In-Depth Report on the Oracle Sector: The Intelligence Hub of the On-Chain World

Abstract

As the key bridge connecting on-chain contracts and off-chain real-world data in the blockchain ecosystem, oracles are becoming increasingly vital. Evolving from simple data relay tools, they are being upgraded to the "intelligence hub" of the on-chain world. This report delves into the oracle sector. It begins by introducing the industry foundation for oracles as the "intelligence center" of blockchain and their development trajectory, revealing why they have become indispensable to the trusted execution of smart contracts. The report then provides a detailed examination of the market landscape, comparing in detail traditional centralized oracles with emerging decentralized projects in terms of both technology and business competition models, highlighting the value reengineering driven by decentralization. On the technical front, the report illustrates how oracles safeguard information security and reliability from their four core technical dimensions, that is, data sourcing, transmission, validation, and consensus. In terms of growth potential, the application of oracles has extended from financial data flows to the infrastructure of on-chain real-world assets (RWAs), pushing the blockchain ecosystem into a new stage. Finally, based on structural trend analysis, the report proposes investment recommendations, focusing on three key areas, namely, modular oracles, AI-integrated oracles, and identity-bound RWA oracles. It emphasizes that oracles are transitioning from a supporting role to becoming "value anchors" of on-chain order, poised for structural investment opportunities.

I. Industry Foundation and Development Trajectory: Why Oracles Are the "Intelligence Hub" of Blockchain

Blockchain is essentially a decentralized trust machine, ensuring data immutability and system autonomy through consensus mechanisms, encryption algorithms, and a distributed ledger structure. However, due to its inherent closedness and self-consistency, blockchain is naturally unable to access off-chain data on its own initiative. From weather forecasts and financial prices to voting results and off-chain identity verifications, on-chain systems are blind to changes in the external world. Therefore, as the information bridge between on-chain and off-chain information realms, oracles serve a crucial role in "perceiving the external world". They are more than just data couriers; they are the intelligence hub of blockchain — only when the off-chain information provided by oracles is injected into smart contracts can the on-chain financial logic execute correctly, thereby truly connecting the real world with the decentralized universe.

1.1 Information Silos and the Logic Behind the Birth of Oracles

Early Ethereum and Bitcoin networks faced a fundamental issue: on-chain smart contracts were "blind". They could only compute using data already written onto the blockchain and had no way to "actively" fetch off-chain information. For example, DeFi protocols could not independently access real-time ETH/USD prices; GameFi projects could not synchronize with real-world sports scores; RWA protocols had no way to verify whether real-world assets (such as real estate or bonds) had been liquidated or transferred.

The emergence of oracles addresses this inherent flaw of information silos. Oracles fetch data from the external world and transmit it onto the blockchain, whether through centralized or decentralized means, giving smart contracts the "context" and "world state" so as to power more sophisticated and practical decentralized applications.

1.2 Three Key Evolution Stages: From Centralization to Modularization

Oracle technology has evolved through three major stages, each significantly expanding oracle's functional boundary in the blockchain world:

The first stage: centralized oracles: Most early oracles relied on a single data source and central node push, such as early Augur and Provable. However, these systems were highly vulnerable to tampering, hijacking, and disruptions due to their extremely low security and poor resistance to censorship.

The second stage: decentralized data aggregation (the Chainlink paradigm): The advent of Chainlink pushed oracles to new heights. It established a decentralized network that provides data through multiple data feeds, node network aggregation, and staking and incentive mechanisms. This significantly improved security and verifiability, setting an industry trend.

The third stage: verifiable & modular oracles: With growing demand and the emergence of new technologies like AI, modular oracles have become increasingly popular. Projects such as UMA, Pyth, Supra, RedStone, Witnet, Ritual, and Light Protocol are pioneering innovative mechanisms such as crypto-proofed data, ZK-proofs, off-chain computation verification, and custom data layers. These advances are driving the evolution of oracles toward greater flexibility, composability, low latency, and auditability.

