Ethereum founder Vitalik proposes that Uniswap governance token UNI should serve as an oracle token.

Ethereum founder Vitalik Buterin proposed on Uniswap that Uniswap and the UNI token should provide oracle services to make price data more robust, thus increasing the cost of manipulation and attack.

Vitalik Proposes Uniswap Should Provide Oracle Services

The following is a translation of the "UNI should become an oracle token" content, please refer to the original text:

One of the most critical elements for a successful DeFi ecosystem is a highly secure price oracle.

Algorithmic stablecoins such as DAI, RAI, LQTY rely on oracles. Note: price feed features, any type of synthetic asset depends on oracles, collateral loans depend on oracles, and many other projects as well.

While Uniswap does provide a "predictive role" in the exchange price of ERC20 tokens, it is not a true oracle as it does not provide prices for real-world assets.

Here's the issue: Algorithmic stablecoins need an ETH/USD price oracle to function, and they specifically need oracles for off-chain USD-denominated assets, without the need for any particular on-chain USD as a value benchmark. Similarly, synthetic assets need oracles reflecting the price of any asset priced in ETH.

I propose that Uniswap and the UNI token intervene and provide such oracles, for example: modeled after Augur or UMA, specifically designed to provide robust price data and make manipulation and attack costs expensive.

Article Outline

• Stablecoins need an ETH/USD price oracle (as mentioned above)
• Using ETH/USDC price as a solution is insufficient
• Chainlink is great, but for high-value, high-latency-accepting use cases, there are simpler alternatives
• UNI can be applied to such oracles
• Macro-wise, Ethereum L1 needs to maintain minimal governance, while L2 should be more ambitious, and UNI can be a part of that

Using ETH/USDC price as a solution is insufficient

The goal of algorithmic stablecoins is to maximize resistance to censorship by eliminating reliance on the "real world." If this goal is not important to stablecoin users, they can avoid the technical risks of algorithmic stablecoins by directly using USDC.

If this goal is important to stablecoin users, then it is essential that they not only avoid direct reliance on fiat markets but also indirect reliance is crucial.

Guiding ETH/USD with ETH/USDC cannot achieve this goal, as such a system would ultimately still depend on USDC to exist and trade freely.

It is better to use the median of multiple ETH-to-stablecoin exchange rates, such as USDC, GUSD, and USDT. This is a small improvement, as the traditional financial system is very coordinated and can easily become unfriendly to all asset-backed stablecoins. Therefore, if we want a reason for the existence of algorithmic stablecoins, we need an oracle that provides the price of the fiat currency USD against ETH.

Chainlink is great, but for high-value, high-latency-accepting use cases, there are simpler alternatives

Most "governance-minimized stablecoins" use Chainlink as their oracle. Chainlink is indeed valuable for many oracle use cases, but it is also a complex system with many functions. The incentive mechanisms are not as pure as Augur, especially with no automated mechanism to penalize participants providing incorrect answers.

It may be necessary to use simpler stablecoins like RAI as an alternative to MakerDAO. Disclaimer: I own MKR and Rai's FLX to enhance ecosystem resilience through diversified approaches.

Supplementing Chainlink with simpler alternatives seems reasonable, with a focus on optimizing incentive mechanisms and maximizing attack costs. A robust oracle should aim for these attributes, even if it means compromising on some features, such as long resolution times and being limited to a specific type of data like the price index of highly liquid assets.

UNI can be applied to such oracles

Decentralized price oracles (at least, if they want to avoid reliance on an identity layer) need a token to establish sybil-resistance against witch attacks. Pricing to token holders typically introduces an economic mechanism that rewards those providing the majority of answers and penalizes those providing the minority.

If the majority token holders act maliciously and successfully provide a wrong answer, it will fall to the minority holders to fork the system, where the attacker's tokens will be zeroed out to persuade the community to continue from the fork. Therefore, the cost of this attack is half the token's market value, minus some lazy holders who may not participate in voting even in extreme emergencies that could cause losses.

Therefore, for a DeFi project, a decentralized oracle based on a strong token must have a significant market value.

The efficiency of the oracle is not important: inefficient oracles can always be enhanced through a game where one party requests value and only truly calls the oracle when the other party disagrees.

On the other hand, attack costs need to be maximized, hence market value is crucial. The two highest market value Ethereum project tokens are LINK and UNI.

Supporting oracles is not only a selfless act by Uniswap; in fact, Uniswap stands to benefit greatly from a more robust stablecoin ecosystem. Uniswap v3 has been significantly optimized to achieve ultra-high capital efficiency for stablecoin-to-stablecoin trades and is likely to earn very high fee income from these trades. If we also start to see a proliferation of powerful synthetic assets on-chain, this becomes even more valuable for Uniswap.

Macro-wise, Ethereum L1 needs to maintain minimal governance, while L2 should be more ambitious, and UNI can be a part of that

Unlike previous blockchain platforms that attempted to cover a wide range of applications, the Ethereum ecosystem aims to be a foundational layer capable of accommodating a broader range of applications.

The goal is not only to support the holding and transfer of basic assets but also to include decentralized finance ecosystems DeFi and increasingly decentralized governance DeGov ecosystems. The Ethereum ecosystem also greatly needs a large amount of public goods funding.

Supporting this broader vision requires something larger than just "blockchain." It could be said that it needs to take a few steps towards the "crypto state" vision, where the services provided by the blockchain ecosystem will not only be about security but will also expand to oracles, dispute resolution, public goods funding, identity, and more.

However, to make Ethereum a stable platform, the blockchain base layer needs to adhere to governance minimalism. Governance minimalism will give users confidence that the applications they care about will not be disrupted and that the base layer will not be split by governance conflicts caused by the addition of controversial features.

Therefore, to some extent, these services need to be provided on L2. Implemented by Optimism, the MEV auction used to fund public goods in the ecosystem on rollup is an example. As a core decentralized exchange of the Ethereum ecosystem, Uniswap also takes on more responsibility, including providing price oracles, which is the natural next step in this direction.