Ethereum (CRYPTO: $ETH) co-founder Vitalik Buterin proposed a new feature that should be added to the token of decentralized exchange (DEX) Uniswap (CRYPTO: $UNI).
What Happened: Buterin filed an Uniswap governance proposal on Wednesday, proposing UNI should also become the token powering a system that provides Ethereum decentralized applications (DApps) with outside data — a so-called “oracle.” In other words, the Ethereum co-founder believes that Uniswap’s system should be expanded to also feature an oracle providing token pricing data to the whole ecosystem.
Price oracles provide a very important price of information that if manipulated could lead to great economic losses: think what would happen if a decentralized exchange was tricked into thinking that Ether was only worth one cent. The UNI token would help ensure that the system is secure: users would be regularly asked for the price of tokens that would then be made available to smart contracts on the Ethereum blockchain.
The trick is that multiple parties would have to provide this information every single time, and they would lose their staked UNI tokens if they provide an answer different from the others.
Buterin put it simply: “Those who provide the majority answer are rewarded and those who provide the minority answer are penalized.”
Buterin admits that “if the majority of token holders are corrupted, they can successfully impose an incorrect answer” and explains that this is why “a robust token-based decentralized oracle for a [decentralized finance] project must first and foremost be based on a token with large market cap.” The reason is that this would dramatically increase attack cost which he believes would amount to half the market cap of the token at hand, which in UNI’s case would be equivalent to $10.9 billion as of press time.
Buterin mentions Chainlink (CRYPTO: $LINK), admitting it is the leading oracle provider on the Ethereum blockchain and claims that it “is great, but there’s room for a simple alternative.” He explained the alternative system powered by UNI would be specialized in “high-value, okay-with-high-latency use cases.”
His reasoning is Chainlink is a complex system with many features valuable for many use cases but its incentives are not as good as they could be.
“There is not an automated mechanism by which participants who provide wrong answers get penalized,” said Buterin.
He also pointed to the fact that the Ethereum ecosystem can become more resilient through the presence of multiple systems providing the same service through different approaches. In this case, UNI would provide a “minimalist alternative that’s more laser-focused on optimizing incentives and maximizing cost of attack” to Chainlink.
Price Action: UNI was at a high of $42.32 during a 24-hour period and went to a low of $35.99 Thursday at publication.
LINK made a new 24-hour low of $39.40 after registering a high of $46.57. As of publication Thursday, it is at $41.53.