Too Long to Read: UMA’s Optimistic Oracle is now live, and Optimistic Oracle can be used to capture market data and upload all types of data to the chain. It can be used not only for UMA’s financial contracts, but can also be integrated within any DeFi protocol.
UMA built the so-called “Optimistic Oracle” in a low-key way. The concept is simple: anyone can post an answer on the chain, and only if the answer is wrong will someone dispute it. Integrating Optimistic Oracle does not require deploying contracts on UMA.
Optimistic Oracle operates in an optimistic manner, which means that in the vast majority of cases, you get your answer quickly. It utilizes the economic mechanisms built into the UMA system to guarantee data accuracy. Because it minimizes gas usage, Optimistic Oracle is very inexpensive to use.
In other words, Optimistic Oracle allows you to get accurate data at a very low cost.
Next, we’ll explore how Optimistic Oracle works and the best scenarios for its use in the DeFi space.
How Optimistic Oracle works
The Optimistic Oracle system has three types of participants: requesters (contracts that request price information), proposers (off-chain participants that send back price information), and disputers (off-chain participants that can dispute a price they do not agree with).
In the normal interaction model, a contract first requests price information and specifies a dispute period (which can be as short as a few minutes or as long as several days). The proponent then deposits and sends back the price information – no one disputes the price. At the end of the dispute period, the data is finalized and the proposer gets his margin back. The whole process is fast and inexpensive.
If it doesn’t go well, the disputant doesn’t agree to the proposed price. The disputant has to pay as much deposit as the proponent and submit the dispute to UMA’s Data Verification Mechanism. the UMA token holder has 48 hours to resolve the dispute. If the disputant is right, he/she receives the proposer’s deposit as a reward. If the disputant is wrong, the ta’s margin is awarded to the proposer as a penalty.
The whole system is optimistic, as it is extremely rare for disputes to arise. Over the past year (including some shock moments), UMA contracts have operated optimistically, and we have seen no more than 5 legitimate disputes. The optimistic concept has been proven in real production environments.
Optimistic Oracle has been audited by OpenZeppelin’s code over the past few months and used to protect approximately $200 million in UMA synthetic tokens. Click here to view the code. The system is now available to developers.
Application Scenarios for Optimistic Oracle
Why should DeFi developers care about Optimistic Oracle when they can use the Chainlink/Maker/Uniswap price input mechanism to get price data for most cryptographic currencies? Oracle comes in handy when other data, or ultra-accurate data, is needed. Here is a list of scenarios in which Optimistic Oracle can be used.
Options and structured products
Financial contracts with unlimited underlying
A good example is UMA’s KPI option, which may request arbitrary data in addition to cryptographic currency prices. a KPI option is a synthetic token that ties returns to a specific metric – this metric can be any variable that can be measured. While this data is not available from the chain, it can be queried via Optimistic Oracle. To date, KPI options are available for the metrics Total Lockup Value for UMA, Number of Positive Supply Adjustments for Badger’s DIGG tokens, and Aragon DAO migration. Optimistic Oracle is behind all of these KPI option contracts.
With DeFi, a powerful tool, we can write insurance contracts for any measurable activity or transaction, including real events. One limitation is how to get the data for these events, and Optimistic Oracle solves this problem. We have a big announcement to make: Opium, the financial platform where anyone can create a marketplace, has integrated Optimistic Oracle to allow DeFi developers to create insurance products based on any measurable event. Next week, we will officially announce the first product built on this system.
Options and Structured Products
Call/put options and more complex structured products are poised to become fast-growing segments within the DeFi space. Many of these products face a major challenge: their returns are heavily influenced by the price of the underlying. Since the error between the on-chain feed price and the real-time price can only be reduced to about 0.5% at best, this can cause problems. For example, if the price of a call option is $100, whether the price input mechanism is quoted at $99.50 or $100.50 on the day of expiration can have a significant impact on the option’s return. This exposes the limitations of the on-chain feed and time-weighted average price (TWAP) based methods: it is difficult to provide an extremely accurate price at a given point in time. For example, the TWAP approach sacrifices accuracy for increased security.Optimistic Oracle solves this problem: it dramatically reduces the difficulty of querying an accurate price at a specific point in time. By giving buyers and sellers confidence that they are getting an accurate settlement price, Optimistic Oracle makes more complex structured products possible.
Some of the more complex DeFi contracts began to require complex calculations to calculate returns. Many of these complex calculations could not be performed on the chain due to the complexity of the calculations and the high price of gas. One solution is to use Optimistic Oracle to perform calculations off-chain based on the “data time lock” concept. The off-chain observer can verify the results of the computation during the dispute period. In other words, the computation is performed off-chain (at a very low cost) and the validation is performed on-chain using Optimistic Oracle. This solution follows the example of Truebit (which first proposed a similar concept). We will announce more progress soon.
Financial contracts with unlimited underlying
UMA’s vision is to enable DeFi developers to build financial contracts for any underlying. This vision is only possible if these contracts can access any data (everything!) This vision can only be realized if these contracts have access to any data (everything!). And Optimistic Oracle is a key part of that. It’s hard to predict what innovations Optimistic Oracle will bring, and it’s possible to underestimate its importance. Personally, I’m excited about its future.
Optimistic Oracle is now live. Developers interested in building on top of Optimistic Oracle can read our documentation and join our discord. just before this announcement, Vitalik Buterin posted a proposal for governance using Schelling Point settlement on the Uniswap forums. We will follow up with an article that places Optimistic Oracle in the context of this proposal. Over the next few months, we’ll share more about project integration, partnerships, project progress, and more. Special thanks to the Optimism team (formerly the Plasma Group), especially Ben, Jing, and Karl, who taught us how to become more optimistic. Their optimism has inspired us.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/uma-has-gone-live-with-optimistic-oracle-how-does-it-work/
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