1.3 Why Are Oracles Considered the "Intelligence Hub" Rather Than a "Peripheral Device"?

In traditional narratives, oracles are often likened to the "sensory organs of the blockchain", that is, its eyes, ears, nose, and tongue. However, in today's highly complex on-chain ecosystem, this analogy no longer suffices: In DeFi, oracles define the "baseline reality" for liquidations, arbitrage, and trade execution, so any data latency or manipulation can directly trigger systemic risks; in the RWA field, oracles serve as synchronization mechanisms for the "digital twin of off-chain assets", acting as the sole interface for validating the legal existence of real-world assets on-chain; in the AI+Crypto space, oracles transform into the "data input mouth" for models, determining whether intelligent agents can operate effectively; and in cross-chain bridges and restaking protocols, they are tasked with cross-chain state synchronization, security guidance, and verification of consensus correctness.

This means that oracles are no longer merely "sensory organs"; they have become the neural center and intelligence network of the complicated on-chain ecosystem. Their role has shifted from mere "perception" to serving as the core infrastructure for constructing consensus reality and synchronizing the on-chain universe with the off-chain world.

From a national perspective, data is the "oil of the 21st century", while oracles are the channel controllers for data flow. Controlling an oracle network is tantamount to controlling the production of "on-chain cognition": whoever defines prices controls financial order; whoever synchronizes truths shapes cognitive structures; and whoever monopolizes access points sets the standards for "trusted data". For this reason, oracles are becoming core infrastructure for modules like DePIN, DeAI, and RWA.

II. Market Landscape and Project Comparison: A Head-on Clash Between Centralized Legacies and Decentralized Upstarts

Although oracles are seen as the "intelligence hub" of the blockchain, in reality, control over this hub has long been concentrated in a quasi-centralized monopoly. Traditional oracle giants represented by Chainlink have been both the builders of the foundational infrastructure of the industry and the chief beneficiaries of the order and rules. However, with the rise of emerging trends such as modular narratives, the DePIN paradigm, and ZK verification paths, the market landscape of oracles is undergoing a visible reconfiguration of power. The changes in this field are not merely about product competition but rather a philosophical contest over "who gets to define on-chain reality".

Chainlink's role in the oracle sector is analogous to Ethereum's early symbolic position in the smart contract arena. It was the first to build a complete network architecture based on data aggregation, node staking, and economic incentives, and after the DeFi Summer, it became the irreplaceable "provider of on-chain baseline reality". Whether in financial protocols like Aave, Compound, and Synthetix or Layer 2 networks such as Polygon and Arbitrum, a wide range of systemic operations are heavily reliant on Chainlink's data feeds. However, this "irreplaceability" has introduced two hidden dangers: First, over-reliance creates the risk of single points of failure for on-chain systems. Second, implicit centralization gives rise to a transparency crisis and data censorship space. While Chainlink's node network is nominally decentralized, its actual operation is often dominated by a handful of validators, such as Deutsche Telekom, Swisscom, Blockdaemon, and other traditional institutional nodes. Meanwhile, its decisions around Off-Chain Reporting (OCR), data source selection, update frequency, and others are largely opaque and difficult to subject to community governance. It is more like a centralized broadcasting system that introduces a "trusted version of reality" to the blockchain world rather than a truly decentralized, censorship-resistant data feed marketplace. This is exactly what has opened the door for latecomers to unlock new value.

The emergence of Pyth Network is a fundamental challenge to the Chainlink model. Instead of replicating the traditional data aggregation paradigm, Pyth returns the power to upload data directly to the data sources themselves, such as exchanges, market makers, and infrastructure providers. This "first-party data source uploading" model drastically reduces off-chain relay layers, improves real-time responsiveness and nativeness, and transforms oracles from mere "data aggregation tools" into "foundational pricing infrastructure". This is especially appealing in high-frequency, low-latency use cases such as derivatives trading, perpetual futures, and on-chain gaming logic. However, at the same time, it raises a deeper issue: many of Pyth's data sources are crypto exchanges and liquidity providers –– These actors are both information providers and market participants. Whether such a structure, where players also serve as referees, can truly avoid price manipulation and conflicts of interest remains an unvalidated trust gap.

