Data aggregation involves gathering various values from different sources and condensing them into a single value.
In the world of decentralized finance (DeFi), having trustworthy and precise data is super important. Blockchain oracles are like messengers that deliver outside information to smart contracts, helping them work with real-world stuff. Making sure this data is reliable is a big deal, and one way to do that is by gathering it effectively through a process called data aggregation.
The quality of data from an oracle service is judged based on two main factors:
- Data availability: This refers to the data being consistently accessible for users or smart contracts and updated as often as promised.
- Data correctness: This varies depending on the type of data. Data accuracy can be affected by different things like mistakes made by people, errors in systems, mistakes when entering data, errors when processing data, problems when combining data, and data becoming outdated over time. The accuracy of data can greatly influence how dependable and trustworthy your analysis, reports, and decision-making are.
Methods of aggregating price values.
- Average Price Value. While it might seem fair and straightforward, this method has a big flaw: it can be easily manipulated by just a few sources that are corrupted.
- Median Price Value. This method is much better than using the average value and is more resistant to manipulation by corrupted sources. However, it’s still not a perfect way to calculate price value.
- Volume-Weighted Average Price (VWAP). In simpler terms, one of the best aggregation methods is the volume-weighted average price calculation. This method considers the trading volumes from different sources. Sources with higher trading volumes have more influence on the final price value.
- Time-Weighted Average Price (TWAP). Another common method for price aggregation is the weighted average price, where the weights are determined based on time. This method is particularly handy for calculating price values solely from decentralized exchanges.
It is quite difficult to calculate the ideal price value. Simply put, certain combinations of the aggregation algorithms mentioned above may be highly effective for most scenarios in the DeFi realm.
