Centaur Using Chainlink Price Feeds to Mitigate Impermanent Loss on Centaur Swap DEX
After successfully leveraging Chainlink VRF to bring verifiable randomness to our public sale lottery, we wanted to explore more ways to use Chainlink’s market-leading oracle network to enhance our platform. Today, Centaur is pleased to announce we have integrated the widely used Chainlink Price Feeds on mainnet to obtain high-quality, tamper-proof price reference data for the Centaur Swap decentralized exchange (DEX). This data is foundational in powering our novel price derivation algorithm that protects liquidity providers from impermanent loss (IL) and helps bootstrap greater asset liquidity.
Initially, the Centaur Swap DEX will utilize the following Chainlink Price Feeds: ETH/USD, DAI/USD and USDT/USD. Chainlink’s highly secure and reliable decentralized oracles are critical to Centaur Swap, as they provide price data that reflects a volume-adjusted global aggregate from all trading environments, allowing for precise readjustments to the price deviation algorithm without worrying about stale or manipulated data feeds.
Mitigating Impermanent Loss With Chainlink Price Feeds
Centaur is a multi-purpose decentralized finance (DeFi) protocol with a suite of innovative solutions coming that enhance end user experience and support new markets across the DeFi ecosystem:
- Hadar Wallet — mobile wallet focused on DeFi integrations (31st March)
- Centaur Swap — a new and innovative DEX built from the ground up (14th April)
- Centaur Mainnet — a Cosmos-based chain to support interoperability (28th April)
For Centaur Swap, our main focus was building a platform that effectively mitigates IL while increasing the efficiency of liquidity provided to pools. Centaur Swap uses a state-of-the-art price derivation algorithm, which pulls aggregated price feeds from Chainlink’s decentralized oracle networks and weights them against a supply and demand curve for the tokens involved in a trade. This process updates prices in real-time and, as a result, significantly mitigates the effects of IL.
For Centaur Swap, we evolved beyond the pair-based model in favor of a pool-based model, where liquidity providers stake assets into individual pools. Now users can trade any pooled token with another without depending on a pair-based structure. This allows liquidity providers to concentrate their liquidity on only their intended assets. Before each trade, Centaur Swap will verify each asset’s price in USD as the common denomination, giving users an accurate representation of both assets’ current value.
For our price derivation algorithm to be precise, it must know the current price for all of the DEX’s tradable assets. This is challenging because crypto-assets trade across hundreds of centralized and decentralized exchanges simultaneously. Thus, an accurate price feed needs to reflect a volume-adjusted aggregate from all trading environments, which is data that is not inherently generated on any blockchain. Since smart contracts cannot make external API calls on their own, we required an oracle to securely fetch aggregated asset price data off-chain and deliver it on-chain so it can be used by Centaur Swap.
After reviewing a wide range of oracle services, we chose the Chainlink Network as our go-to oracle solution because it is the most widely used and time-tested decentralized oracle network, offering unique features like:
- Premium Data — Chainlink Price Feeds source data from numerous premium data aggregators like BraveNewCoin and Amberdata, which each pull price data from across all relevant exchanges and weight it by volume. This methodology ensures that price feeds are accurate and resistant to market manipulation attacks like those executed using flash loans.
- Reliable Nodes — Chainlink Price Feeds are secured by a large collection of independent, security-reviewed oracle node operators run by leading blockchain DevOps. Chainlink node operators are Sybil-resistant and have an extensive history of high uptime, even during periods of high gas costs and extreme network congestion.
- Decentralized Infrastructure — Chainlink Price Feeds are decentralized at both the data source and oracle node level to remove central points of failure in the sourcing and delivering of price data on-chain.
- Transparent Networks — Anyone can independently analyze Chainlink Price Feeds in real-time via open-source visualizations and on-chain monitoring. This transparency around network performance enables users to verify they are receiving fair market values.
Centaur Swap will initially launch with a small basket of assets and gradually scale upwards as the platform evolves. While Centaur Swap is currently only available on Ethereum, we have plans to leverage Chainlink’s blockchain-agnostic data feeds to natively deploy our DEX on other blockchains in the future too.
