Why Might a DeFi Protocol Choose a Centralized Oracle despite the Security Risks?
A centralized oracle offers much faster data updates, lower latency, and significantly reduced transaction costs compared to a decentralized network. For high-frequency trading or protocols requiring very fast price updates, the speed and low cost can outweigh the security risk.
Additionally, a centralized oracle is simpler to implement and maintain, reducing initial development complexity.
Glossar
Centralized Oracle
ExternalDataReliance ⎊ A Centralized Oracle represents a single, non-decentralized entity responsible for fetching, verifying, and reporting external market data, such as spot cryptocurrency prices, to on-chain smart contracts.
Centralized Oracle Provider
Data ⎊ A Centralized Oracle Provider is a single entity responsible for sourcing, validating, and feeding external market data, such as spot prices or volatility metrics, into on-chain smart contracts for derivatives settlement.
Defi Protocol
Structure ⎊ A DeFi Protocol is a set of immutable smart contracts deployed on a blockchain that automates financial services, such as lending, borrowing, or derivatives exchange, without centralized intermediaries.
Transaction Costs
Expense ⎊ Transaction costs represent the total expenses incurred when executing a trade or interacting with a financial protocol on a blockchain.
Smart Contract
Code ⎊ The contract is fundamentally self-executing code deployed on a distributed ledger, embodying the terms of the agreement in an immutable format.