Key points summary (TL;DR)

  • Flare embeds oracles into its core protocol, ensuring the reliability and integrity of data.

  • Flare has built a data-driven blockchain ecosystem. It uses three core protocols: the FTSO for decentralized price feedback, data connectors that connect Web2 and Web3, and FAssets that utilize non-smart contract assets.

  • Flare initially served as a data infrastructure. With the launch of FAssets, its goal is to become a liquidity hub that connects ecosystems, including assets like Bitcoin, XRP, and Dogecoin.

Weaknesses of blockchain technology

Blockchain technology follows the principle of 'code is law,' creating a trustless system that provides security and trust through the automated execution of processes via code, eliminating the need for third-party intermediaries. However, the security of this system relies entirely on the integrity of the input data. If there are issues with the input data, even perfectly designed smart contracts can fail, making the operation of the entire system unpredictable and potentially introducing risks.

To address this challenge, the blockchain industry has introduced oracles, which are distributed data providers. However, oracles often operate outside the blockchain, limiting their ability to maintain the security and integrity of the blockchain. Furthermore, the use of external data sources also introduces the risk of single points of failure, and certain oracles lack decentralization due to reliance on a few nodes. Thus, the reliability of data has become a weakness in blockchain technology.

Everything for data

Source: Flare

Flare is a blockchain infrastructure dedicated to 'data,' designed to solve the problem of reliance on external oracles. While existing blockchains often depend on external oracles to access data for security, such setups do not guarantee the reliability of the obtained data.

Flare ensures that oracles enjoy the security of the blockchain by embedding them into its core protocol. To successfully hack an oracle, one would need to compromise the entire blockchain network, which offers a structural guarantee for the reliability and security of the data. Flare's approach integrates the blockchain and oracles into a single system, eliminating the security risks posed by external oracles. Developers can seamlessly build rich data Web3 services using embedded oracles without relying on external solutions.

Flare offers three core protocols built on its embedded oracle. 1) FTSO (Flare Time Series Oracle) provides decentralized price information. 2) Flare Data Connector (FDC) integrates external chains and Web2 data into Flare, validating and protecting data within the blockchain. 3) FAssets enable non-smart contract assets like Bitcoin, XRP, and Dogecoin to be utilized in DeFi, extending their functionality within the blockchain ecosystem.

2.1. FTSO: Providing decentralized price information

Flare's FTSO provides time series price data in a decentralized manner. This data includes asset prices updated at specific intervals, which are critical for many Web3 services, especially DeFi. However, most services still rely on centralized data providers. Manipulation or errors within this data can undermine the reliability and stability of the entire system.

The implementation of FTSO is particularly important, as the limitations of centralized data providers have been starkly illustrated in historical cases. In March 2023, the stock price of Berkshire Hathaway fell by about 99% due to a computer error, highlighting the single point of failure risk in centralized data systems. If such errors occur in the automated environment of Web3, it could lead to severe investment losses. Therefore, the decentralized and reliable data solutions provided by Flare are particularly important, helping to enhance the stability and reliability of the system within the blockchain ecosystem.

FTSO, Source: Flare Systems Explorers

To address this issue, Flare uses a decentralized price feedback system through FTSO, which has over 100 independent validators. Validators collect time-series price data from various sources and submit it to the blockchain. The consensus mechanism determines the most accurate value from the submitted data. Validators providing inaccurate or manipulated data will be flagged as outliers and excluded. They will not receive rewards and may face economic penalties. This system ensures the reliability and integrity of data on Flare.

Source: Flare

The key distinction of FTSO is that all 100+ validators participate in every price information stream. Many oracles face issues with inconsistent validator participation, where some information streams are fully validated while others rely only on a few validators. Flare ensures consistent validator participation across all information streams. This minimizes data discrepancies between information streams and enhances the reliability of the entire system. FTSO data is closely related to prices on major exchanges and remains within standard deviation ranges, objectively demonstrating its accuracy and reliability.

In May 2024, Flare released FTSO v2, enhancing the speed and scope of data processing. Previously, price information was limited to cryptocurrency prices; now it can support a wide range of Web2 data, such as stock and commodity prices. The update cycle was reduced from 180 seconds to 90 seconds. The number of price information increased from 18 to over 50, and the infrastructure can scale to 1,000 pieces of information.

