Blockchain Oracles have been around for a while, even predating the emergence of DeFi. When the word ‘oracle’ is mentioned, many think of Chainlink. But what you might not know is that Chainlink wasn’t the first Oracle on Ethereum. That honor goes to the team behind MakerDAO, now known as Chronicle. Surprisingly, this original Oracle was essentially an RWA (Real World Asset) Oracle, showing that RWAs have been in the game since 2017.
How did this happen? It all started when the Maker team was developing DAI, the first decentralized stablecoin. A key role of the oracle was to track and report the value of DAI, which was soft-pegged to the US Dollar. The goal was to maintain a 1:1 peg, offering the fledgling blockchain community its first alternative stablecoin. Building trust in this experiment was paramount, and in its first year, DAI stayed remarkably close to its $1 peg despite the price of Ether, the only collateral available at the time, plummeting by over 80%.
DAI’s success was significant, earning it the title of ‘the first example of a decentralized application to receive significant adoption’ from Bloomberg. But it wasn’t just DAI that made strides; Chronicle, the oracle crucial to the stablecoin’s existence, also thrived.
Chronicle’s journey outside of MakerDAO (now known as Sky) has been shorter, with its decentralized oracle network only opening up to the wider ecosystem in Q4 of 2023. In this short span, it has integrated with various DeFi applications across multiple blockchains, including Morpho, Spark, and Dolomite. It was also chosen by Circle as the official oracle partner for the deployment of their Euro stablecoin, EURC, on Base. However, their latest development is most relevant to the larger narrative of RWAs and the potential they offer.
What are Real World Assets (RWAs)?
Simply put, RWA is the process of digitizing physical or traditional financial assets onto a blockchain network. Think of it as creating a digital replica of a real-world asset, allowing it to be bought, sold, and traded on a blockchain platform, similar to cryptocurrencies like Bitcoin or Ethereum. Traditionally, selling a portion of ownership in an asset involved a lengthy process with extensive paperwork and meetings with legal professionals. Fixed real-world assets, like property, often faced challenges like valuation disputes and limited liquidity. However, RWA and blockchain technology enable the creation of digital tokens representing ownership shares in these assets. These tokens can be traded on a blockchain platform, making the process faster, more affordable, and accessible to a wider investor base.
The Role of the RWA Oracle
This is where the RWA Oracle comes into play. One utility of the RWA Oracle is to track and report the value of an asset that originated outside of the blockchain. For example, this could be gold, crude oil, or real estate. For the onchain entity (smart contract) to understand the value of the offchain asset, it requires a direct and reliable data feed, bridging that information from the outside world. This is precisely what the RWA Oracle provides, functioning much like blockchain oracles currently do, tracking and reporting the values of digital assets like cryptocurrencies. Without this data feed, onchain products wouldn’t function, highlighting the vital role that oracles from companies like Chronicle play in the infrastructure.
However, RWA Oracles do more than just report the current price of an asset in USD or another currency, as highlighted in a recent development from Chronicle and M^0. In this context, the RWA Oracle attests to the presence and quality of collateral in an offchain vault, allowing ‘Minters’ in the M^0 ecosystem to mint the appropriate amount of $M tokens – a new and composable type of decentralized stablecoin pegged to the USD.
With established and decentralized verification networks featuring native checks and balances, high security, and a proven track record, blockchain oracles are well-positioned to serve as the attestor and reporter. For instance, Chronicle’s network has secured over $20 billion since its inception for MakerDAO and its ecosystem. According to Boston Consulting Group, the market for tokenized assets is projected to reach $16 trillion by 2030.
While blockchain oracles have existed since 2017, 2024 has become the year of RWAs with tokenization at its core. The rise of the RWA Oracle is a natural progression. With its potential to revolutionize the way we interact with physical assets, the future of RWA Oracles looks bright, promising increased transparency, efficiency, and accessibility in the world of finance.
