Produced | NEST Fans (nestfans.com)
Produced | NEST Fans (nestfans.com)
The oracle machine is a bridge connecting the blockchain world and the real world. It brings the information of the off-chain world to the chain in a way that conforms to the blockchain consensus mechanism, and introduces real and effective market information sources to the blockchain world.
NEST Protocol abides by the basic principles of the blockchain world, and generates the price data of the off-chain world directly on the chain in a way that is more essential and more in line with the consensus mechanism of the blockchain.Come to form highly deterministic on-chain price data.
The NEST oracle machine adopts the method of miners bilateral quotation\verifiers order verification to ensure that every piece of price data is effectively verified.secondary title
1. Quotation mechanism of NEST oracle
Before analyzing how verifiers arbitrage in the NEST oracle, lets take a look at the quotation principle of the NEST oracle.
Quotation miners need to transfer the specific amount of assets corresponding to the quotation transaction pair when making quotations. The current quotation size is 30 ETH.
During this period of time, any verifier can exchange according to the quotation data of the miner; for example, the verifier can transfer 18,000 USDT to the quotation contract to exchange for 30 ETH, and I can also transfer 30 ETH to the quotation contract to exchange Out of 18000 USDT.
This means that if the quotation data of the quotation miner deviates greatly from the fair market price, then an arbitrage opportunity is provided for the verifier, and anyone can become a verifier to participateTaker arbitrage;secondary title
2. Verification mechanism of NEST oracle
If a quote miner quotes a quote that deviates from the market price, the verifier can take arbitrage at this time.
For example, the current market price of ETH is 600 USDT, and a quotation miner quoted a wrong price. He quoted 300 USDT, and the quotation funds into the quotation contract were: 30 ETH + 9000 USDT. At this time, the arbitrage opportunity for the verifier appears.
Validator actions:
The verifier transfers 9,000 USDT to the quotation contract, and the transaction takes away 30 ETH; then sells 30 ETH in the market to obtain 18,000 USDT, and the final profit is: 9,000 USDT (Note: The gas fee of on-chain arbitrage and centralized trading are ignored transaction fees).
The specific verification rules are as follows:
1) The validator’s taker quantity is at least X * 30 ETH, where X is an integer. Since the minimum quotation size is 30 ETH, the taker must also be an integral multiple of 30 ETH;
2) While taking the order, the verifier needs to submit a new quotation to correct the price; the size of the new quotation is required to be twice the size of the current taker;
Example:
Example:
The fund size of the quotation is: 30 ETH + 6000 USDT
The verifier takes the order and transfers 30 ETH in exchange for 6000 USDT;
At the same time, a new quotation (market fair price) of 60 ETH + XXXX USDT needs to be reported.
Graphic analysis:
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3. When will arbitrage opportunities arise
We divide situations where arbitrage occurs into two categories:
Category 1: Extreme Situations
(1) NEST oracle price was attacked
When the DeFi protocol calls the NEST oracle on a large enough scale, there will be attackers who gain huge profits by manipulating and attacking the NEST oracle.
According to the current NEST oracle system design, its theoretical attack cost is infinitely high. Not to mention the attack cost of distorting the effective price of the NEST oracle machine, just making the NEST oracle machine not update the price within 60 minutes requires the use of assets worth up to 2 million ETH.
For the calculation of the attack cost, please refer to the NEST Protocol white paper:
https://nestprotocol.org/doc/zhnestwhitepaper.pdf
(2) Similar to the 312 black swan event
This type of event is an extreme market. In this case, the quotation miners may not have the intention to attack the NEST oracle machine, but the miners cannot predict the price fluctuations in the next 25 blocks (5 minutes). In this extreme market situation, there may be a huge arbitrage space in five minutes. If such a situation occurs, validators must not miss the arbitrage opportunity for huge profits.
The second category: regular market fluctuations
Under the normal market trend, the price of encrypted assets fluctuates continuously in a small range, and there will also be certain arbitrage opportunities. Although the volatility is not as high as in extreme cases, it will also motivate verifiers to look for arbitrage opportunities that can satisfy themselves.
Although there are not many arbitrage opportunities that can be captured in this market, and the arbitrage space will not be very large, there is still a certain probability (the theoretical value is 7%) to capture arbitrage opportunities, and the profits will be very large over time. considerable.
All in all, no matter what happens, when there is a certain deviation between the quotation data on NEST Protocol and the fair market price (the conventional value is 0.5%), arbitrage will occursecondary title
4. Data Analysis
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Price volatility data from August 26th to November 26th
Through the data analysis on the chain, we can see that the cumulative number of quotations in the last three months is 71,970, and the number of verifications is 914, of which the number of verifications in November is 685. From the perspective of price volatility changes, the price in November large fluctuations,So the number of verifications is positively correlated with price volatility.
Although there were a few days in September with high volatility, the number of verifications was not large, indicating that the verification market in September was still relatively low in participation (another possibility: the arbitrage space set by the verifier is large); 10 In the case of little price fluctuation in the month, the number of verifications has also increased significantly, which proves that more verifiers have begun to appear.Performed on NEST ProtocolTaker arbitrage, verify each quotation of quotation miners, and protect the price data security of NEST oracle machine;image description
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When the price deviation is 0.5%, the validators arbitrage income for three months (unit: USDT)
In terms of income:where the maximum deviation is read1.2%Arbitrage (occasionally occurs when the market fluctuates greatly, if you encounter such an opportunity, you must capture it), roughly the average deviation0.5% ~ 0.6%Arbitrage occurs.
We use the price deviation threshold to trigger the validator to take orders as0.5%Calculation. Then, in the last 3 months, the verifiers on NEST Protocol have earned a total of183009.682 USDT. Among them, the income in November increased significantly, which also means that this piece of cake was gradually discovered by more validators. Of course, these profits are not exclusively shared by a certain validator, but captured by the entire validator group.
The arbitrage opportunities on the NEST Protocol are on the chain, and you can get them by participating in verification and taking orders!
At present, the scale of verifiers in the NEST Protocol ecosystem is still relatively small, and the game between verifiers has not yet been fully reflected. Of course, whoever gets involved first will be the first to share this part of the NEST ecosystem.V. Summary。
V. Summary
In the NEST Protocol ecosystem, quoters and verifiers complement each other to jointly maintain the network security of the NEST oracle machine and generateHighly certain price data, for the DeFi protocol to call.
The NEST system is an open game full of games.hope moregame playerBe able to participate, become a quoter or verifier, and build an on-chain price database in the blockchain world together.
