What are DeFi oracles? Blockchain data providers under fire over $100m Mango Markets theft
10:53, 13 October 2022
Crypto experts have queried the use of oracles after the Solana (SOL) lending protocol Mango Markets was hit with a $100m hack by a technique called oracle price manipulation.
Alexander Wlezien, the cofounder and chief technology officer at Friktion Labs, challenged whether oracles were worth the risk. He tweeted: “The economic cost of price manipulation must be far above extractable economic value.”
Oracles are like middlemen, they connect blockchains with external data through smart contracts. A price oracle, which was manipulated by the Mango hacker, communicates the price of assets from external sources to a decentralised protocol.
It has been a tough year for these data providers. Oracles have seen their secured value drop significantly throughout 2022.
Criticised by experts
After taking out an outsized position, the Mango hacker manipulated the price of MNGO on Pyth and Switchboard, the protocol’s oracles. This allowed the hacker to max out their accounts and take a net profit of $100m from Mango.
The hack resulted in several experts revaluating the role of oracles in decentralised finance (DeFi).
As well as Wlezien, the FTX CEO Sam Bankman-Fried posted a long Twitter thread of his views.
1) When it comes to oracles,
— SBF (@SBF_FTX) October 12, 2022
you just have to make up your own damn mind pic.twitter.com/7kZATSLpQM
He concluded that “it’s the risk engine's job to consume that information, and decide what positions are safe.”
Mango Markets explained the hack in a Twitter thread, but later said the oracles were not responsible. The protocol tweeted: “We want to clarify and add mention here that neither oracle providers have any fault here. The oracle price reporting worked as it should have.”
The oracle downfall of 2022
Mango Markets is not the only protocol to be hit by an oracle manipulation attack this year. The DeFi platform Inverse Finance saw $5.8m stolen and the stablecoin ecosystem Fortress Protocol was the victim of a $3m attack.
This appears to be having a material impact on oracles. The total value locked (TVL) in oracles has steadily declined since the beginning of 2022.
Chainlink, the largest oracle, has seen the most significant downtrend. Its TVL plummeted from $56.78bn on 1 January 2022 to just $11bn at the time of writing, according to DeFi Llama.
Switchboard, Mango Market’s oracle, has seen a drop in value in recent weeks. It fell from $13.57m on 28 September to $10.71m on 12 October. Meanwhile, Mango Market’s other oracle Pyth lost close to $150m after the attack.
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