Phuture is pleased to announce that Chainlink Price Feeds will be the de facto source of truth for asset pricing on Phuture. Phuture will be integrating 33 Chainlink Price Feeds as part of its mainnet launch, with plans to add more over time. Phuture will reference Chainlink’s industry standard Price Feeds when minting, trading, and redeeming crypto indices, as well as for calculating both the net asset value (NAV) of an index and the world state of the protocol.
Phuture + Chainlink Price Feeds
Phuture allows users to mint and invest in indices that automatically rebalance based on market shifts. When minting an index, Phuture must calculate the NAV in order to appropriately allocate index shares to the user. Chainlink Price Feeds provide the most secure and reliable source of truth for determining this metric. Additionally, Chainlink Price Feeds will be used to modulate the prices at which swaps are executed (more info on this in the next section).
Phuture’s off-chain solvers monitor the world state of the platform by looking for rebalancing opportunities. The world state is valued using Chainlink Price Feeds and is updated through the events emitted by the Chainlink reference contracts.
The TWAP Problem
Phuture utilises AMM swaps in order to mint indices. However, the prices quoted on AMMs are susceptible to manipulation. An adversary can artificially lower the price of an asset through a large sell, which then lowers the NAV per share of indices that include that asset. Thus, when the adversary mints one of these indices, they will receive more index shares than they otherwise should.
For example, say the NAV/share of an index reduces from $10 to $1. Now, instead of receiving 10 index shares for every $100 invested, the adversary receives 100 shares.
Owning more index shares entitles users to a larger, disproportionate proportion of the index vault, enabling them to drain funds from other index investors.
Of course, this is only a problem if you mint using the spot price. TWAP, or time weighted average price, solves this issue by creating a price that is an average over the span of some time interval. Whilst it solves the immediate issue of using the spot price, it creates a trade off between security and price accuracy.
The TWAP time interval needs to be based on the liquidity of the AMM pool. Lower liquidity pools require a longer TWAP time interval. A longer interval improves security by increasing the cost of manipulating the price, however, it simultaneously makes the price less up-to-date. A less accurate price feed causes the NAV/share of our indices to differ from their market price. This creates free arbitrage opportunities and slightly diminishes the UX, especially in times of high volatility, since users will be minting indices at a material difference to their underlying value.
The Chainlink solution
Chainlink Price Feeds offer several advantages over TWAP price feeds:
Deviation Based Price Feed Updates
Chainlink Price Feeds update based on one of two factors, either time or price. For example, the ETH/USD price feed on Ethereum updates if the underlying global market price deviates from the last oracle price update by 0.5% or 60 minutes has passed since the last update. For Phuture users, this means that the prices we use to mint indices will be at most (ignoring chain congestion) 0.5% away from the underlying price. Chainlink Price Feeds support much lower deviation thresholds for updates on L2.
Resilient Price Feeds Based on Multiple Data Sources
Chainlink Price Feeds are decentralised at the data source, oracle node, and oracle network levels to generate strong protections against downtime and tampering. These decentralised networks consist of highly reliable node operators and premium data sources.
Firstly, each price feed has a minimum number of nodes that must respond in order for a price update to be ratified on-chain. This ensures that each price update has a sufficient number of independent data source contributors. Each node submits an aggregated price, meaning each node has queried prices from multiple independent sources (data aggregators) and submitted a median of these prices to the on-chain reference contract. The contract then takes a median of all the prices sent by nodes to the contract to get a final price.
Due to the level of aggregation, from both on-chain and off-chain exchanges, Chainlink Price Feeds remain robust against flash loan attacks such as the one described in the previous section. Prices are also weighted by volume, with outliers or suspicious volume filtered out.
Showcasing the aggregation of the ETH/USD price feed
No Oracle Upkeep
Whilst Uniswap V3 has improved on the ease of calling a TWAP price feed, not all pairs are supported yet and in some cases liquidity is greater on V2. On V2, feeds must be updated periodically in order to make sure they are up-to-date, which increases the gas expense of maintaining a TWAP oracle on V2. Chainlink Price Feeds are automatically updated via their oracle network, removing the onus from the Phuture team or its users to make sure price feeds are up-to-date and reducing overall gas expense.
“We are excited to bring Phuture’s aggregated indices model to DeFi, giving users more choices in creating custom index products,” said Oliver Mehr, Head of Product at Phuture. “By integrating Chainlink, we’re able to provide accurate prices with wide market coverage for all assets within user-created indices while still keeping costs low and retaining the highest amount of on-chain security and reliability.”
Phuture’s integration of Chainlink provides an idyllic price feed solution that satisfies the need for up-to-date prices and simultaneously offers strong security guarantees.
Chainlink is the industry standard oracle network for powering hybrid smart contracts. Chainlink Decentralised Oracle Networks provide developers with the largest collection of high-quality data sources and secure off-chain computations to expand the capabilities of smart contracts on any blockchain. Managed by a global, decentralised community, Chainlink currently secures billions of dollars in value for smart contracts across decentralised finance (DeFi), insurance, gaming, and other major industries.
Phuture is a decentralised protocol built for the creation and investment of token based passive investment strategies in a Web3 environment. Phuture introduces an open design philosophy for creating passive investment strategies, providing the tools for users to create new indices or invest into existing ones created by the community.
Join the community and be a part of the Phuture of indexing!