The Role of Oracles in DeFi: Bringing Real-World Data to Decentralized Apps
Specialized data services called oracles enable blockchain networks to communicate with external systems. Oracles collect and verify external information and then share it. Depending on their data origin, direction of data transfer, and decentralization level, oracles can be classified as software or hardware, inbound or outbound, and centralized or decentralized. However, with the development of the DeFi industry, more oracle types have emerged, including cross-chain oracles.
The latter are becoming increasingly important in the DeFi space. They support complex use cases and promote interoperability, enabling developers to build more efficient cross-chain applications.
Oracles are not static entities, but constantly evolving to meet the demands of the growing DeFi industry. Developers are tirelessly working to ensure reliable data, increasing the number of data sources and enhancing security. Some decentralized oracle networks even employ reputation systems to assess data providers based on their reliability.
Developers also work on improving oracles' security, which is particularly critical when transferring sensitive data. By leveraging zero-knowledge technology, it is possible to make oracles more secure, as well as quicker and more cost-effective, while maintaining data accuracy and authenticity.
Another exciting development is hybrid smart contracts, empowering developers to create more complex, powerful, and adaptable dApps.
Learn more on the Kinetex blog.
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