RedStone Oracles: Revolutionizing DeFi Data Feeds for Web 3.0

nakalya
5 min readSep 17, 2023

In 2021, the decentralized finance (DeFi) ecosystem witnessed an explosive growth in size, driven by the emergence of new protocols covered extensively in various news portals. These protocols aimed to revolutionize financial products by leveraging blockchain technology. However, the true potential of Web 3.0 was hampered by the limited availability of diverse data types. This is where RedStone Oracles step in, offering a unique approach to store non-standard data on Arweave and deliver it to all Ethereum Virtual Machine (EVM)-compatible chains, unlocking new possibilities for DeFi and beyond.

The Role of Oracles in DeFi

At their core, oracles serve as intermediaries that facilitate communication between blockchain networks and off-chain systems, such as data providers, cloud services, IoT devices, and payment systems. Smart contracts on various blockchains, including Ethereum, rely on oracles to access real-world data for decision-making. This data can range from simple metrics like weather conditions to complex information like election results.

However, traditional centralized and third-party oracles are not aligned with the core principles of blockchain technology, particularly decentralization. The external data they provide is often non-deterministic and unsynchronized, making it challenging to achieve consensus among network nodes. Additionally, direct access to insecure external environments poses significant risks, leading to what is commonly referred to as “The Oracle Problem.”

The Oracle Problem and Early Attempts

Blockchain networks are designed to operate independently without relying on intermediaries to communicate with the external world. They form a consensus using data stored on their ledgers, validated by nodes across distributed networks. This decentralized nature prevents them from accessing or providing data directly to external systems.

During the early days of blockchain, the lack of standards led to many protocols creating their proprietary oracle solutions. These home-made oracles often proved vulnerable, resulting in security breaches and hacks, sometimes involving significant financial losses. As a result, users began gravitating toward more professional oracle solutions offered by market leaders.

An early solution known as the “two-phase approach” was pioneered by projects like Oraclize (now Provable) and Chainlink. This approach involved a contract submitting a request for data to an Oracle Service, which would then send back a response with the required data. However, this method had limitations, including the need for two separate transactions and the lack of atomic data fetching, which complicated interoperability.

The Current State of Oracles

To address these issues, many blockchain projects have attempted to store all data directly on-chain, making it accessible in the context of a single transaction. While this approach improves data availability, it comes with high maintenance costs, particularly on platforms like Ethereum. Transaction fees can soar, making it economically unfeasible to store extensive data on-chain.

Ethereum, originally designed for low-latency computation, penalizes storage-related operations with high costs. This forces protocols to pool resources and use standardized configurations, excluding less popular tokens from oracle support.

Despite these challenges, the Oracle Market Cap reached approximately $14 billion by January 2022, according to Coingecko, and is expected to continue growing with the expanding DeFi and crypto industry.

Introducing RedStone: A Game-Changing Oracle Solution

RedStone is poised to address the challenges faced by blockchain projects by offering flexible and affordable oracle solutions tailored to the needs of modern DeFi protocols. Here’s how RedStone is reshaping the oracle landscape:

1. Affordable Storage: RedStone leverages Arweave, a blockchain designed for cost-effective data storage. Storing 1GB on Arweave costs $35, compared to $1.7 million on Ethereum as of December 2021. These low operating costs enable RedStone to process more data with higher update frequency.

2. On-Demand Fetching: RedStone’s approach involves storing data on Arweave while a network of nodes and partners makes it available to DeFi projects through a decentralized public cache. Data is injected into the destination chain only when needed, improving usability and efficiency.

3. Flexible Data Streams: RedStone supports various data types, not limited to price data for assets. It aims to fill underserved areas in the Web3 space, such as NFT data, gaming statistics, insurance information, sports data, green bonds, and credit scoring. RedStone welcomes community input and collaboration to expand its data offerings.

4. Data Integrity: To ensure data reliability, data providers must stake RedStone tokens as collateral, and their activity is recorded on the Arweave chain. This transparency allows anyone to question data feeds and receive a portion of the collateral if data is misrepresented.

5. Cross-Chain Oracle Solutions: RedStone’s data, cryptographically signed by providers, can be verified on any chain supporting basic cryptographic primitives. This abstracts data storage from usage, making it versatile across different blockchains. Initially, RedStone focuses on EVM-compatible chains like Ethereum, Celo, Polygon, and Avalanche, with plans to support more blockchains in the future.

RedStone: Pioneering a Data-Driven Future

RedStone is already making strides in fetching data for over 1000 assets, including cryptocurrencies, stocks, currencies, and commodities. Its innovative approach to data delivery and storage is set to unlock new possibilities for DeFi, NFTs, gaming, insurance, and more. As the demand for diverse and reliable data continues to grow in the DeFi and crypto industry, RedStone is poised to play a pivotal role in shaping the future of blockchain-powered applications.

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