Flux protocol is a cross-chain oracle aggregator that supplies economically-viable information to smart contracts.
Smart contracts are pieces of code that execute specific actions when certain conditions are met. Smart contracts are very popular in decentralized finance, which refers to financial activities that take place over a blockchain.
Smart contracts help to ensure that Defi services like borrowing, lending, staking, and providing liquidity go on smoothly without the need for central authorities. For that reason, smart contracts need to be able to access verifiable information. For instance, let’s say two men – John and David – bet on a soccer match.
Both men bet $30 each, and the total amount is locked in a smart contract. How will the smart contract know who to pay once the game ends? That’s where oracles come in. The smart contract would need an oracle to get the match outcome from a reliable source off-chain before providing that information to the blockchain in a secure manner.
What are Oracles?
Oracles work by connecting blockchains to external systems that would provide smart contracts with the information they need to execute transactions. In the case of the match bet, the oracle would connect the blockchain to a sports news provider from the real world. In this way, smart contracts can run independently without any central authority. They are generally two forms of Oracles – centralized and decentralized oracle networks.
Centralized oracles use a central authority to provide information to a smart contract. Unfortunately, this means that such oracles have a central point of failure. If something happens to the oracle, e.g., it goes offline, then the smart contract cannot function properly. Also, the data coming from centralized oracles need to be accurate all the time; otherwise, the smart contracts will perform wrong outcomes based on the wrong information it was fed.
Even worse, blockchain transactions are usually unchangeable once they are recorded. This means that if the blockchain should execute transactions based on inaccurate data coming from oracles, then the protocol will almost certainly lose user funds. For this reason, centralized oracles are a bad option for smart contract applications.
So how do smart contracts aim to solve the oracle problem? By using decentralized networks. As the name implies, decentralized networks are not controlled by a single authority, which makes them hard to fail.
Decentralized smart contracts work by connecting multiple data sources that are confirmed to be reliable to multiple independent oracle node operators to establish end-to-end decentralization of information.
Decentralized smart contracts help to reduce financial losses in the decentralized finance space caused by smart contracts working with inaccurate information.
Input oracles get real-world data from off-chain sources and supply it to smart contracts. These kinds of oracles are commonly used to power chainlink price feeds by providing on-chain access to data from financial markets.
These kinds of oracles allow smart contracts to pass information and send commands to off-chain systems allowing them to execute actions. These actions could be forming bank networks to make payments, asking storage providers to store information, or asking an internet of things system to unlock a house once the on-chain rental payment is made.
Cross-chain oracles can receive and send information between different blockchains. These types of oracles make information sharing faster and easier as they can take data from one blockchain and supply it to another blockchain.
These types of oracles use secure off-chain computation to give services that can’t be carried out on-chain due to legal and financial difficulties. Computer-enabled oracles use methods like using keepers to automate smart contracts and using zero-knowledge proofs to keep data private. They also use a verifiable randomness function to provide information that’s tamper-proof to smart contracts.
Who created the Flux Protocol?
The team behind the Flux protocol consists of experts in several fields like App development, open-source blockchain development, back-end engineering, product management, finance, and business management and development.
Flux protocol was built by two men – Peter Mitchell and Jasper De Gooijer. Peter Mitchell built, EveryDapp.com – rumored to be the first store for decentralized apps.
Jasper De Gooijer worked as a scalability researcher in web three technologies. Both men first met at ETH Berlin in 2018
How does Flux crypto work
Flux protocol is an off-chain data aggregator meaning There are two main components of the Flux network:
Data requesters are smart contracts that connect to flux protocol and request specific data or make search inquiries. Such smart contracts need to have their addresses whitelisted by Flux Dao. They also need the following characteristics:
Smart contracts that will act as data requesters have to make their source code publicly available. They also need a license that permits the redistribution and upgrade capabilities.
Timelock for upgradable contracts
Many smart contracts are upgradeable. Thus, they need a verifiable time lock mechanism that gives a sufficient grace period between upgrades. The timelock must also leave enough time to allow the Flux DAO to determine whether to remove the smart contract through a vote if the smart contract poses challenges to the network’s health.
Auditable Total Value:
Smart contracts need to be able to have their value audited in real-time by the oracles so as to be properly able to calculate the data request fees. Data request fees usually fluctuate due to market dynamics. Usually, the higher the total value locked, the higher the data request fee, and vice versa.
