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DeFi’s next big thing: Oiler and blockchain native derivatives

Photo of: Nathan VDH
by Nathan VDH

Disclaimer: The author of this article has not been paid by Oiler Network nor holds any position in Oiler Network.

Derivatives are a key part of any market. For those who might not know, they consist in bets over the future price of an asset, referred to often as options. Investors can either bet the price will increase (call) or decrease (put). These are traditionally offered by market makers, and they have become the most common financial instrument of Wall Street traders and traditional finance as a whole.

Other DeFi projects have already tried to recreate the traditional stock market, mainly Synthetix (SNX) but Oiler Network has a special trick up its sleeve that might set it apart from the competition, it doesn’t use oracles. Oracles are used to determine the price of the underlying assets actors are betting on through their options, but these are often the biggest security risks of any market maker on the blockchain.

If hackers can manage to fool the oracles, which has happened in the past more than once, then the traders might be liquidated, lose their investments or sell at a ridiculously low price their options. While these risks have led to the development of stronger oracles, this is an arms race between the hackers and the oracle developers which will never truly stop.

Oiler is a very interesting candidate as the next big DeFi protocol because it does away with these oracles. Oiler offers options related to on-chain data. By looking at blockchain parameters such as hash rate, block times, gas prices or mining difficulty, Oiler avoids the necessity for oracles.

In the fight against hackers, sometimes the only way to win is to refuse to engage. Oiler users will be able to bet things such as hash-rate, block time and block gas limit which will allow instituions, massive exchanges or miners to hedge their positions against the fluctuations of the ETH network.

Just like the farmer who offsets a potential bad harvest by betting against the price of wheat in the fall (if the harvest is great, he doesn’t need the extra money but if the harvest is terrible then his bet will offset his losses), exchanges, decentralized or not, such as Uniswap or Coinbase will be able to bet against high gas prices which strongly impact their business models.

The potential utility of such options is huge and Oiler is truly tackling an interesting challenge in the most secure way while servicing very high net-worth clients. All the ingredients for success are there, and we will follow their progress closely!