Overview: Mapping decentralized oracle protocols

Introduction

Oracle protocols play a crucial role in the cryptocurrency ecosystem, serving as a bridge between blockchains and the outside world. They provide essential information for the operation of smart contracts, enabling decentralized applications (dApps) to offer more complex and sophisticated features.

By nature, blockchains are closed and deterministic systems, isolated and unable to interact with each other or with real-world events, which significantly limits their utility. Oracles have the capability to overcome this barrier and solve this issue.

In this article, we provide a comprehensive view of the blockchain oracle landscape, mapping out the main decentralized oracle protocols based on their operation, adoption, and the innovations they bring.

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Metrics for Decentralized Oracles

Total Value Secured (TVS)

Total Value Secured (TVS) is an important metric for evaluating the adoption and impact of oracles in the blockchain ecosystem. TVS represents the total sum of assets secured by oracles through the smart contracts using their technology.

This offers a tangible measure of their usage and importance. A high TVS indicates increased trust in oracles and broader adoption within decentralized applications (dApps) and decentralized finance protocols.

Of course, fluctuations in the TVS of oracle protocols can be explained by the volatility of cryptocurrencies held within decentralized applications. Nevertheless, comparing TVS across different oracles highlights market trends and adoption by dApps.

Number of Secured Protocols

Similar to Total Value Secured (TVS), the number of protocols secured by an oracle is another interesting metric to monitor. This often correlates with the number of blockchains on which the oracle is deployed—more blockchains translate to greater market potential.

Unlike TVS, the number of protocols secured by an oracle does not depend on cryptocurrency volatility. Thus, comparative analysis between different oracles is useful for assessing their respective adoption levels.

Technological Structure

Since the emergence of the first oracle protocol in 2012, the cryptocurrency ecosystem has developed immensely. Initially focused solely on digital payments, blockchain usage has diversified, especially with the arrival of Ethereum, smart contracts, and decentralized applications.

To meet these needs, oracle protocols have multiplied, and various technological infrastructures have emerged. Today, the classification of oracles is broad and allows for differentiation. Below is a non-exhaustive overview:

Classification of oracles by system structure

1. Immediate-read
2. Publish-subscribe
3. Request-response

Classification of oracles by communication direction

1. Inbound Oracles
2. Outbound Oracles

Classification of oracles by sourcing method

1. Software Oracles
2. Hardware Oracles

Classification of oracles by data verification

1. Consensus Oracles
2. Trusted Oracles

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Chainlink: The Pioneer and Leader of the Oracle Sector

Chainlink is one of the first oracles to emerge on Ethereum and is by far the most widely adopted at the time of writing. Just as one might think of Binance and USDT when considering cryptocurrency exchanges or stablecoins, Chainlink comes to mind when discussing blockchain oracles.

For many, Chainlink has benefited from the "First Mover Advantage," which refers to the significant advantage gained by being the first to enter a particular market. Furthermore, the oracle has strengthened its position over the years through integration with numerous “blue-chip” decentralized finance protocols—leaders in their respective fields.

Chainlink’s technological infrastructure relies on a decentralized network of nodes that retrieve and validate data from external sources (data providers) before transmitting it to smart contracts. The oracle works with hundreds of data providers, ranging from public databases to institutional trading firms.

This decentralized node architecture ensures high security, as it is difficult for individuals to corrupt a majority of nodes to falsify data.

Some statistics for Chainlink (September 2024):

• +17 blockchains
• +2000 integrations
• $21 billion in TVS
• 46% oracle market share
• $7.8 billion LINK market cap
• Dominance: AAVE v3 (49%)

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The Major Competitors in the Oracle Sector

WINkLink

Originally, WINkLink was a blockchain gaming platform. Launched on Binance’s launchpad, it was the first decentralized application to be deployed on the TRON Network blockchain. After acquiring JustLink.io in 2021, WINkLink became the first decentralized oracle specifically designed for the TRON blockchain.

The protocol stands out as the only one offering such services on TRON’s blockchain, providing the necessary data for the operation of smart contracts and the development of decentralized applications.

Focusing exclusively on a single blockchain may seem limiting, as it closes off huge market opportunities—from Ethereum to Solana to the BNB Chain. However, the advantages are significant: reduced costs for the team and a leadership position in its sector.

As a result, WINkLink has managed to secure nearly $7 billion in TVS (as of September 2024), placing it as the second-largest oracle.

Some statistics for WINkLink (September 2024):

• 1 blockchain
• 2 integrations
• $6.9 billion in TVS
• 15.6% oracle market share
• $70 million WIN market cap
• Dominance: JustLend (77%)

Chronicle

Chronicle is a decentralized oracle service focusing exclusively on the Ethereum ecosystem, including the main blockchain and various second-layer solutions. Much like WINkLink, Chronicle stands out by being positioned on a single protocol, MakerDAO, where it holds a 99% dominance.

To recap, MakerDAO is a well-known lending and borrowing protocol, recognized for issuing the decentralized stablecoin DAI. The latter uses Chronicle to retrieve real-time historical information and reliable price data for various cryptocurrencies, which are crucial for its proper functioning.

In 2019, Chronicle was the only decentralized oracle protocol.

Some statistics for Chronicle (August 2024):

• 9 blockchains
• 2 integrations
• $4.6 billion in TVS
• 10.7% oracle market share
• No token
• Dominance: MakerDAO (100%)

Pyth Network

Likely Chainlink’s main competitor, Pyth Network is a decentralized oracle network operating on over 60 blockchains, including Ethereum, Binance Smart Chain, and various layer 2 solutions, thanks to solutions created by WormHole.

Pyth Network distinguishes itself by providing high-frequency financial data for decentralized finance applications. Prices are updated every 400 milliseconds, making it a key player in derivatives and predictive markets.

To ensure data accuracy and resilience against malicious data providers, Pyth Network uses a "Price Aggregation" method. This method collects, compares, and arbitrates the data provided by various sources, ensuring a single reliable data point for consumers. Pyth Network thus serves as a direct and essential link for Dapps within the DeFi ecosystem.

Currently, Pyth Network collaborates with nearly 100 different data providers, ranging from decentralized protocols to data analysis firms like Kaiko.

Some statistics for Pyth Network (September 2024):

• +75 blockchains
• +410 integrations
• $4.73 billion in TVS
• 10.9% oracle market share
• $1 billion PYTH market cap
• Dominance: Kamino (26%)

Band Protocol

Band Protocol offers a cross-chain data platform that allows developers to flexibly connect their smart contracts to external data sources. Unlike Chainlink, Band uses delegated proof of stake (DPoS) consensus, which improves the speed and efficiency of data validation. Developers can create custom oracles via WebAssembly, making Band particularly flexible and adaptable to a variety of use cases.

Earlier in this analysis, we discussed the challenges of interoperability between blockchains, and Band Protocol is one of the oracles addressing this. Its multi-chain integration allows it to be used across different blockchains, including Ethereum, Binance Smart Chain, and Polkadot. This interoperability is a major asset for developers looking to build cross-chain applications, i.e., those present on multiple networks simultaneously.

Despite this, Band Protocol has not been able to rival the established trust and recognition of Chainlink and remains at the lower end of the oracle rankings.

Some statistics for Band Protocol (September 2024):

• 23 blockchains
• 21 integrations
• $31 million in TVS
• <1% oracle market share
• $155 million BAND market cap