Oracles serve as intermediaries connecting blockchains to off-chain systems, allowing smart contracts to execute based on real-world inputs and outputs.
Importance of Oracles
Price discovery occurs across various platforms, making it important for DeFi to utilize price oracles. Without them, smart contracts would not know accurate price data of listed assets.
Oracles fulfill several critical functions in lending markets:
Determining Collateral and Loan Values
Monitoring Collateralization Levels
The collateral must consistently exceed the loan amount, a principle known as over-collateralization. If the collateral's value drops below a specified threshold, it triggers liquidation to repay the debt, ensuring the protocol's solvency. Inaccurate price reporting by oracles can compromise over-collateralization rules, making them susceptible to exploitation.
Historically, oracles have been prime targets for attacks due to their crucial role.
Inflated token prices allow excessive borrowing
Deflated token prices result in borrowers accessing more funds than warranted, again compromising the over-collateralization principle and risking lenders' deposits
To ensure the reliability of price data, assets listed on Keom Protocol must have a robust price feed.
Blue-chip tokens being added to the cross-collateralized pool thus rely on Chainlink and Pyth, These industry-leading oracle solutions offer proven track records, secure data delivery, wide asset coverage, and high resilience.
In the rare case of assets that are not supported by the leading oracle providers, and are being thus to isolated markets, an exponential moving average (EMA) is additionally implemented to harden the price data.
EMAs offer resistance to sudden price fluctuations, rendering price manipulation economically unfeasible.