2.2. Flare Data Connector (FDC): Connecting all data

Blockchain is inherently isolated from the outside world, presenting challenges when integrating real-world data. The Flare Data Connector links external chains and off-chain data to the Flare ecosystem, enhancing scalability and usability.

For example, Web3-based insurance services require reliable real-world data, such as weather and flight delays. Without this data, these services may face severe limitations or become unfeasible. Prediction markets like Polymarket also rely on reliable data, such as sports scores. If they cannot safely access this data, their availability decreases and risks increase. Interoperability with other chains is crucial for the blockchain ecosystem. Without connections to other networks, blockchains remain isolated, limiting growth and development across the entire ecosystem.

The Flare Data Connector addresses these challenges. Flare's 'Paris 2024 Olympic Games prediction market game' demonstration showcases its capabilities. This service reliably obtains results from Olympic events, rewarding users who successfully predict event outcomes.

Flare Olympic Games prediction market game demonstration, source: Flare

Flare's data connector utilizes a multi-party verification mechanism to ensure the authenticity and accuracy of external data (such as Olympic event results). By collecting data from multiple sources, including official APIs, through independent validators, and using consensus mechanisms for data validation, Flare's technology addresses the reliability issues faced by many existing services, especially those relying on centralized providers or manual data input. This design effectively reduces the risk of manipulation and errors, ensuring that services can access high-quality data.

The application prospects of data connectors are vast, capable of integrating various deterministic data sets into the blockchain via APIs. Besides sports event results, data connectors can introduce data from various sources, such as transaction records for virtual goods in online games, social media likes, etc. By supporting data exchange between different blockchains, data connectors achieve interoperability among blockchains, enabling seamless interaction and verification of assets across multiple chains. This capability drives the emergence of new use cases, such as NFTs issued on the Flare network being tradable for Dogecoin or XRP, further broadening the application range of the ecosystem.

2.3. FAssets: Building a multi-ecosystem liquidity hub

Source: Flare

FAssets is a protocol developed by Flare that allows non-smart contract assets (such as Bitcoin and XRP) to be used in the DeFi ecosystem. Based on Flare's core technologies FTSO and data connectors, this implementation breaks the limitations of first-generation blockchains, enabling assets without smart contract functionality to participate in complex DeFi operations.

FAssets processing flow, source: Flare

Users wishing to convert Bitcoin into FAsset (such as $FBTC) first need to send Bitcoin to a designated address. The data connector verifies whether this transaction indeed occurred on the Bitcoin blockchain. Once verification is complete, an ERC-20 based FAsset will be minted on the Flare network, allowing the user to utilize this token within Flare's DeFi ecosystem or bridge it to other blockchains. This process not only provides users with greater flexibility and convenience but also significantly enhances the market competitiveness of other non-smart contract assets.

Given that FAssets involve asset connections and transfers across multiple chains, ensuring their reliability is crucial. Flare employs various technical measures to safeguard this process's reliability and security:

1. FTSO Real-time Price Feedback: Real-time monitoring and reflection of market price fluctuations, ensuring the effectiveness of assets in DeFi operations.

2. Consensus Mechanism: Maintaining the integrity of the system, ensuring that all relevant transactions and operations are fully verified.

3. Over-collateralization model: The value of the collateral assets held exceeds the issued assets, solving trust issues in traditional centralized models, thereby reducing risk.

Source: ClearPool

The native stablecoin USDX introduced by Flare plays a key role in the stability and liquidity of the FAssets system. Users can obtain cUSDX by staking USDX, which can serve as collateral for use in DeFi. Additionally, users can earn stable returns from short-term U.S. Treasury bills (T-Bills), which not only enhances the collateral base of the system but also provides stability during market fluctuations, further improving the utilization of assets.

3. How Flare will drive the development of the Web3 industry

3.1. Expanding the utility of non-smart contract assets

Non-smart contract assets are a significant component of the Web3 industry. Bitcoin, XRP, and Dogecoin together account for over 70% of the cryptocurrency market value. Flare positions itself as a liquidity hub, connecting these large markets with the Web3 ecosystem.

