Chainlink Is Building an Off-Chain Oracle Network

Ethereum and multi-chain oracle service Chainlink is building out a new oracle network that could provide a solution (in part) to both scalability and front-running issues.

Dubbed Chainlink 2.0, the network creates what its team calls “decentralized oracle networks” (DONs). These second-layer networks operate off-chain, meaning almost all of the data related to the smart contract is stored and computed off-chain before an oracle makes an input on the blockchain to trigger a smart contract’s outcome.

For example, if you had a smart contract that managed trades between ETH and UNI, Chainlink 2.0’s oracles would aggregate all the various exchange data for this pair and only feed the on-chain smart contract the exact price when needed.

Taking this further, for more complex smart contracts that require more data (like ones for options or collateralized tokens), something like off-chain oracle services could potentially mitigate miners front-running trades on-chain.

Chainlink co-founder Sergey Nazarov likened these DONs to the application programming interfaces (APIs) that developers use for everyday computer functions (whenever you Google something and Google’s own result comes up, for weather or bitcoin price, for example, this data is pulled using an API.)

"Our work with the top DeFi protocols has clearly shown us that in order to create the next generation of smart contracts developers need an easily accessible, provably secure and scalable set of decentralized services surrounding their smart contract code with key additional functionality," Nazarov told CoinDesk.

In the Bitcoin ecosystem, so-called discreet log contracts (DLCs) require similar off-chain oracle services.