Unlike Pyth, which focuses on data sources and update efficiency, RedStone and UMA take an alternative route by targeting the structural layer of the "trust path" of oracles. The operation mechanisms of traditional oracles are generally based on "price feed" and "confirmation": nodes upload data and broadcast it to smart contracts, which then adopt the data as the basis for state. The biggest flaw in this mechanism is the lack of a truly "verifiable data path" on-chain. In other words, contracts have no way of knowing whether the uploaded data actually originates from the designated off-chain information source, nor can they audit whether the path is complete and unbiased. RedStone's "verifiable data packet" mechanism precisely addresses this issue: Off-chain data is cryptographically encapsulated into data packets with a signature verification structure, and these packets are then unpacked and verified in real time by the executing contract, thus significantly enhancing the determinism, security, and flexibility of on-chain data access.

Similarly, the "Optimistic Oracle" paradigm advocated by UMA is more radical. It assumes that oracles do not need to deliver perfectly accurate data every time, as long as there is an economic game to resolve disputes when they arise. This optimistic mechanism delegates most of the data processing logic off-chain, reverting to on-chain governance only when disputes arise via the arbitration module. Its strengths lie in extremely high cost-efficiency and system scalability, making it suitable for complex financial contracts, insurance protocols, and long-tail data use cases. However, it comes with a clear drawback: if the internal incentive mechanism is flawed, it will easily face attackers' repeated challenges and manipulation by distorting oracle outputs.

Emerging projects like Supra, Witnet, and Ritual are innovating in more detailed dimensions: Some are building bridges between "off-chain computation" and "encrypted verification paths"; others are modularizing oracle services so they can be embedded into different blockchain operating environments; and some are redesigning incentive structures between nodes and data sources to create "customized supply chains" for trusted on-chain data. While these projects have not yet formed mainstream network effects, they signal a clear shift: the oracle sector has evolved from a "consensus race" to a "trust-path competition" and from "providing a single price" to engaging in a full-scale battle over "mechanisms for generating trusted realities".

It can be seen that the oracle market is transforming from "infrastructure monopolies" to "trust diversity". Established players are backed by deep ecosystem integration and user path dependence, while emerging projects can leverage verifiability, low latency, and customization to wedge into the gaps left by centralized oracles. But regardless of which side you stand on, we must acknowledge one truth: whoever defines on-chain "reality" holds the baseline control over the entire crypto world. This is not just a technical arms race but a "battle for the power to define". The future of oracles will go far beyond simply "bringing data on-chain".

III. Potential and Boundary Expansion: From Financial Information Flow to On-Chain RWA Infrastructure

Oracles essentially provide "verifiable real-world inputs" to on-chain systems, allowing them to play a critical role that goes beyond simple data transmission in the crypto world. Over the past decade, oracles started as "price feeds" for decentralized finance (DeFi) and are now expanding into much broader domains: from foundational data providers for on-chain financial transactions to hub systems for mapping RWAs, bridge nodes for cross-chain interoperability, and even "on-chain proof-of-reality foundation" supporting complex structures such as law, identity, governance, and AI-generated data.

The infrastructuralization of financial information flow: During DeFi's golden age (2020–2022), the primary role of oracles was to "feed prices" — delivering real-time prices of assets on external markets to on-chain contracts. This demand spurred the rapid growth of projects like Chainlink, Band Protocol, and DIA and led to the first generation of oracle standards. However, in actual operations, as DeFi contracts became increasingly sophisticated, oracles were forced to go "beyond price": Insurance protocols required climate data; CDP models needed macroeconomic indicators; perpetual futures demanded volatility and volume distributions; and structured products relied on complex multi-factor data. This marked oracles' evolution from pricing tools into access layers for diverse data sources, with an increasingly systemic role.

Furthermore, as projects like MakerDAO, Centrifuge, Maple, and Ondo began tokenizing large-scale real-world assets, such as off-chain debts, government bonds, and fund shares, oracles have begun transitioning into trusted registrars for on-chain RWAs. In this process, oracles are no longer merely "pipelines for inputting data" but become the certifier, state updater, and income distributor for RWAs on-chain –– neutral systems with the "capacity to enforce facts".

