In the presentation above, Alexander Coenegrachts, VP of Product at Kaiko, gives his insights into how different financial data sets can be validated with oracles and the new use cases that will be enabled. Before diving into his presentation, here are some important basics.
Kaiko is a data provider that specialises in financial data and digital assets. Their clients include oracle node operators, institutional investors and enterprises. Kaiko supports the data needs of major banks, DeFi Institutions and some of the largest institutional investors in the world. They have been a Chainlink node operator since 2019, and also works with oracle networks to build data solutions on-chain.
Institutions are coming
By 2016, the crypto space had known that TradFi institutions would soon turn their eye towards digital finance. However, at that time most TradFi institutions still looked at crypto negatively, and few were hopeful about its longevity. Fast forward to 2020, and the situation was markedly different. Regulated crypto products started flooding the market, and TradFi companies were releasing investable crypto products to their clients. This was the signal that the TradFi world was awakening to the fact that crypto is here to stay.
As crypto matures, institutional players are becoming more willing to progress in their crypto adoption – not just through investable crypto products, but also by moving operations on-chain. In 2021, there was a slate of announcements that large TradFi institutions like Wells Fargo, Banque De France and AXA were beginning small-scale, experimental projects on-chain. As crypto adoption among TradFi institutions continues to grow, so too will the need to get real world data on-chain.
TradFi data vs DeFi data
There are two distinctly different data needs that TradFi institutions have when compared to existing DeFi participants.
The first difference is in the type of data they need. Currently, oracles are mostly used for price feeds such as BTC/USD or ETH/USD. TradFi data needs are much broader, covering the entire spectrum of real world assets commonly traded in traditional finance. This is very different from data such as the price of Bitcoin, because while the price of Bitcoin can be drawn from hundreds of sources, real world assets often rely on proprietary data from limited sources.
The second key difference is in the restrictions around TradFi data providers. Many oracle networks today rely on a distributed network of node operators, which in turn rely on multiple sources of data. This is a key part of creating a network that provides reliable data while still allowing anyone to participate – a permissionless system.
Regulations around TradFi, however, make it such that data providers will often need to be licensed, or are obligated to operate within a set of restrictions. Data providers have to undergo due diligence, and will need to follow rules about how the data is handled and presented, which are enforced by contracts. TradFi institutions need to know everything about the data provider, to ensure that there is accountability when issues arise. These conditions create a permissioned system.
The influx of TradFi capital in crypto applies pressure on many players to adopt permissioned networks, as exemplified by the recent release of various permissioned protocols. This poses a challenge to the vision of a fully-decentralised future, but it also presents an opportunity. Permissioned systems can provide the transparency that is currently lacking in TradFi, provided it can also cater to the regulatory and licensing requirements of TradFi.
Alex ended his presentation by reiterating the fact that Kaiko is actively seeking collaborations with oracles that share the vision of combining institutional-grade market data with robust oracle networks in order to meet the needs of the incoming institutions and their institutional trades.
The Blockchain Oracle Summit was the first conference to focus solely on the importance of oracles. Leading experts from across the DeFi-TradFi spectrum gathered in Berlin to discuss their work using oracles to power innovative use cases of blockchain technology.