Twitter Drama Unfolds! Chainlink Founder Presents Data Source Theory, Uniswap Creator: This Idea Makes No Sense

The founder of Chainlink stated that DeFi protocols will continue to suffer from hack attacks unless they increase the ways to access more price data sources, but the founder of Uniswap seems to disagree.

Solving Oracle Problems is Key to Avoiding Attacks

Recently, several DeFi protocols suffered losses of over $100 million due to flash loan attacks. The platforms affected include Compound ($89 million), Harvest Finance ($34 million), and Cheese Bank ($3.3 million), among others.

In response to these attacks, Chainlink founder Sergey Nazarov posted a tweet with a video on November 27th.

#DeFi protocols should avoid using a single exchange or even just a few exchanges as their price source, regardless of whether it's an off-chain exchange that seems reliable and/or an on-chain DEX.

Read more here: https://t.co/AlPCU6OLHC
or watch here: https://t.co/ycizRUBxDv pic.twitter.com/00uZ0FkO6p

— Sergey Nazarov (@SergeyNazarov) November 26, 2020

In the video, Sergey Nazarov pointed out that these projects fell victim to exploits of their Oracle systems, which manipulated stablecoin prices in DeFi protocols, causing actions contrary to actual market conditions. The reason hackers targeted these specific protocols was mainly due to their reliance on the cryptocurrency price data generated by Curve Finance's liquidity pools.

"Regardless of whether the price data source comes from seemingly reliable centralized exchanges or decentralized exchanges (DEX) on-chain, DeFi protocols should avoid using a single or a few exchanges as their price feed source."

Sergey Nazarov stated that developers of DeFi protocols should carefully consider using Chainlink's services, as Chainlink continuously uses multiple data sources and aggregates final data through hundreds of transactions, effectively resisting various issues.

Is More Data Sources Better? Uniswap Founder Disagrees

Compared to other decentralized Oracle solutions, Chainlink has the highest adoption rate and reputation. However, Uniswap founder Hayden Adams seems to disagree with the views expressed by Sergey Nazarov.

1/

I disagree with a few things here.

First, the number of unique price sources is quite meaningless on its own.

For example, if 95% of a tokens volume and liquidity is one one exchange, averaging in 4 others could lower the quality of the price feed. https://t.co/aL2lGkWUpC

— hayden.eth 🦄 (@haydenzadams) November 30, 2020

He stated that the idea of focusing on the "quantity of price data sources" is meaningless in itself. If 95% of a token's volume and liquidity are concentrated on a single exchange, attempting to average with other exchanges in such a scenario could likely compromise the quality of the final price data.

Furthermore, Hayden Adams believes that Sergey Nazarov should not conflate Chainlink's off-chain Oracle with on-chain Oracles that directly fetch data from decentralized exchanges, as these two solutions have fundamental differences in terms of "attack surface" and "trust assumptions."

"The manipulation cost of Uniswap Oracle's 'TWAPS' is to control the average token price during the period… Chainlink's manipulation cost involves 'disrupting enough nodes' and 'manipulating exchange prices'."

Hayden Adams emphasized that his statements are based on technical aspects and his own perspective, hoping that Chainlink supporters will not harass him. (However, Hayden Adams is prepared to face harassment for the next two weeks, as Chainlink supporters are known to be fiercely loyal enthusiasts, and many DeFi projects have been harassed in the past for not adopting Chainlink.)