With new price oracle, Coinbase wades into DeFi

Finding a constant flow of accurate data has been a running problem for the decentralized finance sector—and during the flash crash last month, it ended in tears for MakerDAO.

Now, Coinbase has announced it is launching a new price oracle that will provide up-to-date rates on BTC/USD and ETH/USD every 60 seconds.

In a blog post announcing the new feature, Coinbase expressed hope the service would help “reduce systemic risks” in the DeFi ecosystem. 

Under CEO Brian Armstrong, Coinbase has become known for pursuing regulatory approval and actively pursuing institutional clients with measures like Deloitte security audits. It’s reputation and procedures were sufficient to convince Visa to allow it to issue debit cards directly in February—a first for “pure play” crypto debit cards.

Quality data

Oracles are often used to maintain a level price for algorithmic stablecoins, or to inform futures and options trading platforms when debt positions need to be liquidated.

Coinbase said two main methods are currently used to provide this data: Off-chain sources such as exchange, or prices from decentralized exchanges, also known as DEXs. However, it claims both of these models have flaws.

“Using data from an off-chain source requires trusting the publisher to post correct prices and keep the signing key safe—the latter historically has proven to be a difficult problem, especially when stakes are high. Similarly, relying on DEX-generated on-chain feeds exposes protocols to various novel attack vectors yet to be fully explored,” the post said.

In Maker’s case, an oracle was slow to provide up-to-date prices. Although this actually helped mitigate the impact of collateral being sold en masse when ETH crashed on Black Thursday, it does illustrate the flaws that some oracles have. (Maker’s automatic auctions of collateral after margin calls were missed was so flawed, ether was being “sold” for zero-dollar bids.)

The new price oracle Coinbase is launching will be sourced from Coinbase Pro, which it describes as “one of the most liquid exchanges in the world.”

The data will be signed by Coinbase’s private key to eliminate trust issues, and anyone can verify the authenticity of the data using a public key. It said protections are in place that shield users against price manipulation from exchanges.

Antonio Juliano, the CEO of the decentralized exchange dYdX, said: “A Coinbase Price Oracle will be hugely impactful for the DeFi ecosystem—price oracles are used in every lending and derivatives protocol. Coinbase is uniquely positioned to provide oracle prices as they’re the most trusted and secure institution in the space.”