Omer Goldberg - Introducing the Edge Oracle Network by Chaos Labs - TOKEN2049 Singapore 2024

Hello everyone. Thank you for joining me today. I'm so excited to share with you what we've created at Chaos Labs . So, let's get straight to the point . Many of you may know that we are a leader in on-chain risk management .

Now we're going to talk about how that led us to create our new oracle protocol, Edge . First, before we look at what Edge is, let's understand how we got here . At Chaos Labs, we have built a platform that performs automated on-chain risk management . What does this mean ? When you interact with processors ?

When you interact with processors like GMX, Jupiter, DYDX there are many factors that change in real time according to market conditions. Is there high cash flow ? Is there low cash flow? Is there a high concentration of wallets on the exchange? How is the market volatility?

All of this must be calculated every second to protect these processors from the changing crypto markets. We've been doing this for the past few years , and to date, the platform has secured nearly a trillion dollars worth of trade . We currently have approximately $25 billion worth of loans in the various lending apps we protect. We have secured over $100 billion in loans over the past years , and are also doing incentive development, distributing over $35 million in incentives across various ecosystems. This is not a list of all the groups we work with .

We are privileged to work with leaders in all major DeFi protocols and tools . We have had the opportunity to work with many others, including Ether Lending in restaking, DYDX, GMX, Jupiter in the perpetual market, and liquidity in stablecoins . The main purpose of the Edge Protocol, which we have built over the past 3 years, is to enhance economic security and provide real-time risk management for these decentralized applications. Through our risk management , we strive to provide guarantees comparable to those of centralized financial institutions . But since everything operates in an asynchronous blockchain environment , all the basic requirements to support this have to be developed from scratch .

If you believe that the future of finance will not be centralized, then it requires excellent risk management and oracle infrastructure to support these applications and protect user funds. This is why we created the Edge Protocol . The Edge protocol consists of three main components. The first feature may be something you already know. This is a price oracle price oracle , right?

These have been around since the beginning of DeFi we are taking it and giving it a new form , thereby providing additional value to all the partner protocols and users who use it. The second is risk oracles. We talked about the risk platform we created in the first few slides. It was on a separate web 2 infrastructure, and now we're turning all that data into a stream on-chain. Therefore, applications in DeFi can be updated in real time for the first time.

Finally, proofs. You've probably heard of a proof oracle , usually based on proof of reserve , but we're extending this concept to allow for proof of any data outside of on-chain . Whether it's the mortgage behind your stablecoin or the results of the US election, we integrate it into an easy-to-use on-chain innovation application . We started as a SAS platform , managing risk for applications in real time . Why did we create Edge ?

Like many things we do at Chaos , the primary motivation for this is customer need. I will explain how risk management works not only for the likes of Aave, GMX, and DYDX , but for the entire sector . To date, in applications that do not use us , all risk management tasks are done manually . This may seem strange because crypto markets are more volatile and risky than traditional markets , traditional markets are automated, but we haven't reached that point in crypto yet. This means that when there is a change in the market , many people will gather on Telegram, Discord, or Zoom calls, struggling to understand what to do .

They need to create a Solidity payload or code in a programming language suitable for their respective blockchain and deploy it . Typically, it takes 72 to 96 hours from the time a decentralized system realizes that a change is needed until it is implemented on-chain . This was unacceptable to these applications and users, so there was a strong demand for this from all the applications we work with . The second key principle behind our creation of Edge is the understanding that risk and value are inseparable. You can't talk about one without talking about the other.

When we started Chaos Labs, we thought the most important thing was to understand liquidity and market structure. Right? Primarily market risk. While there are the likes of Bitcoin, Ethereum, and Solana, there are hundreds and thousands of other tokens, and as the depth of these markets decreases so quickly , they become prime targets for manipulation. This is what we spent the first two years on .

But every day we re drawn into many discussions related to oracles . People wanted to list new properties . They wanted to list LSTs. They wanted to list LRTs. They wanted to list stablecoins with different backings.

How do you price these , right? How to handle and price time risk with LST that requires 7 days for recovery ? Suddenly, we found ourselves doing a lot of financial engineering work and advising teams on how to build this data . So, that's where the theories of risk and price converged. The second thing related to this is that we didn't create oracles , but we were definitely in those discussions whenever something went wrong .

Most vulnerabilities associated with oracles are usually not typographical errors. This is not generally an infrastructure failure, it is actually an economic exploitation. Therefore, the market may be manipulated or you may be cheated by arbitrage, and your app may have become a place for toxic money transfers . We were there to help teams understand this and mitigate it. But there was a big gap there .

We don't design oracles . We didn't create them . But, we tried to create all the barriers and protections to make them vulnerable to market exploits and attacks . Thus, the Edge Protocol Protocol was born was born . We've actually been operating for three months , haven't we?

Last week, we nt from operating covertly to openly. Our partner Jupiter; This is Solana's largest DEX. In the last 3 months, Jupiter alone has contributed more than 60% of the total per transaction volume . That entire transaction volume was secured by Edge . So, in the last 3 months, if you have traded on Jupiter , we have processed over 30 billion transaction volumes .

It was settled through our pricing . Now, it's very important that normal pricing remains stable, but often these oracles and various algorithms fail at the moments when you need them most . We saw one of the worst market declines in recent years on August 5 , when over 500 million liquidity solutions were processed on Jupiter, including through our oracle. So, Chaos coming out of stealth mode is a little different than other announcements where groups announce that they are planning to do something. What we are sharing with the world on this platform today is already live and available to the entire industry.

