The importance of decentralized oracles: An interview with Sergey Nazarov

Chainlink co-founder Sergey Nazarov believes increasing the decentralization and scalability of oracle technologies is key to securing trust in the DeFi ecosystem.

Oracles play a key role in the correct implementation of DeFI protocols by linking them to real-world data.

However, the reliability of oracles is compromised in cases where they rely on a single data source to retrieve information. For example, according to Nazarov, overly centralized oracles enabled five recent flash loan attacks, which resulted in the loss of DeFi protocols by about $ 40 million.

Flash loans, a type of loan that requires no collateral, can be used to manipulate the price of an asset and steal money from the DeFi protocol.

“You don’t just want to take one exchange [as a price discovery source] and hope for the best, because if that one exchange is traded thinly or someone gets a flash loan, (…) then you are in a position where someone is managing the results in your DeFi protocol ”.

According to Nazarov, the only way to prevent such attacks is to ensure that the protocol’s price discovery mechanism relies on multiple data sources. That’s why Chainlink is focusing on building decentralized oracle networks.

“We access data from many different data providers that connect us to hundreds of exchanges and so, wherever volume moves, Chainlink can represent the right global price right,” he noted.

According to Nazarov, a properly functioning oracle network should be able to scale according to the size of the locked value in the DeFi protocol.

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