FAsset Songbird, source: Flare

At the core of this vision is FAssets. On December 18, 2024, FAssets launched on Flare's canary network Songbird. Notably, within just one hour of launch, the Ripple-based FAsset $FXRP was minted, valued at approximately $2 million. This highlights the strong demand and high expectations in the market for leveraging non-smart contract assets.

Source: Dune

Notably, Flare is expanding its ecosystem through various DeFi services. Its total locked value (TVL) currently stands at $50 million. Active services include lending platform Kinetic, decentralized exchange SparkDEX, and liquidity staking solution Sceptre. The introduction of FAssets is expected to create synergies with these services and non-smart contract assets. Flare also runs incentive programs to encourage ecosystem participation, which is expected to enhance its growth momentum in the future.

3.2. Expanding blockchain use cases

Flare aims to extend the application scope of blockchain technology through its data connector, which effectively links the traditional Web2 and emerging Web3 ecosystems together. This connection not only accelerates the development of industrial applications but also overcomes the challenges the Web3 ecosystem faces in trusting Web2 data. Due to security and privacy concerns, Web2 companies are often reluctant to share their data, while Flare's embedded data oracles can effectively address these issues. They enable the secure on-chain use of off-chain data and can verify the authenticity and integrity of the data.

Source: Hongzao Technology

In November 2024, Flare collaborated with China's national identity verification system RealDID, whose technology gained recognition. The two parties jointly launched a cross-border KYC solution. This marks the first application of Flare's data infrastructure in the heavily regulated identity verification field. These achievements highlight Flare's potential in industries where data reliability is crucial. Its technology is expected to accelerate enterprise adoption of blockchain.

4. Flare innovates in industries beyond blockchain

Flare is also considering how to achieve comprehensive industry innovation beyond blockchain data infrastructure. Through technological innovation, Flare has outlined two main objectives: to address the technical limitations in the Web3 space and to leverage blockchain technology to advance the development of artificial intelligence.

4.1. Addressing the technical limitations of the Web3 industry

The current Web3 ecosystem faces challenges of low data utilization and high computational costs, making it difficult to develop data-intensive consumer applications like Instagram and X. To address this, Flare is expanding its infrastructure to provide up to 1,000 real-time data sources and ensuring data reliability through decentralized validation to support the development of various services.

Integrating decentralization into DeFi: Solving key data issues in cryptocurrency, source: KBW 2024

To establish a stable and efficient computing environment, Flare is also researching Trusted Execution Environment (TEE) technologies. These technological capabilities, combined with its experience in data infrastructure operations, position Flare well to overcome the current technical limitations of Web3, providing a foundation for large-scale data processing and complex computing.

4.2. Promoting AI technology through blockchain

Hugo Philion from Flare was interviewed by Defiant at the Federal Institute of Technology in Denver in 2024, image source: Flare

Flare lays the foundation for sustainable development of AI by demonstrating how blockchain consensus mechanisms can promote advancements in AI technology. AI models rely on high-quality data, and the reliable data provided by Flare helps improve the quality of models and reduce biases from poor data. Additionally, Flare's reward and penalty consensus mechanism encourages responsible data generation, addressing the issue of high-quality data shortages.

5. Conclusion

How high will Bitcoin go? That's a better question, source: EO

Flare has a clear vision to address issues beyond blockchain. 'Many projects focus only on funding and finance, but we need to invest more resources in promoting technological development,' said Flare founder Hugo Philion. This reflects Flare's philosophy of valuing the intrinsic worth of technology over short-term results.

Source: Hugo Philion

The development process of Flare embodies this philosophy. Reliability and stability are paramount. Flare only releases major features after thorough preparation and validation. Hugo emphasized the importance of 'building the future in an orderly manner, unaffected by market conditions.' Flare focuses on long-term trust and stability rather than quick profits.

This approach drives Flare's goal of creating a trusted data infrastructure that transcends blockchain. The future of Flare as a key data infrastructure provider is promising.

Original link: https://reports.tiger-research.com/p/flare-blockchain-for-data-eng