How Could Oracle-free Protocols Redefine Risk Management in DeFi?

If you’re a DeFi OG, you might remember what happened on November 26, 2020. Lenders on Compound got liquidated for a staggering $86 million after the Coinbase oracle was exploited, driving DAI price to $1.30. Old news? Think again. According to Chainanalysis, in 2022, DeFi protocols lost $403.2 million in 41 separate oracle manipulation attacks. Massive, right?

Looking to mitigate oracle-related risks, more and more protocols are exploring oracle-free alternatives. Let’s dig in, shall we?

But first, a quick reminder: what on Earth are oracles?

Fundamentally, blockchains are isolated networks, just like a computer without the internet. They can’t push data to or pull it from external systems. That’s where oracles come in, playing as intermediaries that feed key data to smart contracts. Picture them as bridges between the blockchain world (on-chain) and the "real" world (off-chain), helping smart contracts know if it's raining outside or if your latest memecoin just mooned.

Why would anyone build without oracles then?

There’s no doubt oracles are useful. They even power some of the most prominent DeFi protocols to this day. But they come with their fair share of risk and building an oracle-free protocol allows for the following:

  • Hardened objectivity: Oracles rely on external data sources, which can sometimes be influenced by various factors such as market manipulation, data errors, or even data providers biases. Oracle-free protocols sidestep this hurdle, fostering a more objective—and predictable—environment.

  • Simplified ecosystem: When it comes to blockchain, the fewer the moving parts, the smoother the system runs. By eliminating the need for oracles, protocols limit the level of interactions for better control.

  • Economic efficiency: They might seem like magic, but think of every interaction with an oracle as a mini-transaction. Over time, these costs add up!

  • Improved security: In the blockchain space, more external interactions often equate to more vulnerabilities. Going oracle-free is like building a fortress with fewer gates, limiting points of entry for potential attackers. Oracle-free Magic in Action

PWN counts among the protocols that are taking the oracle-free route. As such, this peer-to-peer lending platform allows anyone to use any digital asset (or bundle of assets) as collateral for loans, without risking liquidation. Yes, any tokens, from ERC-20 to NFTs, will do.

How does it work? Let’s take a concrete example:

Larry is the proud holder of a BAYC NFT and, despite the chilling NFT winter, he wants to hold on to it. But he’d also love to get some precious ETH to participate in the rising LSDfi narrative. Quite a pickle.

Thanks to, Larry can use his BAYC NFT as collateral and issue a loan request for ETH. He lists the ETH amount he wants to borrow and the loan duration (let’s say 20ETH over 90 days).

Any lender can now accept Larry’s loan conditions, setting the interest rate they see fit. If a lender considers Larry’s conditions not fully aligned with their risk tolerance, they’re free to counter-offer with adjusted loan parameters (could be 15ETH for 30 days).

Once Larry and a lender agree on loan terms, the BAYC NFT is locked in a smart contract and ETH is sent to Larry’s wallet, who can now degen his way into LSD strategies.

Killer feature alert: PWN being oracle-free, Larry doesn’t have to fear liquidation or unexpected floor price volatility. All he has to do is make sure he has enough ETH to pay back the loan with interest.

If Larry misses the repayment deadline, the ownership of Larry’s BAYC NFT is transferred to the lender.

But since Larry is a responsible investor, he was able to repay his loan on time, with interest, and keep his treasured BAYC. Thanks to PWN, he made his NFT liquid and was able to gain exposure to profitable investment strategies, without the looming menace of liquidation.

If you want to experiment with the magic of oracle-free protocols, head on over to the PWN app. The protocol is now live on Ethereum, Mantle, Cronos, Base and Polygon.

PWN is a hub for peer-to-peer lending backed by digital assets. Use your NFTs or any token as collateral and invest in fixed-interest loans and generate attractive returns. PWN makes this possible with no liquidation risks. Check out the PWN platform today.

Want to get in touch with PWN? Reach out to us on Twitter or join the community on Discord.

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