# The Blockchain Oracle Problem in Decentralized Finance--A Multivocal Approach
## 4 Oracles in Decentralized Finance
### Derivatives  
As known, derivatives are financial assets that derive their value from represented assets' performance [97]. Derivatives in DeFi are extremely important due to the lack of interoperability between blockchains. As Larsen [98] explains, \"Bitcoin can't speak the language of Ethereum and vice versa\". This means that we cannot spend bitcoin on the Ethereum network, and we cannot operate Ethereum smart contract on the bitcoin network. Wrapped tokens were specifically made to overcome this limitation, in particular for DeFi applications. WBTC, as an example, is an ERC-20 version of bitcoin and can be spent on the Ethereum network and managed by Ethereum smart contracts. In order to issue WBTC on Ethereum, an equal amount of BTC has to be locked on the Bitcoin blockchain. An oracle service should then ensure that as long as WBTC is used on the Ethereum network, the corresponding amount on the bitcoin network is not spent. Being WBTC traded for other tokens and used as collateral for loans, failure in communicating the exact quantity of locked tokens can be fatal [98]. Due to the complexity of derivative contracts, their management is mainly left to centralized exchanges (Coinbase, Poloniex) [46]. Lately, however, some platforms such as Synthetic are also offering DeFi solutions in the derivatives field [99]. In those platforms, it is possible to find tokens representing all sorts of fiat currencies (such as GBPN representing Pounds), stocks or other crypto assets (wrapped tokens). The price of external assets offered on Synthetic is determined through a system of oracles provided through Chainlink. However, the requirements of Synthetic platforms are that the oracles should be distinct for each asset and that prices are updated every 5 or 10 min.  
Universal Market Access (UMA) is another recently born platform that aims to create fast, efficient, and secure derivatives on the Ethereum platform [32]. Unlike Synthetic, it has its own oracle system made of two distinct modules called Optimistic Oracle and Data Verification Mechanism (DVM), respectively. UMA's oracles are not mandatory to use in principle, but if the contract needs a secure price feed, it can quickly require it with the Optimistic Oracle [100]. This oracle is mainly automated and provides an off-chain price feed within a pre-defined length of time, without the need to pay any on-chain fees. If the price is disputed, then the second UMA's oracle, the DVM, comes into play. The DVM works mostly like the Tellor and Razor oracle systems, and it takes two days to solve a dispute. Those who misreport price lose their bond in favor of those who reported a correct price. It is also possible to require a price directly to the DVM, but it will take two days to resolve anyway. UMA's whitepaper is also interesting because it has an appropriate section in which they explain how they claim to solve the oracle problem. They explain that if the price of the contract is high, then the oracles may be incentivized to provide imprecise price feeds for personal purposes. In particular, they distinguish between Profit-from-Corruption (PfC) and Cost-of-Corruption (CoC). The Cost-of-Corruption is the total amount of UMA tokens needed to perform a 51% attack on the platform. The Profit-from-Corruption is the total asset value of the derivative for which the price is requested. The UMA protocol then requires that the CoC is always greater than 200% of the PfC. In that way, although possible to perform a 51% attack, it will always be unprofitable. However, according to their website, this prevention system is not yet automated [101]. Furthermore, collusion is not the only risk of using oracles in DeFi.