📚 Understanding Oracles
Oracles serve as bridges between blockchain-based smart contracts and real-world data. They provide essential external information, such as asset prices or market data, to decentralized applications on the blockchain. This functionality is vital because blockchain technology inherently lacks the ability to access data from the outside world.
Why Does eBTC Need Oracles?
eBTC's reliance on oracles stems from its fundamental objective of maintaining a stable peg to the price of Bitcoin. Since blockchain technology cannot access external data, including real-time market prices, oracles become indispensable for eBTC to accurately determine the value of BTC relative to its collateral, stETH.
🖇️ Dual Oracle System
The eBTC protocol implements a dual oracle system: the Primary and the Secondary. When an operation requiring the stETH/BTC price is initiated, the protocol first consults the Primary Oracle for its latest report. However, in the event of Primary Oracle failure or irregularities, such as frozen data or significant deviations from expected values, the Secondary Oracle comes into play as a contingency measure to ensure price accuracy.
Chainlink: The Primary Oracle Provider.
At launch, eBTC integrates Chainlink as its Primary Oracle Provider. Chainlink is renowned for its decentralized and secure price feed oracles, making it an ideal choice for eBTC's needs.
The Primary Oracle aggregates price feeds for ETH/USD and BTC/USD, providing reliable data to ascertain the value of BTC relative to ETH. By employing this approach, the protocol utilizes a dual price feed mechanism to determine BTC's value relative to ETH, with the assumption of minimal risk of a significant ETH/stETH depeg. Additionally, the framework is designed to accommodate a third price feed (stETH/ETH) in the event of a major depegging event, ensuring robustness and resilience in volatile market conditions.
As a result from the aggregation, the eBTC Protocol manages to obtain a reliable access to the BTC/ETH pair price.
Secondary Oracle: Fallback.
The fallback oracle serves as an additional layer of security, activating only if the Primary Oracle fails or provides erratic data. At the moment of launch, no secondary oracle will be incorporated. A thorough assesment is being conducted to identify the most ideal candidate from a reliability, safety and decentralization perspective.
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