Ares Protocol’s cross-chain oracle and its Optimistic Rollups

DeFi world’s demand for oracle services

With the development and prosperity of DeFi (Decentralized finance), oracles that provide data services for DeFi have been playing increasingly a vital role. The importance of the oracle as the underlying infrastructure of the blockchain has been verified in repeated DeFi attacks.

Looking back at the development of DeFi, the prototype oracle has already existed in MakerDAO, the first generation DeFi application with the most adoption. MakerDAO uses the price obtained by the oracle protocol to set the price and release its stable currency DAI. Compound as one of the second-generation DeFi products, aimes to become the DeFi application of the Digital World Bank. It generates interest for lenders who provide liquidity and rewards liquidity providers also with liquidity mining rewards in the form of their governance token Comp. The lending function of Compound needs to obtain real-time prices of assets for asset pricing and liquidation. Thus the Compound protocol is highly dependent on correct price feeds that oracle services have to provide.

Almost all of the DeFi projects that are listed above depend on oracle services and the demand for oracles has been increasing exponentially. That is the reason for Chainlinks rise into the top 10 in market value.

The combination of oracle and Rollups

The blockchain is a closed environment that cannot actively obtain real-world data outside its chain. Therefore it needs an oracle to meet its needs of external data interaction. The oracle is a data agent in the blockchain world, responsible for collecting and verifying real-world data, and injecting this information in an encrypted and secure manner into the blockchain system.

In “Reviewing the Economic Progress of Blockchain in the Past 5 Years and Emerging Problems” wrote by Vitalik, obtaining authentic real-world-data is a main problem in the blockchain space that is to be solved by Oracles. Looking back at the development of Layer 2, from the initial state channel of the Raiden network, to the sub-chain of Plasma, to the Rollups that emphasizes on-chain verification, Ethereum has been constantly moving towards more save and reliable data.

Rollups has been confirmed to play a key role in the roadmap of Ethereum 2.0 and its ecosystem in 2021. Ares Protcol adopts the idea of Optimistic Rollups and transfers this concept to the cross-chain oracle world. Thereby it brings the currently highest security of on-chain verification mechanism into the oracle field. In this way it allows to transfer reliable data from centralized systems into the world of decentralized nodes and applications in a secure and trustworthy manner.

Architecture design and features specific to Ares Protocol

The architecture design of Ares Protocol includes the following parts:

  • Distributed data sources,
  • Random price-feeding miners,
  • Miner ‘s reputation system,
  • Challenger to verify data in real time
  • Arbitration agency: the guardian of network security.

first-level price filter:

Under normal circumstances the price-feeding miner will process the price request on the network and establish a connection with the distributed data source through an encrypted link. It obtains the price through this established connection and submits the price to the chain according to the aggregation algorithm. This is a first-level price filter.

second-level price filter:

When enough prices fed by miners are collected on the chain malicious data will be eliminated through the aggregation algorithm and the available price will be generated. This is a second-level price filter.

third-level price filter:

normally, the process should have ended. When a malicious quotation miner appears in the network, the challenger will initiate the price challenge, the malicious quotation data and real data are passed to the arbitration institution. The arbitration members are generally miners with high reputation. When the arbitration members receive a price challenge, they will go to the distributed data source connected to themselves to check the correctness of the price and give their own voting results. If the challenge is successful after the final result is obtained, the node that maliciously quoted will be punished by a large part of the pledged assets of the miners, and the miners will be removed from the quotation miners, and challengers and arbitration institutions will be rewarded. Another part of the pledged assets will flow into the national treasury to compensate DeFi users who suffered price losses. This is a three-level price filter.

Features of Ares Protocol compared to other oracle solutions

In the graphic below the differences of Ares Protocol to other oracles are listed. The main difference and advantage of Ares Protocol to for example Chainlink is that Ares Protocol has node randomness which increases its decentralization and security and that it offers on-chain verification which makes it more resilient to delays.

