Daniel Rabetti, Lin William Cong and Eswar Prasad
Oracles are software components that enable data exchange between siloed blockchains and external environments, enhancing smart contract capabilities and platform interoperability. We find that oracle integration is positively associated with total value locked and platform/protocol valuation, triggered by positive network effects in adoption and usage. Our study reveals symbiotic gains from enhanced interoperability and network effects across protocols on a given chain and among integrated chains. Oracle integration improves risk-sharing and mitigates contagion, increasing resilience during turbulent periods in crypto markets. We draw parallels between oracle integration and international economics, offering insights for regulators, entrepreneurs, and practitioners in decentralized finance.
