Our proposal is centered around the creation and deployment of an Asset Rating Oracle. This oracle will facilitate near real-time analytics for each token available on-chain, powered by Chainsight, a groundbreaking protocol that brings historical data into the limelight, and SushiSwap’s DEX.
SushiSwap is recognized for its widespread protocol deployment across multiple chains and boasts a diverse array of DeFi deployments, encompassing Lending, Launchpad, and DEX. Our expectation is that the introduction of the Asset Rating Oracle on-chain will serve as a catalyst for the birth of innovative DeFi use cases from the SushiSwap ecosystem.
We, Chainsight, are an interchain layer purpose-built for data processing. It orchestrates the synchronization of event data and snapshots between Ethereum and Optimism, thereby stacking historical data atop the network.
Our proposal focuses on the development and deployment of a Decentralized Asset Rating Oracle. This oracle will provide near real-time analytics for tokens available on-chain, made possible by Chainsight’s innovative protocol and SushiSwap’s established DEX.
SushiSwap is recognized for its multi-chain protocol deployment and diverse range of DeFi applications. The introduction of the Asset Rating Oracle is expected to spur the creation of fresh DeFi use-cases within the SushiSwap ecosystem.
Project: SushiSwap Realized Volatility Oracle
Duration: July 1 - July 15
Grant Requested: $5K
Our plan is to develop an oracle that continuously updates the realized volatility of an asset using the time-series data from SushiSwap’s DEX.
Realized Volatility is a prominent indicator in finance, acting as a gauge of price stability. Typically embedded in derivatives, Realized Volatility has hitherto been unattainable on-chain due to the complexity of on-chain historical data access. However, by leveraging SushiSwap’s trading data and Chainsight, we can now provide a trustless Realized Volatility Oracle that regularly updates its values.
In this scenario, we will be capturing snapshots of WETH and OP token price data every hour. This data is initially accumulated on Chainsight as time series data. Then, based on this data, Realized Volatility snapshots are computed using a logic filter. This value is automatically written to the Data Oracle on Optimism, devoid of any single point of failure, by amalgamating Distributed Key Generation and Threshold Signature.
Although there is a fee associated with historical data collection on Chainsight, we’ll absorb all costs.
Project: SushiSwap Risk Assessment Oracle
Duration: Aug 1 - Aug 30
Grant Requested: TBD
Post the successful completion and verification of Phase 1 as a Volatility Oracle, we plan to progress to Phase 2, which involves developing a Risk Assessment Oracle. We aspire to introduce an Oracle that calculates Value at Risk (VaR) and Expected Shortfall (ES) for each asset, thereby facilitating a continuous quantitative risk analysis of the asset using on-chain data.
In Lending and CDP, unstable collateral adds risk. Therefore, making commonly used quantitative analysis methods in finance accessible on smart contracts based on historical data could promote an objective understanding of the current state of crypto assets. We also hope this will encourage the development of dynamic DeFi, like logic switching when certain values are out of range.
Project: SushiSwap Asset Rating Oracle
Duration: Sep 1 - Nov 31
Grant Requested: TBD
Upon the successful completion of Phase 2, where risk is quantitatively assessed from various angles, Phase 3 plans to deliver a holistic evaluation of the asset, taking into account liquidity and diversification. We propose to refine S&P’s and Moody’s rating definitions for crypto assets, resulting in a unidimensional rating from AAA to D, where AAA represents minimal risk of a crash, and D indicates high risk.
In assigning ratings, we take a comprehensive view of the asset from three perspectives:
Historical asset price data
Historical liquidity data
Historical data on the number of asset holders
For liquidity, Chainsight will track total liquidity by taking hourly snapshots, referencing each SushiSwap operation on Ethereum, Optimism. Regarding asset holders, the Herfindahl-Hirschman Index (HHI), an economic indicator, will facilitate a quantitative comparison of holder diversification. A lower liquidity level and a higher HHI score might suggest a higher risk of significant price movement.
Through these indicators, a distributed rating discernible from on-chain activity is made available on-chain. This ensures a fair score based on data, as it will continually operate on-chain, free from fraudulent or manipulative interference. We envision this development to create a foundation for new on-chain derivatives, insurance protocols, and other innovative DeFi creations, benefiting the SushiSwap ecosystem.
An effective asset rating system that could be instrumental in promoting the SushiSwap ecosystem, benefiting new on-chain derivatives, insurance protocols, and other innovative DeFi creations.
Potential issues could be the complexity of the project and the challenge of ensuring the objectivity and accuracy of the rating system.