How Does a DON Handle a Highly Illiquid Data Source during Aggregation?
A DON handles illiquid sources by assigning them a lower weight in the aggregation process, often through a Volume-Weighted Average Price (VWAP) calculation. If an exchange has minimal trading volume, its price influence is proportionally reduced.
Some aggregation models may even filter out sources that fall below a minimum liquidity or volume threshold to prevent price manipulation via low-volume trades.
Glossar
Illiquid
Valuation ⎊ Illiquidity in cryptocurrency, options, and derivatives manifests as a divergence between marked-to-market prices and intrinsic value, often amplified by limited arbitrage opportunities and information asymmetry.
DON
Decentralized Oracle Network ⎊ DON refers to a decentralized network of independent node operators that aggregate, validate, and attest to the accuracy of off-chain data before broadcasting it to smart contracts, thereby ensuring data reliability without reliance on a single source.
Data Source
Origin ⎊ A data source, within cryptocurrency, options trading, and financial derivatives, represents the foundational point of information ingestion for quantitative models and trading systems.
Aggregation
Process ⎊ Aggregation in financial markets involves collecting and combining data from multiple sources to form a single, representative value.