Coinbase Launches a Price Oracle as it Tightens its Focus on DeFi

Crypto exchange Coinbase has launched its own price oracle in an attempt to enhance the resiliency of the price feed process.

An oracle is a third-party price feed which supplies real-world data to a decentralized network. Right now, almost all Open Finance (DeFi) platforms leverage oracles to provide services such as lending, margin trading, and derivatives. Uniswap and Kyber both run oracles which are widely used.

However, this price feed process has long been criticized for being maintained by a centralized entity. It also poses risk because the smart contract can not check the accuracy of the data. In a recent high-profile case, DeFi lending protocol bZx, which uses Kyber’s price feed, came under an oracle attack which led to a loss of 2,388 ETH.

On April 23 Coinbase launched Coinbase Oracle, a signed price feed allowing anyone to publish price data on-chain. The data is sourced from the Coinbase Pro API and gets updated every minute. Users can use the Coinbase Oracle API to get signed price data for both BTC-USD and ETH-USD markets.

The announcement states that getting data from an off-chain source such as an exchange usually requires users to trust that the publisher is providing the right prices and that the signing key is uncompromised, which “historically has proven to be a difficult problem, especially when stakes are high.”

With Coinbase Oracle, though, there is no need to trust the publisher since the data is already signed by Coinbase’s private key. The oracle uses the same key security infrastructure as the Coinbase exchange and anyone can verify the data with the Coinbase Price Oracle public key. The oracle also has a filtering mechanism which flags and rejects data points which differ from either the asset’s expected volatility or its last reported price.

Notably, several projects besides Coinbase have been attempting to create more resilient price feed designs.

For instance, Uniswap Version 2, scheduled for launch in Q2, will bring several changes to its price feed model to make it more costly for potential attackers to compromise the oracle.

tBTC, the Bitcoin-pegged ERC-20 token set to be rolled out in late April, will implement a “third-party challenge system” which will ensure more decentralized price feed. Compound has also created an “Open Oracle System” to make the process more transparent.