Chainlink: How did we "save" DeFi?

Author: Philip

Original source: Chainlink

On July 30, 2023, some important projects, including Curve Finance, were attacked because some versions of the smart contract programming language Vyper were found to have serious vulnerabilities. The trading price of CRV on multiple DEXs has fluctuated violently. At a certain moment, the CRV/WETH trading pair on a certain DEX has an extreme price.

If this price is adopted, the CRV mortgage debt positions on a large number of lending agreements will directly face the risk of liquidation, and many users will face financial losses. Considering that the CRV liquidity on the chain at that time was already insufficient, these liquidations were difficult to obtain. Effective implementation, thus posing a potential bad debt threat to many lending agreements. As the liquidation progresses, the panic in the community will also spread further and further, leading to a more serious situation.

The entire DeFi world is at stake.

Fortunately, Chainlink prevents this from happening with its constant and stable price feed mechanism. So, how does Chainlink's price feed mechanism work?

Chainlink price feed data aggregation layer

In order to fully guarantee the tamper-proof and reliability of data, Chainlink price feeds only obtain data from high-quality paid data aggregators. That is to say, each data source used by Chainlink to feed prices fully covers most of the centralized and decentralized trading platforms in the market, and uses the transaction volume as a weight to adjust and finally aggregate credible price data. Chain, so it can effectively resist various attacks such as flash loans or abnormal price deviations.

In addition to data sources, Chainlink price feeds also include multiple oracle node operators. Each oracle node will obtain price data from multiple independent data aggregators, remove outliers, and take the median of the data to become the oracle. The data reported by the machine. Afterwards, the decentralized oracle network will remove outliers from the data reported by each oracle machine at the time of consensus, and take the median of the data again to finally obtain the credible uplink data of this round. Therefore, not only does each data source comprehensively cover all trading environments to aggregate price data, but each node aggregates data from multiple data sources and transmits it to the chain after consensus, which can better avoid single points of failure.

Chainlink price feeds also aggregate data from responses from numerous nodes, all of which have undergone security assessments. The triggering of the aggregation mode is jointly determined by the deviation threshold (Deviation Threshold) and the heartbeat time (Heartbeat). The whole set of aggregation mechanism not only guarantees the overall running time of the oracle network, but also effectively prevents data from being manipulated during transmission to the blockchain, and can even prevent extreme situations such as several nodes or data sources going offline or launching malicious attacks .

For more information about the Chainlink price feeding mechanism, please refer to "Understanding the Three Data Aggregation Layers of Chainlink Price Feeding in One Article", "Average Price Algorithm: TWAP vs. VWAP". (Note: The picture accompanying the article is a screenshot at the time of writing, and the latest price feeding node information is subject to the official website)

The spirit of decentralization

In 1281, Wen Tianxiang wrote "Song of Zhengqi" in prison. "When the time is poor, we will see each other, and we will hang on to the pictures one by one."

In times of crisis, the righteous men did not avoid disasters for the sake of justice, showed awe-inspiring integrity, and left behind epic deeds that shine through in history. In the Web3 world, the idea of decentralization is a veritable "section". In recent years, when the Web3 world has been in deep crisis many times, it is often those who are well versed in the way of decentralization that turn the tide. They guarded the belief of Truth>Trust with practical actions, and promoted the advancement and development of the industry step by step.

Chainlink's rigorous data aggregation mechanism is due to its full implementation of the idea of decentralization. Rather than saying that Chainlink "saved" DeFi in this incident, it is better to say that the idea of decentralization is just like its original design, and it always protects the new financial order that is gradually entering the mainstream stage in a fair and transparent way.