Oracles serve as bridges between the on-chain and off-chain worlds, allowing blockchains to leverage real-world information. Whether recovering cryptoasset prices or getting the results of a football match, oracles can access a wide range of external data, which can then be easily incorporated into the crypto ecosystem.
While oracles significantly improve the functionality of blockchain networks by enabling the execution of tasks guided by real-world inputs, exploits due to oracle manipulations cannot be overlooked. In fact, nearly $1 billion has been lost since 2020 due to oracle breaches.
Oracle-related losses reached $892 million
According to the latest report from Binance Research Dear AllApproximately $892 million has been siphoned off through manipulative actions associated with oracles over the past three years.
In numerous cases, individuals artificially inflate the prices of low-liquidity tokens within specific protocols. They then exchange these artificially inflated tokens for other assets or use them as collateral to obtain loans in the credit markets.
The positive thing is that this trend seems to have slowed down. In 2023, losses resulting from oracle-related exploits have decreased noticeably, which can likely be attributed to increased security measures and an overall decrease in total value locked (TVL) within the decentralized finance (DeFi) ecosystem.
The research further stated that the use of oracles can be a double-edged sword, paving the way for vulnerabilities that malicious actors could exploit.
“Non-oracle solutions appear to offer a set of attractive alternatives that alleviate the risks associated with oracles. However, the adoption of these alternative solutions is influenced by a multitude of factors and considerations, and may be more appropriate in some cases than others.”
Protocols without Oracle are not infallible either
As a solution, the report suggested several projects in the lending, derivatives and non-fungible token (nft) sectors that aim to reduce dependence on oracles.
However, the report also highlighted that Oracle-less protocols come with trade-offs, such as increased complexity, lower efficiency, and design limitations. Developers and users should carefully consider these factors when choosing between Oracle-dependent and Oracle-free solutions.
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