Most Decentralized Finance (DeFi) protocols depend on data input outside ethereum, such as ETH/USDT price for lending. A protocol which provides the data on ethereum is called Oracle.
The finance dapps build on ethereum are growing fast, the lending asset on ethereum dapps are 1.5 billion USD right now, and liquidation of those assets as highly depends on the price provided by the oracles, so the price from the oracle is becoming more and more important.
Currently, most of the oracles solutions are built on multi-node input, where the nodes are permissioned to join the oracle network and the dapps built on those oracles should trust the node’s ouput.
But due to low transaction volume, the pricing data can be easily manipulated and be susceptible to attack. This problem has been exploited in the bZx and Synthetix oracle attacks, and it won’t be the last.
So the market needs a new permissioinless decentralized oracle solution, which is hard to be manipulated — NEST protocol.
In NEST protocol, each of the price is not provided by the node, it’s provided by the real trading price, YFI/ETH price data from NEST protocol is provided by the permissionless joined YFI miners who put ETH and YFI as a trading pair on the ethereum, we call them nYFI miners. If the price is diffs from the real market, the assets nYFI miners put on the etherem would be bought with a cheaper price by the arbitrage traders. If there is no arbitrage trade in 25 blocks of ethereum, the price data will be stored on the ethereum chain. As the arbitrage is becoming harder and harder by requiring to provide 2x assets, the more arbitrage trades, the more truthworthy the price data is. It’s more likely the PoW from bitcoin, the more difficult to mine bitcoin, the more value it would be by the trustworthiness.
While nYFI miners keep providing YFI/ETH price data in NEST protocol, the nYFI miners will get the nYFI token as the rewards. It would cost ETH as the transaction fee HOW nYFI fixs it to support YFI and system fee by providing the YFI/ETH price data, so the miners would invest a lot of ETH for the nYFI token. But the fair thing is the earlier the miners join, the more nYFI token the miners would get. All the ETH fee from dapps paid to NEST protocol while using YFI/ETH price oracle data would be prorated to the miners. So the earlier the miners join, the more YFI/ETH price data is used by dapps on ethereum, the more ETH fee the miner would get. Like the network is built by the Bitcoin miners and value injected by electricity costed, the NEST network is built by the NEST miners and with values injected by ETH costed. Bitcoin miners risk a lot and believe that the network is going to become success with huge profits, so are nYFI miners.
The most popular functions of YFI is the vaults. It has more than 12 asset class in it， with average 40%+ APR by now. If the nYFI token has been added to the vaults, users can stake nYFI token into YFI pool to get higher return: The nYFI holders will receive ETH as the reward by NEST protocol weekly (mentioned in Part 3), and that ETH cashflow would be automatically enhanced by 40% or more (according to YFI vaults’ average number) through YFI pool’s smart contract. Thus, the YFI vaults will make nYFI token earn competitive returns comparing to other yeild-farming assets.