Coinbase Launches Price Oracle Aimed at Reducing Systemic Risk in the DeFi Space

With around a billions dollars locked in decentralized finance projects, the new data feed for cryptocurrency prices is aimed to help keep those funds secure.

AccessTimeIconApr 24, 2020 at 8:43 a.m. UTC
Updated Sep 14, 2021 at 8:32 a.m. UTC

With around a billion dollars sitting in decentralized finance (DeFi) apps and protocols, Coinbase has started to provide a data feed for cryptocurrency prices to help keep those funds secure.

Available from Thursday, the San Francisco crypto exchange said the feed, or oracle, provides data from Coinbase Pro on the exchange rates for both bitcoin and ether against the U.S. dollar. It is further signed with Coinbase's private key, meaning that when shared across third party services and protocols, the data can always be verified as being from the exchange.

Coinbase Oracle can be pulled in by blockchain networks and, once there, can be married with other data feeds for use by in DeFi projects to carry out functions such as lending, margin trading, collateral liquidations and derivatives, Coinbase said in a blog post.

The new offering is aimed at helping counter the dangers encountered when DeFi protocols using off-chain third-party data, which requires trust the prices being provided are accurate. The firm also points to the risks of using data from decentralized exchanges. That has already led to new kinds of attacks, such as those that hit ethereum-based lending project BZX in February when bad actors manipulated price feeds to make off with around $1 million in ether.

"A highly reliable price feed anchored into Coinbase’s secure infrastructure can help make the DeFi ecosystem safer, reduce systemic risks and unlock the next wave of growth and adoption," according to the post.

The oracle is being supported by the same secure key storage infrastructure that supports Coinbase's exchange operations, storing billions in user funds. It further offers protection against manipulation of prices by exchanges or invalid data.

Last year, Bitwise Asset Management issued a report claiming 95 percent of all reported bitcoin trading volume is faked. In such a market, reliable sources of price data are essential for automated protocols that hold sway over users' funds.

“Coinbase Oracle will increase the security and decentralization of Compound’s price feed, which is mission-critical to the protocol and the ecosystem of applications built on top of Compound," said Robert Leshner, CEO at Compound, provider of an autonomous, algorithmic interest rate protocol for financial apps. "We’re not alone – the rest of DeFi will benefit with faster development, consistent data, and shared standards.”

In the blog post, Coinbase delved a little into the technical side of the new oracle, saying it is provided via an API compatible with Open Oracle – an open-source set of Ethereum smart contracts originally developed by Compound to help standardize and increase interoperability between different sources of oracle price data.

Projects using Open Oracle are able to select the included feeds they want included in the calculation of an average price returned by the oracle contract.

To help ensure this median is accurate, Coinbase designed its feed to have three "layers" of protection, including data quality arising from Coinbase Pro's high liquidity platform, an off-chain filter that blocks crypto asset price data points that significantly deviates from the expected volatility, and on-chain filtering via Open Oracle’s DelFiPrice smart contract. The latter again rejects price data points that significantly deviate from the last reported price from so-called "anchor sources."

“Price oracles are used in every lending and derivatives protocol," said Antonio Juliano, CEO of dYdX, a decentralized margin trading exchange. "Coinbase is uniquely positioned to provide oracle prices as they’re the most trusted and secure institution in the space."

Using Coinbase Oracle data could facilitate the creation of "more decentralized and secure price oracles for the ecosystem,” he added.


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