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UMA launches Optimistic Oracle and briefly analyzes its operation mechanism and application scenarios

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Given the price input mechanism of Chainlink and Uniswap, why is Optimistic Oracle still needed? The answer is that Optimistic Oracle can be used when additional data, or extremely accurate data, is needed.

The original title: the introduction | & have spent UMA have officially launched Optimistic Oracle"

Originally written by Hart Lambur

Min Min and A Jian;

Too long not to see: UMA's Optimistic Oracle has been online. Optimistic Oracle can be used to capture market data and link up all types of data. Not only can it be used for UMA financial contracts, it can also be integrated into any DEFI protocol.

Uma has quietly built what he calls an "Optimistic Oracle". The concept is simple: anyone can post an answer on the chain, and only if the answer is wrong will anyone dispute it. Integrating Optimistic Oracle does not require a contract to be deployed on the UMA.

Optimistic Oracle runs in an Optimistic manner, which means that most of the time, you will get an answer very quickly. It makes use of the economy built into the UMA system to ensure data accuracy. Optimistic Oracle has a low cost of use due to the minimization of gas usage.

In other words, Optimistic Oracle allows you to obtain accurate data at a very low cost.

Next, we will explore how Optimistic Oracle works and its best application in the DEFI field.

How Optimistic Oracle operates & NBSP;

Optimistic Oracle systems have three types of participants: requestors (contracts that request price information), proposers (off-chain participants who return price information), and disputers (off-chain participants who can dispute an unapproved price).

In a normal interaction mode, a contract first requests the price information and specifies a dispute period (which can be as short as a few minutes or as long as a few days). The proposer then posts the bond and sends back the price -- which no one disputes. At the end of the dispute period, the data is finalized and the proposer gets the deposit back. The whole process is fast and low cost.

If it does not go well, the disputers do not agree to the proposed price. Disputers are required to pay the same amount of security as the proposer and submit the dispute to UMA's Data Verification Mechanism. UMA token holders have 48 hours to resolve the dispute. If the disputer is right, he is rewarded with a deposit from the proposer. If the disputer is wrong, then as a punishment, his deposit is awarded to the proposer.

The system as a whole is optimistic because controversies are extremely rare. Over the past year (including some rocky moments), the UMA contract has been running on a positive note and we have seen no more than five legal disputes. The optimistic concept has been demonstrated in production environments.

Optimistic Oracle has been audited by OpenZeppelin's code over the past few months and used to protect approximately $200 million of UMA synthetic tokens. Click here to see the code. The system is now available to developers.

Application scenarios of Optimistic Oracle & NBSP;

Since the DEFI developers can use Chainlink/Maker/Uniswap price input mechanism to obtain price data for most cryptographic currencies, why should they care about Optimistic Oracle? The answer is that Optimistic Oracle can be used when additional data, or extremely accurate data, is needed. The following is a list of application scenarios for Optimistic Oracle:

The KPI options

insurance

Options and structured products

Complex calculations

A financial contract with no subject matter

The KPI options

A good example is UMA's KPI options, which may request arbitrary data in addition to cryptographic currency prices. A KPI option is a synthetic token that links returns to a specific indicator -- any measurable variable. Although this data is not available on the chain, it can be queried through Optimistic Oracle.

To date, KPI options have been available for UMA's total lockup value, Badger's Digg token positive supply adjustments, and Aragon DAO migrations. These KPI option contracts are inseparable from the support of Optimistic Oracle.

insurance

Defi is a powerful tool that allows you to write insurance contracts against any measurable activity or transaction, including real events. One limiting factor is how data on these events are obtained. Optimistic Oracle can solve this problem.

We have some great news to announce: Optimist Oracle has been integrated by Opium (a financial platform for all to create markets), which allows Defi developers to create insurance products based on any measurable event. Next week, we will announce the first product built on this system.

Options and structured products

Call/put options and more complex structured products are poised to become a rapidly growing market segment within the DEFI space. One challenge for many of these products is that their earnings are heavily influenced by the price of the subject matter. Since the error between the on-chain feed and the real-time price can only narrow to about 0.5 per cent at best, this causes problems. For example, if the price of a call option is $100, whether the price input mechanism is quoted at $99.5 or $100.5 on the expiration date will have a big impact on the option yield.

This exposes the limitations of on-chain feeding and time-weighted average pricing (TWAP) methods: it is difficult to provide an extremely accurate price at a particular point in time. For example, the TWAP approach sacrifices accuracy for security.

Optimistic Oracle solves this problem by significantly reducing the difficulty of finding an accurate price at a particular point in time. Optimistic Oracle makes more complex structured products possible by allowing buyers and sellers to believe they can get an accurate settlement price.

Complex calculations

Some of the more complex DEFI contracts began to require complex calculations to calculate the benefits. Many complex calculations cannot be performed on the chain due to the complexity of the calculations and the high price of gas.

One solution is to use Optimistic Oracle to perform calculations down the chain based on the concept of a "data time lock". The off-chain observer can verify the calculation results during the dispute period. In other words, calculations are performed off the chain (at a low cost), and validation is performed on the chain using Optimistic Oracle. The scheme is modelled on Truebit, which first proposed a similar concept. We will announce more progress soon.

A financial contract with no subject matter

UMA's vision is to enable Defi developers to build financial contracts for any subject matter. Only in these contracts can you access arbitrary data (everything!). In order for this vision to be realized. Optimistic Oracle is a key part. It is difficult to predict what innovations will come from Optimistic Oracle, and it is possible to underestimate its importance. I personally look forward to its future.

The follow-up plan

Optimistic Oracle is now online. Developers interested in building on Optimistic Oracle can read our documentation and join our Discord. Just before this announcement was published, Vitalik Buterin posted a governance proposal for Schelling point settlement on Uniswap's forum. We will publish an article later in which we will discuss Optimistic Oracle in the context of this proposal.

In the coming months, we'll be sharing more about project integration, partnerships, and progress.

Special thanks to the Optimistic team (formerly Plasma Group), especially Ben, Jing, and Karl. They taught us how to be more optimistic. Their optimism inspired us.