Interoperable Oracle Solution - BAND
Hey DEFI TIMES community,
Oracle solutions are crucial to make DeFi services work. How else could you bring real-world data on the blockchain in a trustless way? There are several oracle solutions today. Chainlink is the most common one.
Chainlink mainly focuses on the Ethereum blockchain. If you are an active reader of this newsletter, you probably know that crypto's future will most likely be interoperable.
Today we would like to introduce an interoperable oracle solution, the Band protocol.
The Band protocol can provide oracle services across different blockchains, making it a precious part of the broader DeFi ecosystem.
Let's dive straight into it!
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How does the Band Protocol work?
The Band Protocol is an oracle solution for decentralized networks. Oracles are defined as follows: "a data oracle is a program which can aggregate and connect APIs and real-world data to decentralized applications and smart contracts on cryptocurrency blockchains."
This data can be about anything, such as football results, weather, cryptocurrency prices, final election results, and so on.
An oracle brings real-world data on the blockchain. For example, the Ethereum blockchain does not natively know how many BTC exist right now; it needs an oracle solution.
The Band Protocol takes this one step further. The Band Protocol can do this process for more blockchains than Ethereum, the central Unique Selling Point.
How does BandChain work?
Band has its own blockchain called "BandChain": BandChain is built using Cosmos SDK, making it extremely fast and interoperable. The native token on the BandChain is BAND. BAND is used for staking by validators on the BandChain.
Getting real-world data on the blockchain
The process of receiving real-world data with Band is simple. Anyone can submit a smart contract on the BandChain requesting real-world information. Validators on the BandChain are then randomly chosen to provide the data.
Validators can stake their BAND tokens on the BandChain, making them eligible for creating blocks and providing data.
If validators successfully validate a block or provide data, they are paid in BAND tokens. They can also set custom fees for delivering data.
The more significant each validator's stake, the more likely it is for them to be chosen, incentivizing them to purchase more BAND tokens.
When the necessary information is provided, validators are paid in the BAND token. But if validators are not honest with the network, they can also be punished, which means their stake is partially taken away. Only honest validators have an incentive to stake their BAND tokens.
One specialty of the BandChain distinguishing it from other DPoS chains: You can only participate in certifying blocks and providing data if you are one of the 100 biggest token holders.
It doesn't matter whether you buy these tokens or they are delegated to you. Delegation means that other people "lend" their tokens to you so that you can use them as a validator.
Delegation allows you to put your BAND tokens to work even if you are not one of the largest 100 token holders. When you delegate your tokens, you receive a small cut of the block reward and data verifications.
But there is a problem: when the validator you delegate your tokens to gets smashed because of inactivity or malicious acting, you also lose your tokens. So you depend on other people when you delegate your BAND tokens. Keep that in mind.
Let's take a closer look at the tokenomics of the BAND token.
The BAND token fulfills three key functions: collateral on the BandChain, medium of exchange, and governance. These three utilities give the token value as demand for the token is ensured when the protocol grows.
- Validator Collateral or Stake: Validators need to stake BAND. A higher stake leads to a higher probability of being selected to fulfill data requests. Malicious actors will have their tokens slashed.
- Medium of Exchange: You can use the BAND tokens to pay for transaction fees and data access behind paywall (private APIs).
- BandChain Governance: BAND is natively included in the decision-making process of the BandChain. As a BAND token holder, you are eligible and responsible for voting on crucial protocol parameters. That's what decentralizes the BandChain.
The BandChain solves one of the most critical problems in the crypto industry—cross-chain communication.
Band can process oracle services on any blockchain, including Ethereum, Polkadot, and so on. This is possible because Band is built on Cosmos SDK, making it interoperable with almost any blockchain.
At DEFI TIMES, we are excited about any project that establishes interoperability across all blockchains.
That's why we think Band is a project to keep an eye on.
All information presented above is meant for informational purposes only and should not be treated as financial, legal, or tax advice. This article's content solely reflects the opinion of the writer, who is not a financial advisor.
Do your own research before you purchase cryptocurrencies. Any cryptocurrency can go down in value. Holding cryptocurrencies is risky.