Hey guys, thank you all for the thoughtful questions and enthusiasm around the proposal. I’ll do my best to answer batches of relevant questions about this proposal periodically as they come in.
We’ll aim to address this as well as the other relevant questions about how low-latency oracles operate below.
To understand how low-latency oracles help GMX, we must first outline the unique challenges and requirements of price oracles for derivatives protocols in DeFi. Three considerations need to be made:
- Price oracle updates must feature extreme low-latency to ensure data made available to the platform is fresh; otherwise, traders can become exposed to stale price execution, and liquidity providers can become exposed to value extraction via MEV techniques.
- Oracle price data must be kept private before trade settlement; otherwise, malicious actors can extract value from traders by frontrunning oracle updates, such as by viewing data on another blockchain before it’s relayed or reading the transaction mempool.
- The oracle infrastructure must be decentralized, both at the node operator and data source level, to help ensure high trust-minimization guarantees and robust market coverage.
With these requirements in mind, Chainlink Labs has actively worked with contributors to GMX in developing this new low-latency oracle solution that uses a pull-based data delivery mechanism to provide GMX with access to high-frequency data, where oracle reports will be made available off-chain for every block to be used as needed to settle user trade transactions. This is in contrast to a push or trigger based model where data is continuously streamed on-chain (reference feeds). This architecture is what allows the oracles to operate in a low-latency manner and provides greater economic efficiency as data only needs to be published on-chain when required.
On the question about security, the new low-latency solution will utilize the same set of node operators and multi-layered data aggregation mechanism currently deployed in existing reference contract-based Chainlink Price Feeds. This allows the new oracles to retain the same level of manipulation-resistance but provide access to data on a higher frequency basis to meet the need of DeFi derivatives. Low-latency oracles will regularly generate oracle reports off-chain, where a decentralized oracle network cryptographically signs the oracle reports. The reports can then be fetched off-chain and validated on-chain by checking the cryptographic signatures before being consumed by the GMX protocol to settle user transactions.
In addition to providing wide market coverage, this solution helps mitigate the risks around frontrunning by keeping oracle reports private until trade transactions are settled. Both the reduction in oracle latency and the improvement in frontrunning risk mitigation can help GMX further reduce trading fees and increase both the platform’s efficiency and user experience.
I will aim to address questions about the structure of a percentage fee here.
This proposal includes the integration of Chainlink’s low-latency oracles into the GMX protocol, however, it also goes far beyond that. As the GMX protocol seeks to increase its decentralization, it will need a strong oracle partner to address and build solutions that can meet GMX’s oracle requirements both today and into the future. By offloading oracle development from core GMX contributors, they can focus on improving the core business logic of the GMX protocol to continue being a pioneer in DeFi derivatives innovation by adding new functionalities. Additionally, new and existing users are provided peace of mind regarding the oracle infrastructure used by GMX.
We are looking at this collaboration as a long term alignment opportunity between two DeFi pioneers, whereby Chainlink Labs would become the de-facto oracle team for the GMX protocol and strengthen the relationship between our two ecosystems and communities. Chainlink Labs can tackle GMX’s most pressing oracle needs, including the deployment of new additional low-latency feeds, expansion to additional blockchains, improving existing low-latency oracles with additional functionalities, and providing access to additional oracle solutions such as Chainlink Automation to enhance GMX’s usage of Keepers, and many other forms of future collaboration. Therefore, the fee structure in this proposal facilitates the creation of a win-win relationship, boosting the growth and decentralization of the GMX protocol.
The fee structure of this proposal reflects our strong belief in the future growth potential of the GMX ecosystem and the enhanced level of support that will be provided to help make the GMX protocol as successful as possible. Future usage of Chainlink’s low-latency oracles by other protocols may incorporate a different fee structure depending on the different types of integration and level of active support provided to the integrated protocols. Arbitrum is the initial chain the low-latency oracles will be deployed to, with future chain integration work occurring after validating the Arbitrum deployment with GMX.
Chainlink Labs will continue working with the GMX community and core contributors on an ongoing basis, including aligning our technical roadmaps to prioritize the chains that GMX plans to expand to. Initial work is focused on launching on Arbitrum and ensuring the protocol is operating as expected. After deploying on Arbitrum, we’ll focus on deploying Chainlink’s low-latency oracles onto new chains. Given the improvement in architecture of Chainlink’s low-latency oracles compared to existing Chainlink reference feeds, the chain integration process can be streamlined.
That is correct. The fees outlined in this proposal will only kick in after the low-latency oracles have been integrated into GMX on mainnet.
I appreciate the questions posted by the community and I know there’s more I haven’t yet addressed, I aim to post a followup in the near future.