Oracle Counterpoint: Relationships between On-chain and Off-chain Market Data

Zhimeng Yang, Ariah Klages-Mundt and Lewis Gudgeon

Papers from arXiv.org

Abstract: We investigate the theoretical and empirical relationships between activity in on-chain markets and pricing in off-chain cryptocurrency markets (e.g., ETH/USD prices). The motivation is to develop methods for proxying off-chain market data using data and computation that is in principle verifiable on-chain and could provide an alternative approach to blockchain price oracles. We explore relationships in PoW mining, PoS validation, block space markets, network decentralization, usage and monetary velocity, and on-chain Automated Market Makers (AMMs). We select key features from these markets, which we analyze through graphical models, mutual information, and ensemble machine learning models to explore the degree to which off-chain pricing information can be recovered entirely on-chain. We find that a large amount of pricing information is contained in on-chain data, but that it is generally hard to recover precise prices except on short time scales of retraining the model. We discuss how even noisy information recovered from on-chain data could help to detect anomalies in oracle-reported prices on-chain.

Date: 2023-03, Revised 2023-07
New Economics Papers: this item is included in nep-big and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2303.16331 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2303.16331

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().