A First Look into DeFi Oracles
This addresses a critical security and reliability issue for DeFi users and developers, as oracles are essential for protocol functionality, but the findings are incremental as they primarily document existing problems without proposing a new solution.
The paper tackles the problem of DeFi oracles, which provide external data like exchange rates to decentralized finance protocols, by conducting the first study of deployed oracles, finding that they often act as trusted parties with low accountability and regularly report prices that deviate from current rates, with operational issues and anomalies.
Recently emerging Decentralized Finance (DeFi) takes the promise of cryptocurrencies a step further, leveraging their decentralized networks to transform traditional financial products into trustless and transparent protocols that run without intermediaries. However, these protocols often require critical external information, like currency or commodity exchange rates, and in this respect they rely on special oracle nodes. In this paper, we present the first study of DeFi oracles deployed in practice. First, we investigate designs of mainstream DeFi platforms that rely on data from oracles. We find that these designs, surprisingly, position oracles as trusted parties with no or low accountability. Then, we present results of large-scale measurements of deployed oracles. We find and report that prices reported by oracles regularly deviate from current exchange rates, oracles are not free from operational issues, and their reports include anomalies. Finally, we compare the oracle designs and propose potential improvements.