Analyzing Price Deviations in DeFi Oracles

Decentralized Finance (DeFi) promises to transform the traditional financial systems into fair and transparent protocols that do not require trusted third parties. To circumvent the high volatility of crypto-assets, DeFi protocols advocate collateralizing their assets against conventional financial instruments. To do so, these protocols require access to external or off-chain data, such as asset exchange rates. DeFi protocols rely on oracles to access such information. Importing external data onto the chain via oracles consists of multiple data processing and aggregation stages. Thus, it is critical to minimize errors or deviations while the ground truth data moves through these stages. In this paper, we investigate the degree of price deviations at different levels between the data source and the final output rendered to an on-chain requester. In particular, we focus on Chainlink’s oracle network for ETH-USD pricing. Our results show that despite checks and balances, the output rendered to the requester considerably deviates from data reported by the sources.