NEST oracle machine: Thoughts on information flow on-chain
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There are several problems with the information flow on the chain
1. Trust risk, whether to rely on a certain organization to upload information, that is, whether to decentralize the chain;
2. Information verification, whether the information has been verified, and whether the method of verification is direct or indirect;
3. Anti-attack, whether the information is easily tampered or affected by any third party because of its openness;
5. Information call, whether to verify first and then call, or call first and then verify;
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On NEST, you can clearly see
First, through distribution and incentives (the two are indispensable, otherwise it is impossible to form a credible automatic mechanism) to ensure the motivation and de-trust of information uploading;
Second, the two-way option ensures that the information is verified during the chain-up process;
Fourth, the beta coefficient is an algorithm against attacks, tampering, and pollution of the information chain.
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Decentralization is not distributed. Distributed is a method of organization. Decentralization is a method of operation that requires incentives to operate automatically. This incentive includes direct external incentives (such as algorithms) and may also be internal incentives (market transactions ).
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About verification
Here are a few questions:
1) Whether to verify first and then use, or use first and then verify:
Considering complete decentralization, if you use it first and then verify it, then only the risk scale of the downstream user matches the mortgage scale of the verifier.
Some people try to prevent verifiers from doing evil by decentralizing verifiers and increasing random selection. The problem is:
A. As long as the downstream income is large enough, rational nodes have the motivation to do evil collectively (no collusion is required, see miners not packaging attacks for details)
B. Credit risk cannot be decentralized. If a single node is randomly called, it may be destroyed by junk nodes (see EOS hacking)
C. Even if multiple nodes do not cheat, a large number of nodes are required for data processing. The incentives and behaviors of each node are inconsistent, and there are more complex delays and data structure mismatch risks.
2) The data structure problem of verification:
If a piece of data is not a blockchain-recognizable data structure, there must be unequal nodes for verification, that is, the so-called arbitration nodes, or it needs to be verified through the so-called voting mechanism (this is not feasible or not timely for many information )
Verification cycle risk, which may lead to a gap between on-chain information and off-chain information. If it is price information, the gap refers to the minimum arbitrage cost.
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The time dimension of the blockchain is the sequence of blocks rather than seconds, and the delay is mainly reflected in the density at which information appears on the blockchain. Ethereum uses blocks as time intervals, and even the most intensive quotations are only one per block, which means that there is always a delay in terms of off-chain moments. The delay can be calculated if the offer is designed according to a certain mechanism.
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After eliminating credit risk, DeFi has improved in risk management: risk management through algorithms has become feasible. In the NEST system, the main application risk is reflected in the price deviation and price delay of the NEST oracle. Since the distribution of these risk factors is calculable (based on certain assumptions), the DeFi design based on the NEST oracle machine can carry out risk management based on these quantitative indicators.
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Quantitative indicators and risk management
Market Parameters: Volatility
Verification period: T
Arbitrage costs: gas, commission f, two-way option cost v
Anti-attack parameters: beta
Delay indicator: D, determined by the incentive mechanism and market price
The price risk is mainly determined by the price deviation g and the delay D, so R(g, D) is the risk function of the price reference
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Compare with the same industry
1. Completely decentralized, no asymmetrical nodes
2. Carry out detailed decomposition and management of the risk-return structure, and algorithm-based risk management function, which is a breakthrough in the entire industry
3. Will not sacrifice a certain variable to control risk (similar to Uniswap)
