"No-feed price" synthetic tokens: A better oracle model?

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Blue Fox Notes (ID: lanhubiji)

, Author: UMA, Translation: "Blue Fox Notes" community "SIEN", reprinted by Odaily with authorization.

• Foreword: The encryption field needs more innovation and a model that goes beyond conventional thinking. The "no price feed" model is essentially a game mechanism, which can minimize the use of oracle machines. It assumes that collateralized positions are all repayable, and that once a collateralized position is undercollateralized, anyone can liquidate it. If there is a dispute over the liquidation, if the disputer is correct, then the disputer will be rewarded with a fine from the liquidator, if not, the disputer’s security deposit will be forfeited. Will this mechanism work? What do you think?

• UMA announces a DeFi contract design:

• Multiple parties - share the risk!

Synthetic Tokens - ERC-20 tokens that can track anything

Minimize oracle usageCrypto Flash Loans: The Magical New Invention of Internet Money》《We believe that oracles are the biggest problem facing DeFi today. Recent events clearly demonstrate the problem with oracles: bZx flash loan attack, SNX oracle front-running, Maker’s Black Thursday. (Blue Fox Notes: For the flash loan attack, you can check the previous article of Blue Fox Notes "Crypto Flash Loans: The Magical New Invention of Internet Money

Inspiration from the bZx incident

", front-running trading is to predict the trading intention in advance, by increasing the gas fee, take the order in advance, and then realize arbitrage)

The mechanism of the "no price feed" contract is to incentivize counterparties to properly collateralize their positions without any on-chain price feeds. These mechanisms include a liquidation and dispute process, which allows counterparties to be rewarded for identifying improper collateral positions. Unless the position is liquidated, it is assumed to be repayable (properly collateralized). Oracles are only used when liquidations are disputed (which rarely happens).

This design pattern can be compared to a traditional legal contract. If Alice and Bob had written the contract according to US law, they would have preferred to abide by the contract rather than end up in a lawsuit. As long as Alice and Bob both believe that the other party is honoring the contract, they will never use the court system. A similar principle applies to the "no price feed" contract design, which redefines "oracle" as a kind of court system: the oracle should be used as a backstop to resolve disputes that cannot be resolved through the mechanisms written in the contract itself .

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Synthetic tokens without price feed

Synthetic tokens are collateralized tokens whose value fluctuates depending on the token reference index. Created by depositing collateral into a smart contract and mining tokens backed by the collateral. An example of a synthetic token is USStocks, an ERC20 token launched last year to track the value of the S&P500.

Until now, synthetic token designs have required smart contracts to always know the value of the collateral, as reported by the on-chain price feed. "No price feed" synthetic tokens are different because they do not require on-chain price data streams to indicate whether the contract is properly staked. Instead, they have a liquidation mechanism that allows anyone to liquidate undercollateralized positions.

Liquidators are honest with disputers, who are rewarded for catching invalid liquidations. Oracles are only needed when the liquidation is contentious. If the price returned by the oracle shows that the disputer is correct, then the disputer will receive a fine, which comes from the punishment of the liquidator; on the contrary, if the disputer is incorrect, then his deposit will be forfeited and given to the liquidator people.

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(decision tree for liquidating positions)

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Create your own no-feed synthetic tokens

• We have open-sourced the code for the no-feed synthetic token design, published a tutorial on how to deploy your own contract, and written a technical note with more details about the design. (Code https://github.com/UMAprotocol/protocol/tree/master/core/contracts/financial-templates/implementation)

• On the testnet, you can use the tutorial to deploy your own token to track anything. For example:

• Real-world assets (e.g. USD, local currency, gold, oil, S&P500)

• Cross-chain encrypted assets

• Bitcoin/Altcoin Dominance Tracker

• ......