The root of trust for on-chain RWAs: The biggest problem with RWAs has never been "technical difficulty" but how to "align on-chain representations with off-chain legal and asset states". In traditional systems, this alignment is ensured by lawyers, auditors, regulators, and paper-based processes, while on-chain, oracles become the key to reconstructing this mechanism. For example, if an on-chain bond is backed by off-chain real estate as collateral, how can a smart contract know whether that property has been seized, appraised, rented out, sold, or mortgaged to someone else? All of this information is stored off-chain and cannot be natively on-chain. At this point, an oracle's task is no longer just "syncing data". It must construct an "on-chain trust snapshot" by connecting government registration systems, IoT devices, audit processes, and reputation mechanisms. It must keep refreshing this snapshot to ensure the contract state is consistent with real-world conditions. This capability pushes oracles to the frontier of more complex applications, where the integration of legal, physical, and political trust systems is required.

At the same time, we are also seeing collaborations like that between RedStone and Centrifuge, where RWAs' cash flows, maturity status, and default events, among others, are uploaded on-chain in a modular data format. This provides atomic-level inputs for trading, risk control, and liquidation in liquidity markets. The standardization and trusted update mechanisms of data are, in effect, building an "audit chip" for on-chain financial systems, laying the groundwork for mapping the entire on-chain financial ecosystem to the real world.

The cross-asset evolution of oracles: Another trend that deserves attention is the shift of oracles from a mere "data provision layer" for assets to a "cross-asset coordination layer". With the rapid rise of cross-chain protocols like LayerZero and Wormhole, the single-chain data barriers are beginning to dissolve, but severe gaps still exist in the synchronization of asset states. For example, a stablecoin on Ethereum may rely on liquidation prices from Arbitrum, while the underlying assets of a structured product on Solana may involve yields from RWA debt on Polygon. This kind of multi-chain, interactive financial structure needs a "logical hub" to coordinate data retrieval, updates, verification, and broadcasting. Future oracles, especially those structured ones capable of cross-chain deployment, off-chain collaboration, and contract composability, will increasingly resemble an "on-chain API middleware". Rather than simply supplying data, they will be able to call, verify, convert, integrate, and distribute it, thereby becoming the intelligent data layer for the entire Web3 application layer.

Once oracles achieve stability in the RWA field, the next frontier will be the data mapping of "humans" and their "behavior". In other words, they will not only record the "state of things" but also capture "human actions". On-chain credit systems, decentralized identity (DID), on-chain litigation and arbitration, and even the authentication of AI-generated content will all require "on-chain input channels with auditability". This trend is already taking shape in projects such as EigenLayer, Ritual, and HyperOracle: These projects are either enabling oracles to verify the outcomes of off-chain model executions, integrating AI model outputs into on-chain factor workflows, or having auditors take factual responsibility via staking.

This trend suggests that oracles have evolved beyond "financial information flows" and expanded into the entire data map of "generating on-chain order", becoming the infrastructure for the real world to move toward on-chain civilization. Oracles are no longer just megaphones for feeding prices but digital bridges connecting information, value, and trust.

IV. Outlook and Investment Recommendations: Structural Opportunities Have Arrived, and Three Key Areas Deserve Particular Attention

The technical maturity and industry attention around oracles often follow a nonlinear trajectory that defies typical market cycles. As public blockchain infrastructure enters a phase of stock competition, oracles, oracles, which serve as the core data foundation linking the on-chain world to the real world, are now gaining stronger strategic importance. Whether it is the rise of Layer 2 networks, the implementation of RWAs, or the combination of AI with on-chain computation, oracles have become unavoidable "trust anchors". Therefore, in the next three years, investment logic in the oracle sector will shift from "market value speculation during hype stages" to a "revaluation of cash flow brought about by structural growth".

