One of the most important elements for a successful DeFi ecosystem is to have a highly secure price prediction machine. Algorithmic stablecoins such as DAI, RAI, LQTY, etc., rely on this prophecy machine, and any type of synthetic asset and mortgage requires price prophecy, as do many other types of projects. In the case of the ERC-20 token, Uniswap does provide a “prophecy” for exchange-traded prices, but it is not really a prophecy in the sense that it does not provide prices for any non-crypto assets. This creates a problem in that for an algorithmic stablecoin to work properly, it needs a prophecy machine for ETH/USD prices, especially for off-chain USD fiat, not some on-chain USD instance. Similarly, synthetic assets need a prophecy machine, in order to track the prices of ETH-denominated assets.
I suggest that Uniswap and UNI tokens be able to provide such a prophecy machine, for example, mimicking the design of Augur or UMA, specifically to provide reliable price data, and that manipulating data and attacks would be extremely costly.
Key points of this paper.
- stablecoins need ETH/USD price prediction machines (see above)
- Tracking ETH/USDC prices is not a perfect method
- Chainlink is really good, but there are simple, specialized use cases for high value, high latency resilience
- UNI is well suited as an ETH/USD price prognosticator
- At the macro level, Ether Layer1 needs to maintain minimal governance, but Layer2 should have bolder initiatives, and UNI can be part of Layer2
Tracking ETH/USDC price is not a perfect method
The goal of an algorithmic stablecoin is to get rid of dependence on fiat, maximize resistance to censorship, and remain robust. If this goal is not important to stablecoin holders, then they can simply use USDC to avoid the technical risks of algorithmic stablecoins. If this goal is important to coin holders, then it is important to avoid not only direct dependence on the statutory market, but also indirect dependence. Using ETH/USDC instead of ETH/USD prices does not achieve this goal, as such a system would still ultimately rely on the existence and free trading of USDC.
Taking the median of multiple ETH/stablecoin prices, such as USDC, GUSD and USDT, is at best a minor improvement, as traditional financial systems are well coordinated and can easily become unfriendly to all asset-backed stablecoins. Therefore, if we want to have a reason for the existence of algorithmic stablecoins, we need a USD/ ETH price prediction machine.
Chainlink is indeed great, but there are simpler use cases that are designed for high value and accept high latency
Currently, most “governance-minimizing stablecoins” use Chainlink as a prophecy machine. For many prophecy machine use cases, Chainlink is very valuable and more importantly, it is a complex system with many features. The incentives are not as transparent as Augur. For Chainlink in particular, it does not have an automatic mechanism to penalize participants for providing incorrect data.
Just as we would like to complement MakerDAO with other stablecoins such as RAI, the main feature of these stablecoins is governance minimization, giving the ecosystem many ways to achieve greater resilience. We also need to select a prophecy machine as a complement to Chainlink that is more aggressive in terms of governance minimization and has mechanisms for optimizing incentives to maximize the cost of attacks. A prophecy machine with strong robustness should target the above properties, even if it will face the problem of long parsing times and will be limited to a specific type of data, such as a highly liquid asset price index.
UNI is well suited as an ETH/USD price prediction machine
Decentralized price prophecy machines, if they want to avoid reliance on the identity layer, need to have tokens to resist witch attacks. Token holders ask for price information and also introduce an economic mechanism that rewards for providing answers that agree with the majority and penalizes for the opposite.
If the majority of token holders are evil, they can successfully provide a wrong answer, at which point it will be up to a minority of token holders to create a system fork in which the attacker tokens are zeroed out, allowing the community to continue producing blocks from the fork point. Thus, the cost of an attack is half of the token’s market value, and also taking into account extreme emergencies, such as inactivity of the holders and non-participation in the vote, which could also result in losses.
Thus, for the DeFi project, a token-based decentralized prophecy machine must have a large market cap if it is to be robust. The efficiency of the prophecy machine is not important, as efficiency can be enhanced by a mechanism. On the other hand, the cost of attack needs to be maximized, so market cap is key. And the two highest market cap Ether project tokens are LINK and UNI.
Supporting the prophecy machine is not only a selfless move by Uniswap; but in fact, Uniswap would greatly benefit from a more robust stablecoin ecosystem. uniswap v3 is heavily optimized for ultra-high capital efficiency in stablecoin-to-stablecoin transactions, and is likely to generate very high fee revenue from these transactions. This is even more beneficial for Uniswap if there is a proliferation of stable synthetic assets on the chain.
At the macro level, Ether Layer1 needs to maintain minimal governance, but Layer2 should have bolder initiatives, and UNI could be part of Layer2
Compared to previous blockchain platforms, the Ether ecosystem aims to be a foundational layer that can accommodate a wider range of applications in terms of covering the range of applications. The goal is not only to support the holding and transfer of basic assets, but also to establish the DeFi ecosystem as well as the decentralized governance DeGov ecosystem. There is also a great need for utility sponsorship of the Ethernet ecosystem.
To achieve this more ambitious vision, more technologies than just blockchain need to be mobilized. Arguably, the Ethernet ecosystem needs to move towards a crypto nation, where the blockchain ecosystem will provide services beyond just security and expand to include prophecy machines, dispute resolution, utility sponsorship, identity, and more. But in order for Ether to become a stable platform, the blockchain foundation layer needs to uphold governance to digest. This will give users confidence that the applications they care about will not be subject to human interference, and that the base layer will not be split by adding controversial features that avoid causing governance conflicts.
Therefore, these services need to be provided at Layer2 to some extent. In rollups, Optimism conducts an auction of extractable value for miners to provide sponsorship for system-wide utilities. As the core DEX of the Ether ecosystem, Uniswap also takes on additional responsibilities, including providing price prediction, which is a natural next step towards the development of the crypto kingdom.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/v-god-uni-should-become-a-prophecy-token/
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