Original Author: Philip
Original Source: Chainlink
On July 30, 2023, several important projects, including Curve Finance, suffered attacks due to serious vulnerabilities found in certain versions of the smart contract programming language Vyper. The trading price of CRV on multiple DEXs experienced drastic fluctuations, and at one point, an extreme price appeared on a certain DEX for the CRV/WETH trading pair.
If this price were to be used, a large number of CRV collateralized debt positions on various lending protocols would be at risk of liquidation, resulting in financial losses for many users. Considering the inadequate liquidity capacity of CRV on-chain at the time, these liquidations would be difficult to execute effectively, posing potential bad debt threats to numerous lending protocols. As liquidation progresses, panic within the community is likely to spread, leading to more serious consequences.
The entire DeFi world is on the brink of collapse.
Fortunately, Chainlink has prevented all of this from happening with its continuous and stable price feeding mechanism. So, how does Chainlink's price feeding mechanism work?
Chainlink's Data Aggregation Layer for Price Feeds
To ensure the integrity and reliability of data, Chainlink obtains price feeds only from reputable and paid data aggregators. In other words, each data source used by Chainlink's price feeds comprehensively covers the majority of centralized and decentralized trading platforms in the market, and the trading volume is used as a weight to adjust and ultimately aggregate trustworthy price data on-chain. As a result, Chainlink can effectively withstand various attacks such as flash loan exploits or price abnormalities.
In addition to the data source, Chainlink price feeds also include multiple oracle node operators. Each oracle node retrieves price data from multiple independent data aggregators, removes outliers, takes the median of the data, and reports it as the oracle's data. The decentralized oracle network then removes outliers from each reported data during consensus, takes the median again, and finally obtains the trustworthy on-chain data for that round. Therefore, not only does each data source cover all trading environments comprehensively, but each node also aggregates data from multiple data sources and transmits it to the chain after consensus, which better avoids single point of failure.
Chainlink price feeds also aggregate data from numerous responsive nodes, and these nodes have undergone security evaluations. The triggering of the aggregation method is jointly determined by the deviation threshold and heartbeat time. This complete aggregation mechanism ensures the overall operation time of the oracle network, effectively prevents data manipulation during transmission to the blockchain, and even prevents extreme situations such as several nodes or data sources going offline or launching malicious attacks.
For more information on Chainlink price feed mechanisms, please refer to "Understanding the Three Data Aggregation Layers of Chainlink Price Feeds" and "Average Price Algorithm: TWAP vs. VWAP". (Note: The images in the articles are screenshots at the time of writing, and the latest price feed node information is subject to the official website)
Decentralized Spirit
In 1281, Wen Tianxiang wrote the "Song of Righteousness" while in prison. "When times are difficult, the true character is revealed."
In times of crisis, the righteous individuals bravely face the difficulties and show their resolute integrity, leaving behind heroic and moving deeds that will be forever recorded in history. In the world of Web3, decentralized thinking is truly a "virtue". In recent years, when the Web3 world has faced multiple crises, it is often those who understand the path of decentralization who step forward to turn the tide. They use practical actions to safeguard the belief of Truth>Trust and steadily promote the progress and development of the industry.
Chainlink's rigorous data aggregation mechanism stems from its full implementation of decentralized thinking. Rather than saying that Chainlink "saved" DeFi in this incident, it is more accurate to say that decentralized thinking, as originally designed, continuously safeguards the gradually emerging new financial order in a fair and transparent manner.
