Lin William Cong is the Rudd Family Endowed Chair Professor of Management and Professor of Finance at the Johnson Graduate School of Management at Cornell University, where he is the founding faculty director for the FinTech Initiative and the founder of the Digital Economy and Financial Technology Lab (DEFT Lab). His research interests include AI & Big Data, Applied Theory, China's Economy, Digital Economy, Entrepreneurship, Financial Economics, FinTech, Information Economics, Innovation/Science/Technology, Sustainability. Professor Cong is also an Editor at the Management Science, an associate or advisory editor for multiple leading academic and practitioner journals such as the Journal of Financial Intermediation and Journal of Portfolio Management.
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Abstract
Through the discussion of a series of articles, I introduce oracle economics. Oracle nodes enable smart contracts to access off-chain and cross-chain data, thus bridging information and consensus ledgers among digital networks and with the real economy. However, reliance on external input creates security and reliability risks in information aggregation and transfer. I describe the blockchain oracle problem, introduce the oracle trilemma highlighting the trade-offs between scalability, decentralization, and truthfulness, and discuss relevant economic issues concerning the role of oracles in applications such as DeFi, gaming, prediction markets, Real-World Asset tokenization, and supply chain management. In particular, I survey off-chain reporting, off-equilibrium alerting, and dynamic incentive design as promising approaches to resolving the trilemma. I further discuss oracle vulnerabilities and sustainability through staking and tokenomics programs. Finally, I highlight how oracle integration empirically affects DeFi adoption, token valuation, liquidity, and system risks. I conclude by presenting emerging trends and suggesting open research questions.
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