RWA Oracles Have Been Around Since 2017, But 2024 Is When They Expect To Take Off

Blockchain Oracles have been around for a long time, longer than DeFi, and there's one name that many people may think of when the word oracle is spoken: Chainlink.

However, you may be surprised to know that Chainlink did not invent the first Oracle on Ethereum; it was the team at MakerDAO, now known as Chronicle. You may also be surprised to know that this first iteration of the Oracle was essentially a Real World Asset (RWA) Oracle. That's right; RWAs have been around since 2017.

How so? It was created when the Maker team was developing the first decentralized stablecoin, DAI⁽¹⁾. A vital role of the oracle was to track and report the value of DAI and the US Dollar that it was soft-pegged to.

The goal was 1 DAI = $1 USD, providing the burgeoning blockchain community with its first alternative stablecoin. Building confidence in this experiment was key, and in its first year, DAI notably stayed close to its $1 peg despite the price of Ether, the only collateral available at the time, declining by more than 80%.

DAI went on to experience great success, leading Bloomberg to label it ‘the first example of a decentralized application to receive significant adoption.' And it isn't just DAI that has gone on to make great strides in the industry from its birth in MakerDAO, but also Chronicle, the oracle that is so vital to the decentralized stablecoin's existence.

To date, Chronicle's journey outside of MakerDAO (now known as Sky) is a much shorter one, having only opened up its decentralized oracle network outside of Maker's ecosystem for the first time in Q4 of 2023. Over that short period, it has integrated with a wide variety of DeFi applications across multiple blockchains, including Morpho, Spark, and Dolomite, and was selected by Circle as the official oracle partner⁽²⁾ supporting the deployment of their Euro stablecoin, EURC on Base.

However, their most recent development is most relevant to the broader story of RWA's and the opportunity that lies in bringing them onchain.

What are Real World Assets (RWAs)?

Simply put, RWA is the process of digitizing physical or traditional financial assets on a blockchain network. It’s like creating a digital replica of a real-world asset, which can then be bought, sold, and traded on a blockchain platform, similar to cryptocurrencies like Bitcoin or Ethereum.

Traditionally, selling a portion of your ownership in an asset requires a lengthy process involving extensive paperwork and meetings with lawyers and other professionals. Fixed real-world assets, such as property, often face challenges like disputes over valuation and limited liquidity. However, with RWA and blockchain technology, you can create digital tokens that represent ownership shares in these assets. These tokens can be traded on a blockchain platform, making the process quicker, more affordable, and accessible to a wider range of investors.

This is where the RWA Oracle comes in.

The RWA Oracle

One utility of the RWA Oracle may be to track and report the value of an asset that originated outside of the blockchain. For example, this could be gold, crude oil, or real estate. 

For the onchain entity (smart contract) to understand the value of the offchain asset, it must have a direct and reliable data feed, bridging that data in from the outside world. This is what the RWA Oracle provides and is more akin to the way blockchain oracles are utilized right now, tracking and reporting the values of digital assets such as cryptocurrencies. Without this data feed, onchain products cannot function, which is why oracles from companies like Chronicle are such a vital piece of infrastructure.

However, there is more to RWA Oracles than just reporting the current price of an asset in USD or another currency, which is highlighted in this recent development⁽³⁾ from Chronicle and M^0. The role of the RWA Oracle in this context is to attest to the presence and quality of collateral in an offchain vault, allowing ‘Minters' in the M^0 ecosystem to mint the appropriate amount of $M tokens – a new and composable type of decentralized stablecoin, pegged to the USD.

With established and decentralized verification networks featuring native checks and balances, high security, and a good track record, blockchain oracles are well-positioned to serve as the attestor and reporter. For example, Chronicle's network has secured over $20 billion⁽⁴⁾ since its inception for MakerDAO and its ecosystem.

According to Boston Consulting Group⁽⁵⁾, the market for tokenized assets is projected to grow to $16 trillion by 2030. Blockchain oracles may have been around since 2017, but with tokenization at its heart, 2024 has been the year of RWAs. The rise of the RWA Oracle is a logical next step.

References

1. DAI on Wikipedia: https://en.wikipedia.org/wiki/Dai_(cryptocurrency) 
2. Chronicle selected as Oracle launch partner for Circle deployment of EURC on Base: https://chroniclelabs.org/blog/chronicle-selected-as-oracle-launch-partner-for-circle-deployment-of-eurc-on-base
3. M^0 and Chronicle raise the standard in collateral verification with the launch of the RWA Oracle https://chroniclelabs.org/blog/m-0-and-chronicle-raising-the-standard-in-collateral-verification-with-the-rwa-oracle 
4. Chronicle Total Value Secured via DeFi Llama: https://defillama.com/oracles/Chronicle 
5. Boston Consulting Group estimates asset tokenization to reach 16 trillion by 2030: https://www.ledgerinsights.com/bcg-addx-estimate-asset-tokenization-to-reach-16-trillion-by-2030/

Image Credit: RWA Oracles

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