Mind you; users have to deposit flux tokens as collateral when they want a data request fulfilled. Collateralization helps prevent bad actors from submitting invalid requests to the protocol. Invalid requests will lead to losing a user’s deposit. This increases the security of the network as they are penalties for malicious behavior.
Data validators earn tokens for contributing to the network by supplying answers to flux oracle data requests. Validators need to deposit a certain number of tokens before they can start answering data requests.
Validators who provide wrong information could have some of their staked tokens slashed. This discourages inaccurate data reporting and encourages good behavior on the network.
Users can also challenge the information put forward by data validators. Flux protocol allows users to customize the timeframe for challenging data provided by validators. Once this happens, the validator has to stake their tokens on the information they believe to be correct.
Use cases of flux protocol
Flux allows users to create open markets with specific data points of public companies and other assets like derivatives that are traded in the stock market.
Decentralized insurance market
This is a new field in the world of decentralized finance. Users can build insurance markets by connecting to the Flux Software development kit. Flux also allows market creators and their affiliates to build in their fees for all trades made on their market.
Esports and betting
Betting and electronic sports rely on reliable data to function properly. For this reason, developers can build e-sports and betting Dapps that connect to the Flux protocol for accurate information. This will smoothen the betting process for players.
Startup derivatives are considered to be one of the fastest growing financial markets in the world, and flux enables creators and developers to easily build derivate markets on any asset.
What is FLX token?
FLX token is the native token of the Flux protocol. FLX has the following uses:
Data request and validation
Data requesters need to stake an amount of FLX in order to be added to the whitelist of smart contracts using the protocol. Data validators also need to hold some FLX in order to accept or reject proposals to add a smart contract to the request list.
FLX holders can decide how the protocol should function via voting on governance proposals through the Flux DAO protocol. Mind you, DAO stands for decentralized autonomous organization.
FLX token has no fixed supply. However, it uses an inflation mechanism that is similar to EIP-1559, which will have protocols burning FLX in return for network access. Token holders, stakers, and validators will earn FLX through the minting of rewards. This design will make FLX deflationary over time. The distribution ratios of FLX tokens include
20.9% of tokens for the team, 15% for the first round contribution, and another 8.4% for 2nd round contribution. Early backers would get 7%, while 3% would go to liquidity support. 1% would go to liquidity mining. Advisors would get 0.5%, while 2.2% would go to the circulating supply. Finally, 40% would be contributed to the treasury.
Is Flux a good investment?
Investing in cryptocurrency is generally very risky. However, users who still intend to invest in the space are advised to only put their money into projects with long-term utility. Having a long-term use case makes it less likely that the project would fold up amid short-term market utility.
Flux is one of such protocols designed to solve the main issues faced by the decentralized finance industry. However, choosing to invest in Flux is a decision that people shouldn’t make without deep research and consultations with a financial advisor.
Flux protocol is like any other blockchain. Its main role is to provide real-world information to Defi apps. Flux validators are like other blockchains. Their role is to provide information to requests made by other network users.
Users who request data from the Flux protocol must stake FLX tokens in exchange for the information they are asking for. While validators also have to stake tokens in exchange for winning the rights to provide answers to data queries. This method incentivizes requesters and validators to only work with valid information, whether as a request or as an answer. This is especially useful in decentralized finance.
Decentralized finance refers to financial services like lending, liquidity, staking, etc. The advantage of decentralized finance is that people can carry out these services without central authorities. However, the drawback is that they always need accurate information; otherwise, people and businesses will lose a lot of money due to deals completed on inaccurate information.
That’s where oracles come in. Oracles supply off-chain data, usually economical to blockchains. There are several types of blockchain oracles, with the most common being input oracles that receive information from off-chain services. Some oracles are centralized, while others are decentralized.
Centralized blockchains have a single point of failure that makes them unsuitable for Defi services because if they are compromised, the damage done is usually serious and permanent. Thankfully, there are decentralized oracles that work by aggregating information from several sources before presenting them to Defi protocols. The advantage of decentralized oracles is that they are harder to tamper with. Also, they receive information from different sources, meaning it’s easier to collect accurate information.