Now, we're going to talk properly . We started in the world of doing risk management; We understand the need to create oracles , but where do the two meet meet ? Therefore, we have the theory that price and risk are inseparable. What will this look like in practice ? In practice, this is about integrating the risk aspect into Oracle itself .

If you think about the first generation of oracles , they were great and brought us to where we are today , but they had a fundamental problem : they acted as reliable conduits from Web 2 to Web 3. What they give you is an SLA, and that SLA says, "Here says, "Here , I'm giving you the data that comes from this API." But I don't know that data. I don't understand how it affects the application that uses it , whether it's a lending app, a stablecoin, or a Per Dex, I'll give it to you , you figure it out . This won't expand much, right?

Because it requires teams to become experts in the data field and have opinions on a stack over which they have little control. So, the first thing we decided to do was understand that risk management needs to be integrated with price data . Second, cross-chain and off- and off- chain intelligence. Right? So, if our goal is to embed a risk engine into this pricing data, it's not enough to just understand what's happening in your ecosystem or your application, it's also necessary to understand the broader market liquidity .

Otherwise, how do we know if this asset or this market is subject to market manipulation know if this asset or this market is subject to market manipulation ? Finally, we talk about the collaboration we recently announced with Wintermute, where we are going to support their US election prediction markets that will go live in the coming days . We can talk about proofs separately. But if price, risk, or proofs are more important than anything else, it should be easy to use . Right?

We understand that teams want to create new innovations quickly understand that teams want to create new innovations quickly . They need to act quickly, we cannot demand months of coordination from them. So, we have created this too, keeping this in mind . We'll start with the price and then move on to completely new and innovative things. Right?

First, why are price trends important? Right? Unfortunately Unfortunately , we are reminded of this every week . Right? There are various market manipulation attacks.

There are various types of referee games where people inject toxic flow into applications and affect LPs . Well, this is a story we hear over and over again. The biggest, or at least the biggest, in the Solana ecosystem, is Avi Eisenberg's Mango Markets Manipulation Attack Attack . But, it has also happened in the Compound, and it has also happened in CRV, one of the largest properties you can imagine. So, first of all, when things are going smoothly , everything is fine .

These always seem to work, but when the market changes, when a liquidity crisis occurs, and when we try to price these mid- and low-market assets away from Bitcoin, Ethereum, and Solana , things can go awry very quickly . Now, as we said, Edge fixes this by embedding a risk model. So, instead of providing a single data point of what the price is we can also provide a price manipulation value , right? Applications can use that price manipulation value in the best way they need for their integration . What we see more of is a kill switch, right?

So our algorithms would say this is a 9.2 out of 10 on the price manipulation scale. Utilities are picking up on this and understanding that it is time to pause the markets until liquidity improves in the ecosystem . This can be the difference between an app surviving or falling, as Mango Market fell victim to a $200 million scam. Now, as I always tell the team, if we release the product and no one uses it, it's like a tree falling in the forest.

If there was no one to see it, did it happen? Right? So, we need to put this in the hands of developers . That's why we've created the highly flexible GraphQL endpoint . Therefore, we do not force engineers and teams to adapt to our project or rewrite their smart contracts do not force engineers and teams to adapt to our project or rewrite their smart contracts .

They can specify exactly which format they want the data in , and our server will generate it instantly . This was a big improvement because if someone wanted to use us, it happened very quickly with Jupyter and the other partners we were going to talk to , and our app met their interface needs from the beginning . So this is also a new thing. Now we talked about the price. We said Jupiter was integrated.

We are proud to announce that GMX is live with our Risk Oracles today . GMX is a pioneer in permanent texts on the Arbitrum platform , and is now expanding to other environments . They have seen all the challenges these techs face , especially in expanding the boundaries of the types of properties they list on the market . And they understood this problem perfectly from day one . We were excited to integrate it, and today we're live .

What is a risk oracle? Remember what I said in the previous slides , we have a public platform that publishes the exact configuration for a financial instrument or exchange as simulation results in real time . But in the past, teams had to copy and paste these values , create the payload, audit it , go through administration, and finally bring it on- finally bring it on- chain . This means that every parameter in their application was always outdated. Okay.

Now, as our risk manager, before we talk about increasing flow and volume, our main goal is to make sure that there are no credit impacts. So, what happens in the industry when there is a 72 to 96 hour delay and no ability to update according to real-time market conditions is that you take additional safety buffers . Do you understand? These additional safety buffers lead to poor performance and higher fees . You pay more for volatility , you pay more for liquidity , you pay more for risk in general , because you need that margin of error , right?

If something goes wrong , for that . Now, one thing that we talk about often and that app developers understand, but isn't exactly known in the industry , is that we talk about scaling. We're talking about app chains, L2s, L3s, and block space . But fundamentally, for all users on these DeFi platforms , if your performance is bad , because those who don't use risk oracles have old parameters , they will always have worse performance than centralized platforms and that gap can never be bridged. As per the announcement made last week, we are serious about bringing any off-chain data to on-chain in a secure and honest manner .

That's why we started prediction markets. Prediction market oracles are already in operation with Wintermute, and these will lead the prediction market for the 2024 US elections . We have written about this in detail , but I am short of time . So for anyone interested, I'll be in the back . If you would like to talk about prediction markets and solving real-world events with AI, we are interested in continuing the discussion .

Anyone interested in Edge can contact us on Twitter and Telegram . Feel free to reach out to us. I will stay here with my team. Thank you for your time today, and I'm happy to share with you about Edge . Thank you.