Uniswap Version 3 TWAP Oracles Move to Proof-of-Stake

Price oracles are tools used to see the price information about a particular asset. Developers usually run into oracle bugs in the process of building smart contracts that get integrated into decentralized finance protocols. The Uniswap version 3 helped them build decentralized on-chain time-weighted average price oracles.

The Version 3 Advantage

This helped to resolve a lot of the issues required for building such protocols. The Uniswap version 3 is now out to improve this with more calculations and better gas efficiency.

These tools are important for the decentralized finance ecosystem. This is because they are trustless price feeds that a lot of smart contracts can latch on to for price information. Nevertheless, they are the target of bad actors in the DeFi space because of the economic benefit of doing so.

The Uniswap time-weighted average price (TWAP) oracles, by design, were based on the proof-of-work protocol. The security of the system lay in the reality that bad actors would lose funds. 

Ethereum’s migration to the proof-of-stake protocol is the biggest change in the blockchain’s history. It came with a lot of benefits for the ecosystem as a general unit but came with unplanned consequences too. The TWAP oracles and other dependencies on the PoW protocol got affected.

PoS Might Be More Secure After All

With the PoS adoption, oracles have technically become less secure. Since a bad actor can be a validator, they also know whether they are in control of the following block. Therefore, they would no longer lose funds to back-runs.

There is, however, an important warning attached to this. Manipulation is not common or feasible on Uniswap version 3. This is because bad actors would have to get very high capital and need to make sufficient funds to recover those paid in fees.

Validators with such an amount of money would likely not take part in manipulations. The reason is that it would undermine their position in the market and chip away at users’ confidence. 

But Uniswap wants to examine the difficulty and possibility of manipulation on its version 3. This also has to be within the PoS framework. The platform also wants to examine a string of possible solutions for now. They would also be tested against other Uniswap versions in the future.

Uniswap hopes the research would clarify various questions in the public domain about the issues. It will also answer questions about other Uniswap work and future oracles projects.