Oracles

The Oracle Problem

During the research and development of the TWMM, it became apparent that many existing on-chain oracle solutions are not optimally designed for high-frequency trading environments. The most performant solutions are often proprietary, centralized, and carry high operational costs.

A primary challenge is the gas cost associated with price updates. For a liquidity pool to be maximally efficient, its swap fees must be as low as possible to reduce the profitability threshold for arbitrage. Lowering this threshold attracts more trading volume, which in turn generates more revenue. However, many oracle solutions require significant gas expenditure for each price update, adding a cost that works against this goal.

While many oracle solutions are reputable, some architectures, such as Decentralized Oracle Networks (DONs), can function like permissioned off-chain multisigs, where trust is placed in a threshold of network participants. This highlights the ongoing trade-offs between decentralization, cost, and performance in the oracle space.

Arcanum Oracles

In the future, Arcanum plans to develop a highly efficient, proprietary oracle system designed specifically for its pools. This system will be architected to minimize gas overhead and maximize data throughput.

The proposed design involves a network of trusted signers who will batch all asset prices along with a timestamp into a single data payload. This payload will then be signed using an EVM-friendly Schnorr signature. This approach is highly efficient, allowing for the verification of the entire data batch for approximately 13,000 gas. In contrast to other oracle solutions where verification costs can be significantly higher and are often paid on a per-price basis, the Arcanum oracle would require minimal on-chain overhead.

The Schnorr signature itself will be generated using the FROST (Flexible Round-Optimized Schnorr Threshold) algorithm. This will create a robust and secure threshold signature produced by a committee of trusted authorities, providing a balance of decentralization and performance.

After the batched signature is verified on-chain, each individual price from the payload is unpacked and stored in its own dedicated storage slot, or "bucket." This storage structure can be designed to be compatible with standard data feed interfaces like Chainlink's AggregatorV3Interface. This provides a secondary benefit: other on-chain protocols can read Arcanum's verified prices for their own applications in a highly gas-efficient manner, as the primary cost of verification has already been absorbed by the Arcanum system.

To ensure the long-term reliability and integrity of this data, the trusted entities acting as oracle signers are economically incentivized. They receive a portion of the protocol's revenue, which is distributed to them in the form of the native protocol token, thus aligning their interests with the success and security of the entire ecosystem.