Blockchain is revolutionizing the finance sector by cutting out the need for intermediaries and bringing transparency to space. However, this technology is not without its issues.
One such limitation is that blockchain networks are closed systems. Much like a computer that has not been connected to the internet, a blockchain is also an isolated system. This means smart contracts can’t access information stored outside the blockchain network. The solution to this problem is oracles.
Blockchain oracles offer a decentralized and secure way to bring external data onto the blockchain, making it available to smart contracts and other decentralized applications (dApps).
Over the past few years, several blockchain oracle projects have entered the market. In fact, the combined market cap of these oracle tokens is $4.3 billion, according to CoinMarketCap.
Today, we’ll look at some prominent Oracle projects, their price performance, and how they are helping the market. But first, let’s understand what exactly an Oracle is.
What is an Oracle?
Oracles are data feeds that bring data from off-chain sources and put it on-chain for smart contracts running on the blockchain. They source, verify, and transmit external information to smart contracts.
In addition to broadcasting off-chain data on the blockchain, oracles can also get information from the blockchain to external systems.
By doing this, oracles provide smart contracts the ability to execute using off-chain data inputs, which creates more value for dApps. This data from the outside world could be the daily temperature, stock prices, or the number of votes a political candidate received.
Oracles basically act as a bridge between smart contracts and off-chain data providers. There are various kinds of oracles that differ based on the source of data, trust models, and system architecture.
But this also means having a third party in the middle. Moreover, trusting a data source can lead to inaccurate data or the data feed getting hacked. However, smart contracts that aren’t dependent on oracles do not have this problem. Decentralized oracles are the solution to this.
Oracles are used by smart contract developers to build advanced dApps. Some of its potential use cases are:
– Decentralized Finance: DeFi ecosystem utilizes oracles to access financial data about assets and markets. For example, DEXs that use AMMs (automated market makers) instead of order books use price oracles to improve capital efficiency by concentrating liquidity at current market prices.
– NFTs and Gaming: Dynamic NFTs, which can change in appearance or value based on external events like the time of day, can be created using oracles. On-chain gaming applications can also use verifiable randomness to create more engaging and unpredictable gameplay experiences.
Other fields where oracles can be used include insurance, virtual economies, voting systems, supply chain management, digital identity verification, data provenance, auditing, identity and access management, and sustainability.
Now, let’s take a look at the most prominent Oracle projects in the market:
Chainlink (LINK)
Founded in 2017 by software engineer Steve Ellis and entrepreneur Sergey Nazrov, Chainlink is the biggest oracle project in the market. It aims to serve as a middleware between smart contracts on smart contracting platforms and external data sources, allowing smart contracts to securely access off-chain data feeds.
Built on the Ethereum blockchain, Chainlink doesn’t work solely within another blockchain, rather, it runs simultaneously on many different blockchains.
As per its whitepaper, the platform is built on decentralized oracle networks, or DONs, which is a Chainlink network maintained by a committee of nodes and performs functions as it decides. DONs aims to enhance and expand the capabilities of smart contracts by providing security to networking, storage, and processing.
Chainlink uses a type of proof-of-stake (PoS) consensus protocol where participants have to run their own nodes and are required to provide data to smart contracts in order to receive LINK tokens as a reward. So, one can’t simply deposit tokens and earn interest.
LINK is the native cryptocurrency of Chainlink. With a market cap of $3.32 billion, LINK is the largest Oracle token and the 22nd largest crypto asset in the overall market.
The token provides the main incentive mechanism for users to participate in Chainlink’s decentralized network of oracles. LINK is not only used as a means of payment but also as a work token. This means it is used for the exchange of data services and distributed as a reward to node operators for validating the network.
The project raised $32 million in an ICO in Sept. 2017 by selling about 35% to the public at a price of $0.09 – $0.11. LINK has a maximum total supply of 1 billion tokens, and 30% of it was allocated to the founding team, while the remaining LINKs tokens (35%) were set aside for its token reward system.
In 2019, the project announced a flurry of new partnerships with the likes of Google Cloud, Reserve, and Polygon Network that saw its price soaring to $5. The next year, the price surged above the $20 mark for the first time after it announced another round of partnerships in August 2020.
