Flux protocol is a decentralized cross-chain oracle aggregator on the blockchain. To better understand the essence of the project, you need to understand the concept of “oracle”.
Oracle is a system that exchanges data between web/real world and blockchain. In other words, the oracle for the blockchain is a communication layer with the real world.
To explain how oracles work, we need a real-world example.
Suppose Bill and Monica are betting on a fight between Conan McGregor and Nate Diaz. Bill thinks Conan will win, while Monica thinks Nate will be the winner. They place bets using a smart-contract and lock their bets in the contract. The smart-contract will transfer all funds to the winner after the end of the fight.
Since smart-contracts can’t interact with external data, they rely on oracles to provide the information needed — in our example, the result of the fight. After the end of the fight, the oracle requests a trusted API to find out the result and transfers this information to the smart-contract. The contract then sends funds to Bill or Monica, depending on the results.
Without an oracle transmitting data, there would be no way to settle this bet without outside interference. So we can conclude that oracles are a vital part in order to expand the boundaries of the blockchain beyond its borders and increase the adoption of the blockchain in the real world.
Now let’s try to answer the question why the Flux protocol is better than other oracles.
So why Flux?
The main ability of oracles to interact between data outside the network and within the network is a catalyst for the practical benefits of blockchain technology. However, a single point of failure due to the use of centralized sources and third-party authorization continues to undermine its implementation.
Data requests sent over the network are validated and processed by validators who must deposit collateral on the network’s own asset in order to simultaneously protect the network and make it harder for attackers to spoil data requests. This mechanism is proportionally correlated with the overall secure value of the protocol, encouraging validators to honestly resolve data requests and discouraging attackers from incorrectly resolving results.
When a request for data needs to be fulfilled, validators bet on the network token to earn the corresponding fee for the request for data. If the protocol provides more value, validators are rewarded by increasing the data request fees. When less data is protected, fees are lowered to discourage attackers.
The economic guarantee mechanism is based on a variable data request charge model that increases or decreases depending on the amount of the value locked in the protocol. This ensures that the validators have a proportionate interest in the correct resolution of data results.
Economic incentives are not the only mechanism. They are complemented by a trial period and a settlement process. For each data request, users can set up a time interval to check the results sent by Oracle. Validators track all requests for data, and this process can be fully automated to validate sources and execute queries. If an incorrect data response is found, it can be challenged. To do this, the validator puts its token on the result, which it considers correct in accordance with the API data from its own response.
So Flux has an advanced security and reliability system.
