In anticipation of our upcoming Abachi X Chainlink AMA, the Abachi Academy is pleased to present an article which aims to familiarize our community with the general function and benefits of Oracle Networks. Oracles use complex, specialized smart contracts to function, and as such, this overview is nowhere near exhaustive. Rather, it exists to summarize and explain some of the core concepts necessary to understand this essential technology and how it can benefit Abachi.
Why do we need Chainlink?
Chainlink is a framework that allows for the creation of decentralized oracle networks. The main purpose of oracle networks is to provide real-world data to hybrid smart contracts, such as DeFi protocols, allowing them to process transactions on the blockchain.
To further understand some of the terminology mentioned above, it may help to reference this GLOSSARY.
When first discussing oracles, I like to move away from financial examples, as these often seem to cause blurry eyes, and pained expressions. For that reason, I love using the ‘airport analogy.’
As we all know, air traffic controllers monitor planes as they arrive and depart the airport. For this example, let’s replace the human controller, with a simple smart contract using an if>then (boolean) agreement: if the weather is nice, planes can take-off and land!
If our smart contract cannot access real-world weather information, we have a big problem on our hands. Enter, the oracle network, which uses a complex system of contracts and validators to find and supply reliable information. In this way, the smart contract can know if the weather is safe enough to allow planes to come and go freely. The process would look something like this:
- The airport pays Chainlink and makes a request for weather data.
- Chainlink searches for trustworthy node validators, and selects an amount of these nodes which is sufficient to provide reliable data for the specific request.
- These nodes transmit the required information, and Chainlink analyzes the responses, resulting in ‘aggregated data’ (the best answer.)
- The data is then transmitted to the airport to be used by the smart contract that controls airplane arrival and departure.
Node Validators are people who have ‘staked’ their Chainlink tokens for a chance to validate data when requested. These users are paid rewards if they give trustworthy data. This system of incentivized validation is meant to ensure that reliable and trustworthy data is received by the network. This randomized, decentralized means of verification ensures that manipulation and downtime are virtually eliminated, making oracle networks both dependable and secure sources of information.
How does Chainlink benefit Abachi?
Chainlink adds value to DeFi via reliable financial data feeds. Financial data, such as asset values and market conditions are essential to the function of these protocols. Data that is not consistent and accurate can paralyze these applications or cause them to take inappropriate actions which can damage the credibility and finances of a DeFi platform. Oracles can also improve the overall efficiency of a DeFi protocol by processing the data off-chain, and by relying on a completely separate smart contract to find and validate data feeds.
Accurate data feeds are essential to the proper function of the Abachi ecosystem, examples of which include our liquidity pools and the protocol bonding mechanism. The use of Chainlink as our oracle network ensures that all necessary data will be fed to our project with consistency, speed and accuracy, allowing Abachi to perform optimally during all day-to-day transactions.
Thank you for joining us here at the Abach Academy, and see you at the Chainlink x Abachi AMA:
Date: 22nd January 2022, 1 AM UTC (21st January 2022, 8 pm ET) The formal announcement can be found on the tweet here: https://twitter.com/marcromerona/status/1484073819220361218?s=20
