In the DeFi world, oracles aren’t the seers of Greek myth but handy tools that enable data to flow between blockchains and traditional networks in the form of smart contracts.
Now oracles have landed right in the middle of a clash pitting two of the biggest players in the space against one another — Chainlink and MakerDAO.
Last week an ambassador of oracle provider Chainlink, who goes by the handle ChainLinkGod, accused Maker’s oracles of selling their price data, allowing buyers to jump the line and liquidate their positions before the public.
Nik Kunkel, head of backend services at the Maker Foundation, countered the charge on the project’s forum. “MakerDAO and the Maker Foundation have never profited or indirectly benefited from the use or sale of privileged price information,” he stated.
Following Kunkel’s response, ChainLinkGod revised his position.”It is clear to me that Maker oracles were not and are not selling exclusive rights to signed price data, but that the transactions seen were simply the result of the circumstances of a particular situation that had logical engineering reasoning behind it,” ChainLink God tweeted.
As walled gardens generally run counter to the DeFi community’s championing of an even playing field, the allegations caused a stir. Liquidators, usually bots, rely on oracles in order to liquidate users’ collateral. If access to this information is made private, the bots can’t do their job and DeFi looks like the opaque TradFi system it’s trying to replace.
As Discord user Nathan_, who ChainLink God cited in his original accusation said, “I still believe in an even playing field for everyone where the best software and smartest developers win, not backroom dealing like in traditional finance.”
Liquidators on Maker profit at the expense of borrowers by buying their collateral at a discount when the collateralization ratio has dropped below its minimum level. So for example, at a 150% collateralization ratio, a user can mint up to $50 of DAI against collateral of $100 of ETH. If ETH’s price drops the ratio will be below 150%, making the DAI minter’s ETH available for liquidation.
Opacity has been an issue with MakerDAO’s oracles. They use a peer-to-peer “gossip network” called Scuttlebot as part of the so-called “Transport Layer” of the “Oracle stack,” a key piece of its overall functionality. Essentially, a file on Scuttlebot hit a size limit last November, sending the feeds which make up the oracle price of the collateral offline If enough of the feeds are offline, the oracle is too, as the oracle relies on a minimum number of feeds in order to ascertain its official price.
In response, the Maker team increased the size limit, but made access to the Scuttlebot network private in case the change had adverse effects elsewhere.
Liquidators were thus shut out of the oracle price feed information. So they turned to the mempool, a kind-of waiting area for transactions, to front-run liquidation opportunities. (Miners take transactions from the mempool and add them to the blockchain).
The rise of Flashbots, a project that attempts to democratize access to miner extractable value, the game has changed. The bidding wars for transactions to be counted in the blockchain are obfuscated and taken off-chain. This has meant that users can’t access the transactions mempool where would-be liquidators used to find liquidation opportunities.
Plus transactions come back on-chain looking like they batched the oracle feed and the liquidations together, suggesting that no one had the chance to liquidate. This led to ChainLink God’s perception of foul play, though in actuality it was due to the “black box” in which Flashbots batches transactions.
Proponents of DeFi’s openness can rest assured that something that resembles TradFi’s backroom dealings will be quickly called out and dissected. In this case it appears Maker didn’t engage in any nefarious activities, but it’s good to see the values of decentralization are alive and well.