Coinbase is trying to fix the broken DeFi industry with stable price oracles. In an April 23 announcement, Coinbase introduced the Coi...
Coinbase is trying to fix the broken DeFi industry with stable price oracles.
In an April 23 announcement, Coinbase introduced the Coinbase Price Oracle — “a critically important service to the DeFi ecosystem” that will be available through the CoinbasePro API.
Both existing ways are worse
Coinbase contends that the two existing approaches to price data feeds for DeFi — “published signed data” from a centralized source or using a price feed coming from a decentralized exchange — are both unsatisfactory:
“Using data from an off-chain source requires trusting the publisher to post correct prices and keep the signing key safe — the latter historically has proven to be a difficult problem, especially when stakes are high. Similarly, relying on DEX-generated on-chain feeds exposes protocols to various novel attack vectors yet to be fully explored.”
Coinbase states that its approach to price oracles combines the best of both worlds — it has a reputation as “one of the most liquid” exchanges and offers data authenticity guaranteed by signature from Coinbase’s private keys:
“Anyone can publish the prices on-chain and since the data is already signed by Coinbase’s private key, there is no need to trust the publisher. Using the Coinbase Price Oracle public key, anybody can verify the authenticity of the data.”
It’s not clear from the announcement what this “private key” represents, however. Coinbase assures that it relies on “the same infrastructure that is storing large amounts of crypto assets on behalf of Coinbase customers”:
“Our security experts developed many best-in-class key storage techniques — these same techniques are used to ensure the safety of the private key signing the Coinbase Oracle prices.”
The announcement quotes Robert Leshner, CEO of Compound, an algorithmic, autonomous interest rate protocol:
“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. We’re not alone — the rest of DeFi will benefit with faster development, consistent data, and shared standards.”
Not a competition for Chainlink
CEO and founder of Chainlink, the company that provides crypto price oracles, Sergey Nazarov told Cointelegraph that he does not see Coinbase’s new venture as competition, but more of a complimentary product:
“We have known about it for months. This came out of a hackathon that was won by Compound. Probably, what will end up happening is that we’ll consume their API.”
He also noted that the “signature” refers to a regular API signature and not related to a blockchain infrastructure. Furthermore, Nazarov believes that the fact that Coinbase is getting into this space is a sign that blockchain data oracalization is a growing industry segment, and the demand for such services will increase. He did not rule out the possibility of partnering in the future with Coinbase on price oracle infrastructure.
Many of the same vulnerabilities of the DeFi ecosystem have been exposed time after time. Hopefully, the entrance of trusted players like Coinbase can bring some much needed stability to the community.
Cointelegraph reached out to Coinbase for comment but has not received a response in time for publication.