During the bull market of 2021, LINK price hit a peak of $52.7 but has lost 87.8% of its value since then. At the time of writing, LINK was exchanging hands at $6.40 while managing $112.48 million in 24-hour trading volume. In 2023 so far, LINK has seen an increase of 14.55%.
Click here to learn all about investing in Chainlink (LINK).
Band Protocol (BAND)
The second most popular and largest Oracle project is Band Protocol, a decentralized cross-chain data Oracle platform. The protocol aggregates and connects real-world data and APIs to smart contracts. Its mission is to bring external data sourced through traditional web APIs onto blockchains.
The protocol runs on BandChain, a blockchain built using the Cosmos SDK, a network that allows sharing of data between different blockchains. This means Band Protocol allows for interoperability between the traditional web and smart contracts.
Band was founded in 2017 by Soravis Srinawakoon, Sorawit Suriyakarn, and Paul Nattapatsiri, who are serving as CEO, CTO, and CPO, respectively. Then in June 2020, the public mainnet of the protocol’s blockchain in the Cosmos called BandChain was officially launched.
The same year, in Dec., the protocol also became the first blockchain firm to join the nonprofit OpenAPI, which is behind ChatGPT, alongside tech giants such as Microsoft, Google, IBM, and eBay.
In the mid of 2021, the team released version 2 of BandChain, which allows data providers to run nodes themselves rather than having intermediaries acquire the data.
BandChain is custom-built for Oracle computations, including data sourcing, aggregation, and settlement. The blockchain uses BAND tokens to secure its decentralized oracle network through the PoS method.
Validators stake the network’s native token, BAND, to fulfill data requests, secure the network, earn a portion of the fees generated by the protocol, and earn block rewards. A person is chosen to validate block transactions based on how many BAND tokens one holds.
The way it works is every data request made on BandChain requires BAND tokens to be paid in transaction fees. Meanwhile, validators and delegators earn a fee for producing blocks and fulfilling these requests. This ensures that all network stakeholders, including data requestors, validators, and BAND token holders, are economically aligned.
So, the more usage on BandChain, the more fees are accrued by validators and token holders, creating a positive feedback loop enhancing demand and security for BAND.
BAND is a $178.6 million market cap token trading at $6.43 while managing $6.6 million in 24-hour trading volume.
The token was released via an Initial Exchange Offering (IEO) in the fall of 2019, during which 27.37% of the total supply of BAND tokens was sold for $0.473 per token to the public. Its other holders include private investors, advisors, the Band Protocol Foundation, and the Band Protocol ecosystem.
In Sept. 2019, the BAND token made its debut and started trading at $0.64 per token. The token then went on to hit its all-time high (ATH) in April 2021 at about $23 but experienced a drawdown in May and June amidst a broader market sell-off. Then during the second half of the 2021 bear market, BAND’s price continued to trade between $5 and $10 per coin. BAND is currently down 93.7% from its ATH.
While the crypto market experienced a recovery in 2023, much like other Oracle tokens, the price has been struggling this year and is only up a mere 1.25% year-to-date (YTD).
The project has the strong backing of investors, having received funding from venture capital firm Sequoia Capital and the largest crypto exchange Binance, as well as Spartan Group, Dunamu & Partners, Alphain Ventures, SeaX, and Woodstock.
Another prominent oracle project is UMA, which is an optimistic oracle (OO) that can record information onto a blockchain. UMA’s oracle secures a diverse ecosystem of Web3 applications, including prediction markets, cross-chain bridges, and customizable DAO tooling products.
Its native token UMA is a $138.3 million market cap token trading at $1.94. Down 11% in the past two weeks, UMA’s price managed to rally 28.51% YTD. However, it has lost 95.34% of its value since achieving its ATH of $41.56 in Feb. 2021.
Yet another popular Oracle project is iExec RLC (RLC), a network that provides computational resources to dApps. The network includes Desktop Grid computing, which is also known as “volunteer computing.” Here any unused computational resources can be used by platforms and applications alike.
RLC token is used as the medium of exchange for computational resources. Up 30.17% YTD and 72% in the past year, RLC is currently trading at $1.53 and down over 90% from its $15.51 peak in May 2021.
Overall, oracle tokens are struggling, much like the broad crypto market. But with the technology evolving, oracles are able to enable a more secure and seamless connection between crypto and real life, promising an open and easy-to-navigate digital world.
Click here to learn all about investing in Band Protocol (BAND).
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