Compound Gets Ready to Deploy Decentralized Oracle

The Compound protocol is set to introduce Open Price Feed — a decentralized oracle whose crypto market prices will allow the project’s lending system to function.

The Open Price Feed is currently being tested on a variety of networks. It has operated for almost two weeks on the Ethereum (ETH) Kovan and Ropsten testnet for almost two weeks, and its price feeds have been available for 10 days on mainnet. On Ropsten, a proposal to use the new price feed locked in on Aug. 6.

Compound developers are calling the community to test the new system in order to integrate it into the protocol as quickly as possible. The system has been continuously audited as each new feature was integrated.

The system relies on price reporters and posters. The reporters will be exchanges, initially just Coinbase Pro, who will regularly sign price data with their public key. Posters, on the other hand, will be responsible for publishing this signed data to the blockchain. Posters are permissionless, meaning that anyone could become one if they wish.

In addition to Coinbase Pro, the system also uses the on-chain Uniswap V2 price feed as a fallback. Called the anchor price, it acts as a sanity check on input from other exchanges. If the price being reported deviates over 20% from a 30-60 minute time-weighted average of Uniswap prices, the off-chain data will be ignored. 

The time-weighted average is required to protect from potential attacks on Uniswap, especially those involving flash loans.

Other price data providers are expected to be onboarded via governance by COMP token holders. It is also possible that after some time and enough price data reporters, the system will stop using the Uniswap fallback.

In June, Compound launched its protocol token, which gives holders the ability to participate in the protocol’s decisions. About 50% is set to be distributed to users of the protocol through a somewhat controversial liquidity mining incentive. The rest remains allocated to previous Compound investors and the team, though none of it is held by the company.

Through this distribution, the protocol is no longer being operated by Compound Labs, Inc. The introduction of a permissionless oracle is an additional measure to reduce Compound’s reliance on its founding team.