DeFi Applications are Ready to Embrace a Centralized Price Oracle from Coinbase
Coinbase, one of the largest cryptocurrency exchanges in the world, has set its sights on the world of decentralized finance (DeFi). The rapidly-growing U.S. exchange giant has announced the launch of Coinbase Oracle—a price feed to be used in various DeFi protocols.
According to the company’s blog post, the growing interest in the DeFi ecosystem has pushed it to get more involved in the space. With almost $1 billion in various assets being actively pooled in DeFi protocols and applications, there is a persisting need for trusted price feeds.
These feeds, called oracles, are a vital part of the ecosystem, as they report prices used for the construction of novel derivatives, algorithmic stablecoins or for liquidating debt positions. Coinbase’s oracle will be one of the most reliable price feeds, the company said, as it will be anchored into Coinbase’s secure infrastructure.
Officially launched on Apr. 23, Coinbase’s Oracle API will be available to anyone and will provide price data for BTC/USD and ETH/USD from Coinbase Pro.
“Anyone can publish the prices on-chain and since the data is already signed by Coinbase’s private key, there is no need to trust the publisher. Using the Coinbase Price Oracle public key, anybody can verify the authenticity of the data,” the company explained in the blog post.
Robert Leshner, the CEO of Ethereum money market protocol Compound, said that the Coinbase Oracle will increase the security and decentralization of Compound’s price feed. He also said that Coinbase’s new product will benefit the entire ecosystem, not just the compound.
However, despite Coinbase’s assurance that the oracle will be secured by “best-in-class key storage techniques,” many criticized the exchange for its ever-tightening grip on the crypto industry. The main criticism has been that Coinbase has historically been responsible for centralizing crypto services, and the newly introduced oracle is no different.
Many also believe that using prices from algorithmic decentralized exchanges (DEXes) such as Uniswap or Kyber is a much better alternative to centralized services. Some also raised concerns about the flash crash Coinbase faces almost every year.
Justin Mart, the head of corporate development at Coinbase, defended the exchange’s decision to introduce a centralized service. In a Twitter thread, Mart said that there are no “trustless” price feeds in the DeFi ecosystem, as every price feed is only as valuable and secure as the platform providing it. Coinbase will simply be adding a signed price API as a way to add another input for DeFi price oracles, and will never be the sole price provider for any DeFi protocol.
Mart also explained that Coinbase has no intention of competing with other oracle service providers such as Chainlink. In his words, the best oracles will provide trusted feeds from many different sources in order to provide the best service and security. That’s why Coinbase’s oracle will be the “net additive” to the ecosystem, as it means that there is now one more trusted input that DeFi teams, including Chainlink, Compound, and others, can use in their oracle systems.
He believes that the next step for the crypto industry is for other trusted exchanges, such as Kraken, Binance, Bitstamp, and Gemini to add their own signed price oracles as well.