Chainlink- Behemoth of the Decentralized Oracles Pt 2

This is part 2 where I focus on LINK’s competitors and see if they are worth your money. If you haven’t read part 1 where I explain the tokenomics and how LINK works, check it out here.

BAND

BAND V2 was created as a cross-chain oracle using cosmos SDK and using the Tender mint consensus algorithm. BAND is the official oracle of Polkadot due to it using Cosmo SDK and is easier to integrate. However, Chainlink is built to be ETH native first due to it having the most users and eventually plan to scale out to other chains as well. Native integration also means it is a lot easier to implement LINK into your ETH smart contract versus BAND, which gives LINK an advantage in the Ethereum Defi ecosystem.

BAND uses a mix of proof of authority and delegated proof of stake which are easier to hack compared to POW chains like Ethereum where LINK is built on. Band’s CTO recent scandal with sushi swap has also hit the community deeply, causing a large dip in the price from $15 to $6.46.

Here is an extremely good write up on the pros and cons of BAND vs LINK but a tat technical.

The summary is that BAND has an inflation rate of 13.5% which they will increase up to 20% or reduce to 7% if the network requires. Band currently only supports low-quality APIs, the inability to support high-quality data raises serious doubts about whether DeFi protocols will feel comfortable relying on Band to secure millions of dollars. It also does not have built-in credential management for protecting their APIs which Chainlink has.

Band also need to integrate multiple users of different blockchains together with a bottleneck of 100 nodes means it is not scalable long term nor its expansion sustainable. Its design also requires a third party to pass over the data to the requester once data is compiled on Bandchain. This is very risky as 3rd parties have no financial obligation to deliver that data safely. The small team together with the lack of experience and constant change in protocol design seems lacklustre compared to Chainlink’s robust team of experienced veterans with a solid road map.

Band sucks, just buy LINKs. Simply from the price appreciation due to difference in inflation, LINK already wins. On top of the more robust team, community and tokenomics, Band should go down the rubbish chute.

DIA

DIA (Decentralised Information Asset) is an open-source, financial information platform that utilizes crypto-economic incentives to source and validates data. They are a Swiss-based non-profit association and it is their mission to democratize financial data, similar to what Wikipedia has done in the broader information space with regard to central encyclopedias. It is set to become the open-source Bloomberg for crypto and financial data.

The tokenomics are very similar to LINK with staking for data providers as well as the need for users to pay in DIA to request data from the network.

Its market cap is extremely small and have a tremendous upside compared to both BAND and LINK.

how does DIA differ from or innovate on decentralized oracles?

Their system is completely auditable and data streaming through their databases is verifiable by a hash that they will publish daily on the blockchain. They employ a hybrid off-chain and on-chain systems that only put required tasks on-chain that needs to prove the completeness and immutability of the data. This allows the DIA system to be extremely scalable and very efficient because data aggregations, source selection, and data cleaning happens off-chain and does not require any gas fee until the final value is posted into the oracle blockchain.

One of the key benefits of DIA is that it is built to scale although it is not as secure as LINK. Thus, I see some applications where information security is not important adopting DIA as each API feed request will be cheaper than LINK. Examples such as a dedicated crypto-Bloomberg for normal folks using such APIs for price feeds to their excel sheets. However for bigger Defi applications like SNX, YFI and DEXs, I believe LINK is still the go-to oracle due to its ETH integration and top tier security.

TRB

Tellor’s creators, Daxia, create it because they had earlier created a derivatives protocol on Ethereum, which required an oracle. TRB is cross chain compatible. The TRB supply is low and fixed and there is no pre-mined by the team as well.

How does it work?

TRB tokens holders will “tip” a data feed that they want updated as gas fees to miners to incentivize their data point to be updated, the higher the TRB tip, the higher the priority for the data update. This update is done every 5 minutes and the miners gets the newly minted TRB together with the “tips”.

Miners also need to stake minimum 1000 TRB in the network to become a miner. Anyone can dispute the data feed and TRB is needed when such a dispute is raised. The dispute will be settled by TRB holders voting, if the data is indeed correct, the TRB summitted to raised the dispute will be given to the miner and if its false, the miner’s stake will be slashed and the stake will be given to the disputer.

The tokenomics is similar to LINK but with an addition of new minted TRB given to miners similar to how new Bitcoin’s are created. However, there are fatal flaws in this design. Firstly, it cannot scale as there is a limit on the number of data feeds that can be updated every 5 minutes. Currently, there are only 288 queries per day on average.

