The fatal flaw of the $500m decentralized finance industry

We need to understand that oracles and sources of data are the absolute foundation of any technological application.

Decentralized oracles are essential to the ecosystem as they are, by design, autonomous and trusted solution by incentivizing anyone and everyone to vote on behalf of data providers to earn data query fees.

This mitigates the central point of failure issue within other oracle solutions as applications or users must choose their data provider.

Smart contracts can retrieve off-chain data through centralized or decentralized oracles.

Although the fastest and cheapest method to feed data, users must place absolute trust that this data source will perpetually feed accurate data creating a single point of failure.

Decentralized oracles are a preferred option that aggregates multiple data sources to reduce the chance of collusion.

Each data provider has its reputation and economic incentive to provide accurate data to the blockchain.

Although there are differences in oracle design, some projects that facilitate this type of oracle include Band Protocol, Chainlink, and MakerDAO oracle.

If there's one takeaway from this piece, it's that data is a critical component for any technology but it is especially vital for smart contracts.

With exponentially growing DeFi ecosystems and enterprise adoptions, data oracles will only become of greater importance whereby startups that supply reliable data with guaranteed accuracy such as Band Protocol and Chainlink will play a pivotal role in the next generation of smart contracts and reconstruction of the financial system we know today.