Uniswap’s UNI should become an oracle, says Vitalik Buterin

The creator of Ethereum, Vitalik Buterin, has suggested that Uniswap’s UNI should become an oracle for a successful DeFi (decentralized finance) ecosystem.

Posted the proposal on Tuesday on Uniswap’s governance forum, Buterin said several areas of DeFi, including algorithmic stable coins like DAI, synthetic assets and secured loans, should depend on a pricing oracle and Uniswap and UNI should step in to provide such an oracle .

Price oracles are data feeds that connect Ethereum to real-world information outside the chain so that data can be incorporated into smart contracts. Data is required for the DeFi protocols to function properly. For example, prediction platforms can run a market that prompts users to bet on the next president of the United States. You will need an oracle to confirm the result and pay out to the winners.

Chainlink is currently the most famous oracle on the market. Buterin said Chainlink was “great” but there is room for an alternative solution.

For example, Chainlink’s incentives aren’t as clean as they are in Augur, a decentralized oracle, Buterin said. In particular, Chainlink has no automated mechanism that would penalize participants who provide incorrect data, he said.

So Buterin suggested that Uniswap model its oracle using the Augur or UMA design to get more robust data.

Overall, it appears “desirable to complement Chainlink with a more minimalist alternative that focuses more on optimizing incentives and maximizing attack costs,” said Buterin.

Why UNI would be a suitable symbol

According to Buterin, because of its large market capitalization, UNI is in an “excellent position” to be a sign of a decentralized oracle.

A decentralized oracle must be based on a token with a large market cap, Buterin said, as that would make attacks more expensive. Simply put, when a token’s market cap is high it becomes extremely difficult to get the required amount of tokens to launch an attack. UNI’s current market cap is nearly $ 22 billion, according to CoinGecko.

“The efficiency of an oracle is not important,” said Buterin. “An inefficient oracle can always be complemented by a game in which one party claims value, and only if another party disagrees is the oracle actually named.” Attack cost, on the other hand, “is essential to maximize it, and therefore market cap is critical,” he said.

Overall, according to Buterin, the move would also benefit Uniswap.

“Uniswap benefits greatly from the existence of a more robust stablecoin ecosystem,” he said. “Uniswap v3 is heavily optimized for extremely high capital efficiency for stablecoin <-> Stablecoin trades and is likely to generate very high fee income from these trades. “

“If we see high volume and resilient synthetic assets also emerging in the chain, it will be even more valuable to Uniswap,” concluded Buterin.

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