Flare Analysis: How Data Drives the Development of the Web3 Industry?
The positioning and transformation of data infrastructure in the cryptocurrency ecosystem.Key Points Summary (TL;DR)
Flare embeds oracles into its core protocol to ensure the reliability and integrity of data.
Flare builds a data-driven blockchain ecosystem. It utilizes three core protocols: the decentralized price feedback system FTSO, data connectors that link Web2 and Web3, and FAssets that leverage non-smart contract assets.
Flare initially serves 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 automated processes executed by code, eliminating the need for third-party intermediaries. However, the security of this system entirely depends on the integrity of the input data. If there are issues with the input data, even perfectly designed smart contracts can fail, leading to unpredictable system operations and potential risks.
To address this challenge, the blockchain industry has introduced oracles, which are distributed data providers. However, oracles typically operate outside the blockchain, limiting their ability to maintain the security and integrity of the blockchain. Additionally, the use of external data sources can introduce single points of failure, and some oracles lack decentralization due to reliance on a few nodes. Therefore, the reliability of data becomes a weakness of blockchain technology.
All About Data
Source: Flare
Flare is a blockchain infrastructure dedicated to "data," aimed at solving 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 benefit from the security of the blockchain by embedding them into its core protocol. To successfully hack the oracle, one would need to compromise the entire blockchain network, a structure that provides assurance for the reliability and security of 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 system. 1) FTSO (Flare Time Series Oracle) provides decentralized price information. 2) Flare Data Connector (FDC) integrates external chains and Web2 data into Flare, verifying and protecting data within the blockchain. 3) FAssets enables non-smart contract assets like Bitcoin, XRP, and Dogecoin to be used in DeFi, expanding 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 crucial for many Web3 services, especially DeFi. However, most services still rely on centralized data providers. Manipulation or errors in 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 vividly demonstrated in historical cases. In March 2023, Berkshire Hathaway's stock price plummeted 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, they could lead to significant investment losses. Therefore, the decentralized and reliable data solutions provided by Flare are particularly important for enhancing the stability and reliability of systems 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. A consensus mechanism determines the most accurate values 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
A key distinction of FTSO is that all 100+ validators participate in each price information stream. Many oracles face issues with inconsistent validator participation, where some information streams receive full validation while others rely on only a few validators. Flare ensures consistent validator participation across all information streams. This minimizes data discrepancies between information streams and enhances the overall reliability of the system. FTSO data is closely correlated with prices on major exchanges and remains within standard deviation ranges, objectively proving its accuracy and reliability.
In May 2024, Flare released FTSO v2, improving the speed and scope of data processing. The previous price information was limited to cryptocurrency prices, and now it can support a wide range of Web2 data, such as stock and commodity prices. The update cycle has been shortened from 180 seconds to 90 seconds. The number of price information sources has increased from 18 to over 50, and the infrastructure can scale to 1,000 information streams.
2.2. Flare Data Connector (FDC): Connecting All Data
Blockchain is inherently isolated from the outside world, posing challenges in 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 securely access this data, their usability decreases, and risks increase. Interoperability with other chains is crucial for the blockchain ecosystem. Without connections to other networks, blockchains remain isolated. This isolation limits the growth and development of the entire ecosystem.
The Flare Data Connector addresses these challenges. Flare's "2024 Paris Olympic Games Prediction Market Game" demonstration showcases its capabilities. This service reliably retrieves Olympic event results, rewarding users who successfully predict the outcomes.
Flare Olympic Prediction Market Game Demo, Source: Flare
Flare's data connector employs 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 utilizing a consensus mechanism for data verification, Flare's technology addresses the reliability issues faced by many existing services, especially those relying on centralized providers or manual data entry. This design effectively reduces the risks of manipulation and errors, ensuring that services can access high-quality data.
The application prospects of the data connector are vast, capable of integrating various deterministic data sets into the blockchain via APIs. In addition to sports event results, the data connector can also introduce data from various sources, such as item trading records in online games, social media likes, etc. By supporting data exchange between different blockchains, the data connector achieves interoperability between blockchains, allowing assets across multiple chains to interact and validate seamlessly. This functionality drives the emergence of new use cases, such as NFTs issued on the Flare network being traded for Dogecoin or XRP, further expanding the application scope 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 within 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 an FAsset (such as $FBTC) first need to send Bitcoin to a designated address. The data connector verifies that this transaction has indeed occurred on the Bitcoin blockchain. Once verification is complete, an ERC-20 based FAsset is minted on the Flare network, allowing users 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.
As FAssets involve asset connections and transfers between multiple chains, ensuring their reliability is crucial. Flare employs various technical measures to guarantee the reliability and security of this process:
Real-time price feedback from FTSO: Monitors and reflects market price fluctuations in real-time, ensuring the effectiveness of assets in DeFi operations.
Consensus mechanism: Maintains the integrity of the system, ensuring that all relevant transactions and operations are thoroughly validated.
Over-collateralization model: The value of the collateral assets held exceeds the issued assets, addressing trust issues in traditional centralized models, thereby reducing risks.
The native stablecoin USDX introduced by Flare plays a key role in the stability and liquidity of the FAssets system. Users can stake USDX to receive cUSDX, which can be used as collateral 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 increasing 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 an important part 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 are FAssets. On December 18, 2024, FAssets were launched on Flare's canary network, Songbird. Notably, within just one hour of the launch, the Ripple-based FAsset $FXRP was minted, valued at approximately $2 million. This highlights the strong demand and high expectations for utilizing non-smart contract assets in the market.
Source: Dune
It is noteworthy that Flare is expanding its ecosystem through various DeFi services. Its total value locked (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 operates a reward program to encourage ecosystem participation, which is expected to enhance its growth momentum in the future.
3.2. Expanding Blockchain Use Cases
Flare aims to expand the application of blockchain technology through its data connector, effectively linking traditional Web2 and emerging Web3 ecosystems. This connection not only accelerates the development of industrial applications but also overcomes the challenges of trusting Web2 data within the Web3 ecosystem. 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 support the secure on-chain use of off-chain data and can verify the authenticity and integrity of the data.
Source: Red Date Technology
In November 2024, Flare partnered with China's national identity verification system RealDID, whose technology has been recognized. Together, they launched a cross-border KYC solution. This marks the first application of Flare's data infrastructure in the highly 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 Beyond Blockchain Industries
Flare is also considering how to achieve comprehensive industry innovation beyond blockchain data infrastructure. Through technological innovation, Flare has identified two main goals: to address the technical limitations in the Web3 space and to leverage blockchain technology to advance artificial intelligence development.
4.1. Addressing Technical Limitations in the Web3 Industry
The current Web3 ecosystem faces issues 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, thereby supporting the development of various services.
To establish a stable and efficient computing environment, Flare is also researching Trusted Execution Environment (TEE) technology. These technological capabilities, combined with its experience in operating data infrastructure, position Flare to overcome the current technical limitations in Web3 and provide a foundation for large-scale data processing and complex computations.
4.2. Leveraging Blockchain to Advance Artificial Intelligence Technology
Flare lays the groundwork for sustainable development of artificial intelligence 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 model quality and reduce biases caused by poor data. Additionally, Flare's reward and penalty consensus mechanism encourages responsible data generation, addressing the shortage of high-quality data.
5. Conclusion
How high can 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 to drive 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 emphasizes 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
