Why DeFi and DEXs Need Reliable Third-Party Data
With blockchain, we don’t have to trust anyone.
Why, after all, do we need to pin our hopes on entities when technology has repeatedly proven to be a trustworthy alternative?
After years of pegging our trust on vulnerable centralized platforms, the blockchain now offers an exciting and global medium where processes and actions can be executed without the middleman.
Blockchains are flexible and can be architected to meet various pressing needs. Legacy networks like Bitcoin lacked smart contracts. However, modern chains with smart contracting capabilities are proving revolutionary.
They are at the heart of tokenization, allowing for fast digitization of valuable physical assets, subsequently opening the floodgates of infinite possibilities, especially in the global commodities market where platforms like Mettalex–a decentralized AMM-powered exchange focused on token-based commodities trading on the Fetch.ai blockchain, play a critical role.
The Age of Blockchain Automation and Smart Contracts
Among the many sectors, smart contracts have a mega role in trading. It is timely too.
For decades, trading has been facilitated by centralized organizations. These are represented by regulated bourses often permitting certain traders, mainly from specific regions, to trade and profit from the fluctuation of financial instruments such as stocks, indices, Forex, or even commodities.
As overwhelming evidence in the multi-trillion global commodity trading scene reveals, automation and smart contracting can provide a myriad of advantages that can open more avenues benefiting retail traders who have, for years, been blocked from accumulating wealth.
The power of automation is the needed equalizer, and smart contracts fit the bill. They are self-executing code running on public blockchains and at the heart of DeFi, NFTs, gaming, and tokenization, single-handedly changing crowdfunding, commodity trading, and more.
Still, while revolutionary, smart contracts aren’t always independent. They may need reliable external data to function efficiently.
By default, the independence of underlying blockchains does limit smart contracts’ capabilities because fragmentation prevents the tremendous true power of automation from being felt.
Without reliable, tamper-proof secondary data, it becomes tough to trade efficiently and onboard more people to trustless systems powered by smart contracts.
Why Smart Contracts Need Reputable External Data
Although desirable, activating trustless smart contracts with unverified third-party data may introduce unwanted attack vectors.
Still, without a decentralized, trusted, and reputable source, trading high-value commodities via trustless platforms will be frustrating for investors.
Nonetheless, it is a choice that must still be made because DeFi, as it is, also has inherent weaknesses that were laid bare by flash loans.
Decentralized token trading platforms operating in isolation without a decentralized oracle cumulatively led to the loss of millions, if not billions, in 2020.
The effects of flash loans and the failure of decentralized trading platforms to integrate reliable, decentralized, and reputable price oracles forced other unaffected protocols to take measures, securing the interest of its global client base.
This counteractive and preventive move was only necessary. Oracles allow blockchains to “see” each other as well as the external world.
They foster interoperability and are critical in making smart contracts a superior form of agreement, beyond what centralized alternatives offer, acting as middleware.
Oracles collect off-chain information and provide tamper-proof data to on-chain smart contracts in a trustless manner.
For the role they play, they play a crucial component in DeFi as data providers and essential interfaces between blockchains and the external world.
Partnering with Reputable External Data Providers
Uniswap and most DeFi protocols using Automated Maker Model (AMM) models like SushiSwap and Mettalex have integrated trusted oracles like Chainlink and DIA.
By operating on the blockchain, Mettalex is accessible 24/7 and offers unique hedge instruments ensuring traders don’t get liquidated before settlement dates.
At the same time, Mettalex has also partnered with S&P Global Platts—the leading global independent provider of information, analytics, and benchmark prices for the commodities and energy markets.
Through S&P Global Platts, DEX can access industrial-grade price feeds, enabling smooth, trustless commodities trading.