field of Random Oracles and the full opening of the commercial market, Themis will achieve a rapid development, and its business layout is expected to grow exponentially.

How Can a Project Stand out in the Competitive Oracle Market?

At present, of all the oracle projects in the market, ChainLink, Oraclize, Themis, DOS Network, and OracleChain are the more mainstream ones.

ChainLink is committed to building a highly reliable distributed oracle network; Oraclize is a centralized oracle with proof of authenticity and it currently supports multiple platforms such as Ethereum, Rootstock, R3 Corda, Hyperledger Fabric and EOS; OracleChain is a decentralized oracle platform based on the EOS platform for the EOS ecosystem; while DOS Network is a decentralized oracle service network that supports multiple mainstream public chains. Unlike all the above projects, Themis is one of the few oracle service networks based on Random Oracles.

In terms of technical implementation, the design of the oracle in practical applications always focuses on three elements: Integrity, Confidentiality, and Availability. Integrity means that the information is complete, accurate and reliable, and has not been destroyed or tampered with intentionally or unintentionally. Confidentiality means that the content requested by the smart contract from the oracle machine will not be leaked. Availability means that when data is retrieved through the oracle, the required information can be obtained in time, including the realization of censorship-resistance.

In general, in order to take into account of all the above three elements, each oracle project adopts different technical implementation strategies. ChainLink's plan is to combine reputation contracts, order matching contracts and aggregation contracts; DOS Network uses verifiable random equations and threshold passwords; while Themis introduced verifiable random function (VRF).

Technology is to serve different scenarios. As we can see in the market, most of the current mainstream public chain projects have adopted the technical solution strategy of PoS+BFT+VRF. The expansion of the public chain has reached the bottleneck, and DeFi has greatly helped public chain keep its vitality and maintain the flow of funds.

With the further opening of the DeFi market, the demand for Oracles in the financial, gambling, and Internet of Things markets will continue to increase. Making good use of Verifiable Random Function (VRF), Themis can integrate better with the technical equipment and engineering implementation, and meet most of the mainstream commercial needs. It is expected that the Random Oracle represented by Themis will welcome its boom in the near future.