POW itself is also an extremely slow form of consensus (Bitcoin does 4.6 transactions per second.) This means it has higher levels of security but has reduced efficiency and performance. Its limit of 5 minutes per block also do not reducible as POW requires times to ensure that the consensus is not broken in subsequent blocks. Defi requires updates to data feeds when it is needed and not every 5 minutes, making this oracle practically useless when you need fast updates and thus I don’t see any big protocol adopting TRB.

Only the top 5 data types will be updated as well, meaning a bunch of other data points will not be updated simply because its not prioritize, which severely limits its use case.

All the updates and reviews on TRB I see online only discusses the price and doesn’t look at adoption or the tech.

Looking at the lack of adoption and tech updates, it is just an oracle to ride the oracle hype in the August Defi bubble and I don’t see how this oracle will be better adopted, especially with limitation on scalability and its security might not even win LINK. Thus, skip TRB and buy LINK.

API3:

They were one of the biggest chainlink nodes so they know its flaws and have decided to build their own one. How better accurate data.

Problems with Chainlink (claimed by API3)

  1. Chainlink isn’t well enough designed or maintained to remain a long-term solution for crypto or DeFi’s information needs, and those that rely on Chainlink do so at their own users’ risk.
  2. Unstable oracle nodes, node operators need to know how to respond to incidents as well as pay constant attention to incidents. Hard to maintain.
  3. Oracle cannot be automatically recovered during incidents and need user intervention.
  4. Vague configuration recommendations, no recommendations, you should not need more auxiliary packages for it to work. You’re on your own to figure out bugs and configuration.
  5. Cryptocurrency payments by requesters are a big roadblock. Regulations and legislations issue as 99% of businesses use fiat and do not want to buy crypto just to use the network. Multiple chains need multiple forms of currencies.
  6. Cost is in cryptocurrency as well. It is not an option for most companies to float a stock of crypto just to pay such expenses.
  7. Having API providers to stake. Hard to account for gains and losses in capital gains as well as slashes for staking without AML issues, thus most providers just avoid.

API3 aims to solve these problems by using the Airnode design, a cloud-based “blockchain gateway” for web and mobile applications, API3 makes it seamless for primary data providers to pipe their information into cryptocurrency networks with zero blockchain expertise. That means the reputation and quality of existing data providers can carry into the crypto sphere, simultaneously allowing these entities to turn a profit from crypto participation. They want to allow providers to focus on the quality of data instead of the node set up, currently, it is also too technical for most traditional providers to set up a Chainlink node.

Problems with API3

However, by skipping all the tokenomics where providers and users need to spent, stake, and transact in the native token, it is highly arguable if the API3 token is even needed or would it accrue value in any meaningful way. It feels like just an ICO token to fund their startup, similar to what EOS did in 2017 and EOS ended up spending the money to buy more BTC instead of building their Ecosystem. Currently, the token’s only utility is to stake in the DAO which has no meaningful way of earning revenue or in any sustainable manner. Although some talk about revenue share to stakeholders but it's not set in stone yet, everything just feels incomplete and makes API3 feel like an unfinished project.

Official comments by chainlink on API3 : “API3 doesn’t have oracles that run their own Ethereum or other nodes, which means they are forced to rely on centralized third parties to broadcast their results,” the Chainlink Labs representative said. “This means that API3 is entirely dependent on services like Infura being live, which as we’ve seen recently, can fail for hours at a time, which in API3’s case, would lead to hours of downtime, out of sync market prices and therefore massive losses for users.”

Looking at the lack of adoption and tech updates, it is just an oracle to ride the oracle hype and I don’t see how this oracle will be better adopted, especially with limitations on tokenomics which I do not believe will become valuable in the future for current investors.

Thus, skip API3 and buy LINK.

That’s all for now folks, sorry for the long hiatus as I’ve been busy with school as well as working on some leveraged trading strategies. Defi markets has also been really crazy to keep up with. In the next part, I’ll focus on the new updates for LINK together with some evaluations of the token’s price in the future. Stay tuned!

I’m not charging for this newsletter as I’m an advocate for free information. If you’re willing to work hard it’s not hard to get rich in the crypto markets. You can join my group to get the most updated information of my free newsletter here. You can also follow me on Twitter here to get the most updated information on the crypto markets as well as post any questions! I’ve also recently started a Gitcoin grant here!

I’m writing this analysis for me to send to friends who are interested and for me to consolidate the information I’ve in my head which helps me position myself better and make money.

Have a great day and make a killing out there. Knowledge is power my young ones.

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