This week Maker, the team behind the popular Dai stablecoin, announced its next generation “V2” Oracles.
It’s a big development for the Ethereum DeFi ecosystem, as Maker’s first wave of Oracles — initially launched in the summer of 2017 — have come to be relied upon by an array of popular Ethereum dApps. That means V2 is set to become that much more popular.
In layman’s terms, an Oracle is a special data service that allows blockchain smart contracts to interact with off-chain, “real world” data like price feeds. Maker’s original Oracles served as a foundation for the project’s Maker CDP automated lending dApp, which has become a growing hit in the cryptoeconomy: over 50 percent of all value currently locked in dApps is locked in Maker CDPs, per DeFi Pulse.
Of course, one associated concern? Maker’s inaugural Oracles are a potential single point of failure for CDPs and other dApps. In unveiling their Oracles V2, Maker has thus pointed the way toward how to decentralize its ecosystem even further and optimize its tech “for scalability, decentralization, resiliency, latency, and cost.”
Decentralizing oracle infrastructure is critical to reducing systemic risk in the DeFi stack. The 0x Core Team is excited to support the @MakerDAO ecosystem by running an external Feed! 🔮 https://t.co/BGLHTBWmIV
— 0x (@0xProject) September 3, 2019
A Four Part Evolution
In their announcement post, Maker said four community governance proposals will be involved with bringing the Oracles V2 to fruition.
The proposals deal with the potential addition of new DeFi Partner Feeds and with developing an “Oracle Team Mandate,” an “Oracle Governance Framework,” and an “Oracles Incentive Restructuring.”
Say hello to our next generation of Oracles 😎
With the help of some of the best projects in the ecosystem, we want to make Maker Oracles the backbone of Decentralized Finance. https://t.co/V9iYESjmpC
— 👹Mariano Conti | conti.eth (@nanexcool) September 3, 2019
As for partners, Maker said it will ask MKR voters to decide whether Ethereum projects 0x, Gnosis, dydX, and Set Protocol should become new data feed providers in the V2 system. Previously, Maker has relied on 14 pseudonymous individuals for its data feeds. If voted in, these four projects could harden and decentralize the Maker system further.
“Organizations are much more resilient against coercion, have the resources to combat malicious actors, and have their reputations at stake,” the Dai creators explained.
The Oracle Team Mandate proposal will see MKR voters choosing what responsibilities a “delegated party” will have in facilitating “administration and technical development of the Oracles.” Likewise, the Oracle Governance Framework proposal will help outline “the rights and responsibilities of Maker governance with respect to Oracles.”
Lastly, the Oracles Incentive Restructuring proposal seeks to modify how Maker’s Feed Partners are compensated for their efforts.
Notably, the Oracle overhaul comes as one of the necessary steps Maker has outlined for its community’s transition to Multi-Collateral Dai (MCD), which will let users collateralize CDPs — or collateralized debt positions — with cryptocurrencies beyond just ether (ETH). Some of the inaugural tokens in the first round of MCD included 0x (ZRX), Augur (REP), and Basic Attention Token (BAT).
Going Off the Chain: Key Change Under the Hood
In new comments to The Defiant newsletter’s Camila Russo, Maker’s Oracle maestro Mariano Conti explained how the V2 system will be considerably more efficient than V1 courtesy of off-chain technology:
“In the current version for each price change, each of the feeds has to send a transaction to the blockchain, and [it] is very inefficient. In the new version, there’s an off chain network, where all these feeds communicate and there are relayers that aggregate this data and send one transaction with everyone’s prices, so it’s cheaper, more resistant, much more trustworthy, especially when the network is congested.”
When asked by Russo if these relayers will be incentivized, Conti said it will be up to MKR holders to ultimately choose how to compensate them, though a whitelisting system has been devised that could rely on Oracle subscription payments to pay relayers. For now, the Maker Foundation pays the original 14 data providers on a monthly basis.
“The foundation eventually wants to step aside,” Conti noted.