Illumination

The MakerDao Oracle Outage

From the Community - 2020-12-07

By TheLinkHound

It feels like only yesterday that I wrote an opinion piece on Compound.Finance’s liquidations that resulted from an oracle event.

I had hoped I would not have to write a similar article for quite some time.

I had hoped the major players in the world of decentralised finance (DeFi) might have analysed the Compound.Finance event, learnt some valuable lessons, and maybe even implemented protocol changes in order to avoid future such issues.

Sadly, I was wrong. And, sadly, I find myself detailing yet another negative oracle related piece of news.

MakerDAO, it’s your turn.

This time, there was no great fanfare. The major crypto currency reporting websites didn’t pick up on the news, as there was no mention of millions upon millions of dollars’ worth of liquidations. However, this does not make the event in question any less significant.

The news of this oracle issue was quietly reported in a muted MakerDAO blog post.

The details surrounding what MakerDAO describes as an “oracle outage” trouble me on a number of levels.

Firstly, I find the level of reporting strangely vague;

“...no oracles were updated for a period of time.”

How long is a “period of time”? One minute, one hour, one day?

Secondly, why does the MakerDAO team not definitively know whether the outage resulted in any liquidations?

“No liquidations were affected as a result of the oracle outage, as far as the team is aware.”

I am sorry but this, again, is simply not good enough.

Thirdly, I feel the MakerDAO community is entitled to a much clearer explanation as to the root cause of this oracle outage.

“The cause of this was related to a bug in Scuttlebutt network errors, a dependency in the stack.”

A bug!

And finally, it would be nice to have some kind of understanding of how MakerDAO aims to avoid similar events in the future. Solutions please.

I am not going to describe how MakerDAO is currently addressing the oracle problem. This information can be readily found in their Community Development FAQs.

I would like to shed light on the fact that prominent members of the DeFi space have repetitively warned MakerDAO of the risk posed by unfavorable oracle events. And how these risks can be omitted by utilising Chainlink’s decentralised oracle network.

It is my opinion that if MakerDAO adopted Chainlink’s network of oracles, it would allow for the creation of more DAI whilst simultaneously reducing risk to MKR holders. Essentially, a win-win situation. This idea is discussed further in a forum post by an active community member.

For DeFi to succeed, and for DeFi to be adopted on a large scale, these negative oracle events must be eradicated. The community that engage with DeFi on a daily basis need to educate themselves about risky centralised oracle practices and, if necessary, avoid using protocols that do not address the oracle problem with the respect it deserves. There is a solution. It is readily available, easily incorporated, blockchain agnostic, and has been battle tested in the real world.

It’s called Chainlink.