Binance Research: Oracle manipulation led to more than $892 million stolen since 2020

Oracles act as a bridge between the on-chain and off-chain worlds, enabling blockchains to leverage real-world information. Whether retrieving cryptocurrency asset prices or getting the results of a football match, oracles can access a variety of external data, which can then be easily incorporated into the cryptocurrency ecosystem.

While oracles significantly enhance the functionality of blockchain networks by executing tasks guided by real-world inputs, vulnerabilities due to oracle operations cannot be ignored. In fact, oracle vulnerabilities have cost nearly $1 billion since 2020.

Oracle-related losses hit $892 million

According to the latest estimates from Binance Research, approximately $892 million has been moved through oracle-related manipulation over the past three years.

In many cases, individuals artificially inflate the prices of illiquid tokens in a particular protocol. They then exchange these artificially inflated tokens for other assets or use them as collateral to obtain loans in the lending market.

On the bright side, the trend appears to have slowed. Losses from oracle-related vulnerabilities will decrease significantly by 2023, likely due to increased security measures and a general decline in total value locked (TVL) within the decentralized finance (DeFi) ecosystem.

The study further points out that the use of oracles can be a double-edged sword, paving the way for vulnerabilities that malicious actors can exploit.

“Oracle-less solutions appear to offer a range of attractive alternatives that can mitigate the risks associated with oracles. Nonetheless, the adoption of these alternative solutions is influenced by a variety of factors and considerations, and in some cases circumstances may be more appropriate than in other circumstances.”

No Oracle protocol is not foolproof

As solutions, the report proposes several projects involving loans, derivatives, and non-fungible tokens (NFTs) aimed at reducing reliance on oracles.

However, the report also highlights that oracle-less protocols come with trade-offs, such as increased complexity, reduced efficiency, and design limitations. Developers and users should carefully consider these factors when choosing between Oracle-dependent and Oracle-independent solutions.

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Information source: Compiled from CRYPTOPOTATO by 0x Information.Copyright belongs to the original author and may not be reproduced without permission

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