  • mechanism of Reputation POS

By introducing the RPOS mechanism (Reputation POS), Ares allows ordinary users to participate in node operators and manages the behavior of nodes through the staking economy. Operators who run nodes honestly can accumulate reputation value. Reputation POS is combined with Verifiable Random Function (VRF). Nodes with a higher reputation value get a higher block weight which improves the security of the network.

  • Randomness of bidding nodes

The predictability of bidding nodes will affect the distribution of network incentives. One of the major reasons why the EOS network is highly criticized is the fact that its 21 nodes produce bocks in a fixed sequential order. Thus the block producing nodes can be easily predicted which undermines the security of EOS. Ares is based on the Polkadot network and the Substrate blockchain architecture. With the help of the BABE consensus algorithm, the VRF function can be conveniently used to randomly select the quotation node, so that the possibility of the quotation node being predicted becomes almost zero.

  • Security of Arbitration Alliance Management Node

When the price-feeding node submits the data of the distributed data source to the chain. In the real Byzantine environment, any node in its own interests has the possibility of doing evil. How to punish malicious nodes and punish honest nodes for mistakes test the design of the blockchain system. when the challenger detects that there are malicious price-feeding nodes in the network, it can be punished on the chain through an alliance similar to DAO. It is a good choice to maintain decentralization while keeping efficiency. The arbitration members in the alliance can greatly improve network security by self-verifying the validity of data and then voting on the data.

  • No-delay in oracle price on the chain

In blockchain assets, prices fluctuate all the time. When prices fluctuate greatly, it is necessary to frequently update prices to the chain. For complex blockchain systems, due to the huge number of DeFi projects on chain, there should be a large number of transactions triggered by price fluctuation on the chain. When the transaction volume is large, the gas fee will skyrocket. The sent transaction may not be able to be uploaded to the chain in time due to the increased gas fee. This repeating process will cause huge price delays. If for example Chainlink does not updated the ETH/USD price for six hours, a huge market panic can be caused. Ares can guarantee the price of the oracle can be updated on chain in real-time by binding the miners and the quotations. So, it will not cause similar price delay issues.

  • Data filtering by combining on-chain and off-chain

At present, some oracle projects on the market are built on Ethereum, and there are some network security issues caused by non-consensus among the price-feeding nodes. Through the combination of Babe and off-chain worker, Ares takes advantage of the two major innovations of Polkadot to make price-feeding more decentralized and secure. The off-chain worker securely accesses the real-world data and passes it to a smart contract in WASM through the signature, which realizes the secure acquisition of data. Ares Protocol will integrate the acquired data into the data on the chain, remove malicious data, aggregate reliable data onto the chain to perform second-level filtering of the data.

  • The advantages of Wasm contracts

At present, most oracles are built on the Ethereum ecosystem. The EVM compatibility is insufficient. The 256-bit machine code greatly affects performance. By introducing Wasm, the efficiency of data execution can be improved and it is possible to run on the browser. Because of Wasm’s excellent performance and diverse data interfaces, it can define a compatible and visual data structure which enable us to build a powerful oracle module.

  • Upgradable adaptive adapter

The upgradeable adaptive adapter is based on providing data for the development of the digital economy. Different data need to be parsed by corresponding adapters. In the beginning phase of Ares Protocols network only limited adapters for certain types of data will be available. Based on the requirements of the Polkadot parachains the data adapters can be upgraded for all kinds of real-world data.

  • Decentralized aggregated data source

In terms of data sources, Ares uses distributed data sources to obtain prices. Each data source does not simply obtain exchange prices, but aggregates data from some market quotation websites, because the quotation website has done the price of each exchange, the results obtained by aggregating the prices of the market website are more realistic. In the interaction between distributed data sources and quotation nodes, the ECDHE is used to ensure data security.

Ares Protocol is a on-chain-verified oracle protocol that provides secure and reliable data services for the Polkadot ecosystem.

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The first chain-verified decentralised cross-chain oracle service protocol

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