Background

Why We Need Better Data Infrastructure?

About DeFi

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. It refers to transactions that cut off the middlemen involved in the legacy finance systems, including decentralized exchanging, insurance, lending, etcetera. For example, in decentralized lending, cryptocurrency users can mortgage their digital currency to the DeFi platform by providing liquidity to obtain interest, known as liquidity rewards, and they can also borrow from the DeFi platform, which is one of the few bright spots on-chain in recent years.

Yet, at the bottom of every DeFi protocol, there is a dependence on Web3 middlewares, especially Oracles, because of no oracles, no DeFi. The truth of that claim is seen when Finance is considered to be price-based transactions. We need correct prices for every trade, every position we create and liquidate, as well as collateralization. A smart contract is not smart unless it’s reliably connected to accurate data which exists off-chain. Web3 data frameworks, including oracles which are hybrid contracts that connect on-chain contracts with off-chain data querying components, become the next most critical infrastructure piece before DeFi and other next-generation dApps can grow from an experiment to compete and eat the legacy alternatives.

About Web3.0

Although the definition of web 3.0 varies from person to person, it all begins with a movement away from the centralization of services like search engines, social media, and chat applications that are dependent on a single organization to function, which can be easily abused, as countless cases demonstrate.

The internet today has been transformed into a top-down system or surveillance capitalism dominated by a few big players whose power is derived from their control over your data.

The web 3.0 initiatives advocate the possibility of data being returned to the control of the people who generate it. It is considered a move that is going to reverse the current information and social dilemmas we are faced with and create a more frictionless and humane virtual economy.

Polkadot is an open-source project led by the Web3 Foundation. It is a sharded protocol that connects different blockchain networks.

Polkadot

Polkadot consists of two parts: Relaychain and Parachain.

Relaychain: This is Polkadot's core, which is responsible for network security, consensus, and cross-chain interoperability.
Parachain: These are sovereign blockchains with custom tokens and optimized functionality for specific use cases. Parachain connection to Relaychain is priced on a pay-as-you-go basis or a continuous connectivity lease.

Substrate

Substrate comes with everything you need to build your blockchain. Use Substrate’s pallets to create what you want easily, or craft your own custom logic. Substrate makes building a blockchain far faster, easier, and safer than ever before.

Web3 Middlewares

Middlewares, fondly described as “software glue,” are computer softwares that renders supporting services to the main applications beyond those its operating system can provide.

Following the general definition given by Red Hat, an open-source software provider,

Middleware is software that provides common services and capabilities to applications outside of what’s offered by the operating system. Data management, application services, messaging, authentication, and API management are all commonly handled by middleware. Middleware helps developers build applications more efficiently. It acts like the connective tissue between applications, data, and users.

Web3’s dependency on middleware weighs heavier as it’s adopted into new spheres and penetrates mainstream adoption. Beyond the peer-to-peer payments system initially intended, the distributed ledger technology and its theme has been applied to solve a myriad of other problems, from data management and social interactions to gaming and governance. All of these have raised the need for it to depend on “tools” or infrastructures that will extend the capabilities of the technology. Distributed peer-to-peer storage networks have sprung up to handle the challenges of storage, state channels, roll-ups & L2 chains to raise scalability, oracles the off-chain data communication issues, and much more.

About Oracle

Oracle is the system that provides an out-of-chain data source for in-chain smart contracts. The word oracle comes from Greek mythology, representing the people who can communicate with gods and see the future vision. In the context of blockchain, the oracle is the system that can answer the external problems of blockchain and the bridge connecting in-chain and out-of-chain data. In ideal conditions, oracle is a free-of-trust system, which means that they do not need to be trusted as they operate according to the principle of decentralization.

There has been a wave of projects trying to solve this problem. Most of them get price feeds from external data sources such as centralized exchanges through trusted nodes. Then data is uploaded to the blockchain to be used by different DeFi protocols. There is one fundamental issue with this solution is that price data has not been effectively verified. While some other DeFi protocols get their price feeds from decentralized exchanges. The problem here is that these prices can be easily manipulated due to low transaction volumes. Blockchain-empowered smart contracts are isolated from the internet world and cannot access external data directly. Computation within the smart contract is also excessively expensive and limited by resource capacity.

The ideal oracle that works for DeFi should include the following characteristics:

Accuracy: The prices can accurately reflect market prices.
Timeliness: The prices can react quickly to the changes in market prices.
Cost of Attack: The Cost of manipulating the prices is extremely high.
Decentralization: The price is generated and verified in a decentralized and permissionless system.

Oracle should deliver data to the most:

Accuracy: Data should be more precise and less approximate.
Validity: Data should correspond to the real world
Reliability: Data should always be available
Timeliness: Data should not be out of date
Relevance: Data should be pertinent and useful
Completeness: Data should be whole and useful

About Data Infrastructure

Data Economy is a trillion-dollar business. Nevertheless, Oracle is just one part of the data infrastructure in the blockchain industry. Data is essential for the modern age. It is the infrastructure that underlies the whole economy. It underpins public service transformation, business innovation, and democratic engagement. It connects multiple sectors necessary for a functional society. Data infrastructure includes technology, processes, and organizations. Data infrastructures like our road infrastructures help you get from A to B – data and its complete infrastructure should help you get to a decision.

Unfortunately, blockchain technology, classic chains, in particular, was not conceived with the need for data in mind. It was designed and developed to be an isolated deterministic environment for secure transactions until the realization of more possibilities and use cases made it necessary. As such, it is seriously lacking data infrastructures because the industry is still in its embryonic stage, the need for data wasn’t considered at conception; making the web3 data sector even younger than the technology, and there is yet to be a standardized and adoptable protocol for data needs for all sectors thus creating some insuperable hurdles.

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Last updated 2 years ago