“After integrating Chainlink VRF for our public sale, we knew Chainlink was a perfect match to secure the price reference data feeds at the heart of our innovative Centaur Swap DEX. The Chainlink Network is the market-leading oracle solution because it combines extreme degrees of security and decentralization with high-quality data, empowering development teams like us to build next-generation DeFi applications in an accelerated manner, such as Centaur Swap.”
Sean Kor, Co-Founder of Centaur.
By combining the best elements of decentralised finance with measured regulatory control, Centaur is bridging DeFi and traditional finance. For more information, please visit our website, join our Telegram community discussion group and announcement channel.
Chainlink is the most widely used and secure way to power universally connected smart contracts. With Chainlink, developers can connect any blockchain with high-quality data sources from other blockchains as well as real-world data. Managed by a global, decentralized community of hundreds of thousands of people, Chainlink is introducing a fairer model for contracts. Its network currently secures billions of dollars in value for smart contracts across the decentralized finance (DeFi), insurance and gaming ecosystems, among others.
Chainlink is trusted by hundreds of organizations to deliver definitive truth via secure, reliable data feeds. To learn more, visit chain.link, subscribe to the Chainlink newsletter, and follow @chainlink on Twitter.
Chainlink VRF used by Centaur to Deploy New Standard for Enhanced Transparency in Public Sale Lotteries
The shift towards lottery-based selection of public sale participants was popularized by initial exchange offering structures and commonly done in a manner that is centralised, despite its predominant use for decentralised projects. Chainlink and Centaur have plans to decentralise this process by leveraging on Chainlink VRF in conjunction with deterministic selection functions to create a lottery selection process that is provably fair and transparent by design.
To achieve this, Centaur will deploy a smart contract on Ethereum and populate it with an array of participating addresses. Chainlink VRF will then be used to generate a root random seed, which would be the first input for a pre-disclosed index selection function that is deterministic in nature. The corresponding address will be added to the list of winners and used as the new seed for the next iteration. This process is repeated until exactly 700 addresses have been selected, regardless of the size of the initial list. The first version of this contract has already been deployed and tested successfully on the Ethereum Rinkeby Testnet and can be found here.
Due to the deterministic nature of the selection process, there was always a risk of manipulation during the generation of the root seed. Chainlink VRF was the missing piece of this hypothetical puzzle and resolved the issue by delivering its randomness along with cryptographic proofs that can be verified on-chain, showing that the randomness is indeed unpredictable.
Beyond Chainlink VRF, Centaur has plans to integrate the Chainlink Network for market data aggregation and off-chain price feeds for its DeFi solutions. In the near future, both teams will also collaborate on the development of oracles that enable chain-to-chain data transmission, with a goal to build a fully decentralized cross-chain exchange.
“As the DeFi sector experiences unprecedented growth, so too does the need for high-quality market data. The technologies employed by Chainlink and their oracle networks are a crucial part of our upcoming DeFi solutions and their seamless integration process allows us to focus on what we do best.” — Sean Kor, Co-Founder of Centaur.
If you’re a developer and want to quickly get your application connected to Chainlink Price Reference Data, visit the developer documentation and join the technical discussion in Discord. If you want to schedule a call to discuss the integration more in-depth, reach out here.
Chainlink is an open-source blockchain abstraction layer for building and running decentralized oracle networks that give your smart contract access to secure and reliable data inputs and outputs. It provides oracles to leading DeFi applications like Synthetix, Aave, and Bancor; numerous blockchains such as Ethereum, Polkadot, and Tezos; as well as large enterprises including Google, Oracle, and SWIFT.
By combining the best elements of decentralised finance with measured regulatory control, Centaur is bridging DeFi and traditional finance. For more information, please take at a look at our website or join our Telegram community discussion group and announcement channel. You can also go through our whitepaper or play around with our testnet block explorer and liquidity pool (Ethereum Ropsten).
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