Research Highlight: The Oracle Problem as Applied to Social Impact and Impact Tokens
Today, we are excited to highlight research conducted by Emergence looking at some of the challenges that come with the use of Oracles for social tokens. The full article can be read on Medium HERE.
The Oracle Problem as Applied to Social Impact and Impact Tokens
Michael Cooper
Emergence
“Oracles retain an enormous amount of power over smart contracts in how they are executed because the data they provide determines how the smart contracts execute. Therefore, data feeds from third-party sources give that data substantial influence over the execution of a smart contract, removing its trustless nature as part of a decentralized network.”-Medium
Overview
This post is not a full explanation of Oracle Problems and their effects across different token/smart contract applications, that can be done on other venues like this overview and this analysis. In short, the Oracle Problem introduces a single point of failure into a system whose entire purpose is to ensure there are no single points of failure. This single point of failure has different implications depending on the application, meaning the risks introduced by the Oracle Problem in Defi are different than those introduced in Social Impact.
As more and more social problems are addressed through the use of Impact Tokens, the value of these tokens will be determined by the materialization of benefits to specific actors. The quantified definition of these benefits serves as the Key Performance Indicators (KPI’s) for the Outcome State and the automated minting of the Impact Token via the Smart Contract. If we consider the KPI’s to be the Oracle output, the complexity of the relationships measured by the KPI’s require transparency on the level of certainty in their measurement. In the field of international development, this is partially addressed by the use of confidence levels (for statistical calculations) and stating methodological limitations (with implications for interpretation of results) for relevant measures.
Similar practices could offer lessons in how the Oracle Problem is addressed in the tokenization of social impact through the use of Impact Tokens. But it also highlights additional methodological and decision-making gaps that need to be addressed in order to ensure this single point of failure does not alleviate the value-add of the use of an Impact Token.