4.1 Clearer Structural Trends and Realignment of Supply and Demand Curves

As traditional financial institutions converge faster with on-chain protocols, the asset, legal, and behavioral states of off-chain RWAs must enter on-chain systems in ways that are structured, standardized, and verifiable. This trend brings two fundamental changes:

As demand for high-frequency, customized data streams surges, oracles are no longer just simple price relay systems but have become computational nodes that support a series of complex logic (such as automated liquidation, yield mapping, and status changes);

The "economic attributes" of data are more pronounced. Its pricing models are gradually transitioning from "gas fees + node incentives" to "B2B enterprise subscriptions + SLA-based data protocols + commercial contract responsibilities", generating stable cash flows.

This leap in supply-demand relations is driving project valuation models from being "narrative-driven" to "revenue-driven", providing new investment anchors for long-term holders and strategic capital. In particular, for top RWA projects, AI computation chains, and DID architectures, selecting a reliable, stable, and high-throughput oracle service provider has become a non-substitutable dependency at the contract level.

4.2 Three Key Directions with Long-Term Alpha Potential

Under this new development paradigm, we recommend focusing on three distinct development paths for oracles, each reflecting a different dimension in which oracles can expand their role as the on-chain "intelligence hub":

1) Modular, application-native oracles: Closer to business means closer to value: Compared to traditional "general-purpose" oracle models, new-generation projects such as RedStone, PYTH, and Witnet emphasize "on-demand services" and "in-place deployment", embedding oracle logic into application contracts or the VM layer. This model better suits the needs of high-frequency trading and structured asset protocols and also offers faster data transmission, more accurate responses, and lower costs. The strength of these projects lies in their inherent "product-protocol" stickiness. Once a DeFi or RWA project chooses a particular type of oracle, the migration cost becomes extremely high, which translates to locked-in revenue over the medium to long term and a defensive moat.

2) AI and oracle integration narrative: The interface layer for verification, filtering, and fact generation: As AI models become increasingly embedded into the crypto ecosystem, verifying the authenticity of AI-generated content, behavioral predictions, and external calls has emerged as a foundational challenge that must be addressed. Oracles are precisely the "logical anchor" for this problem: not only do they provide data, but they also verify whether that data comes from trusted computation processes and satisfies multi-party consensus mechanisms. Projects like HyperOracle, Ritual, and Aethos are already experimenting with zkML, trusted hardware, and encrypted inference to deliver "verifiable AI call results" for on-chain contracts, integrating with the blockchain in the form of oracles. This direction features high technical barriers and strong investor interest, making it a likely catalyst for the next high beta wave.

3) RWA and identity-bound oracles: Tools to map off-chain legal states: From the universal asset messaging standard of the collaboration between Chainlink and SWIFT to the synchronization of multi-asset yield states on Centrifuge, and Goldfinch's adoption of third-party evaluation models, the RWA space is rapidly building a trust mechanism reliant on a "neutral information layer". At the heart of this mechanism is the oracle system capable of reliably bringing off-chain elements, such as laws, asset registration, and behavioral credit, onto the blockchain. These projects follow an "infrastructure-oriented logic", with development paths closely tied to regulatory policy. However, once an industry standard is in place (such as Chainlink's CCIP), they tend to generate exponential network effects and become "gray-consensus" assets suitable for long-term planning.

4.3 Restructuring the Investment Logic: From "Price Feed Narrative" to "On-Chain Order" Pricing

In the past, the market often viewed oracles as "auxiliary tools within the popular DeFi sector", with market cap valuations and investment behavior largely fluctuating in step with broader market trends. However, in the future, oracles are set to gain independent valuation mechanisms for several reasons: they serve as irreplaceable injectors of facts within on-chain protocols; they have stable, monetizable revenue streams (for example, Chainlink's data pricing model has established a B2B business subscription logic); and they play a foundational role in coordinating information across key structural growth sectors such as RWA, AI, and governance, demonstrating multiplier effects.

Therefore, we recommend that investors look beyond metrics such as "market capitalization" and "trading activity" when evaluating projects. Instead, they should focus on the following three core criteria to identify oracle assets with long-term value potential: whether they have native, deep integration with protocols, blockchains, or financial institutions; whether they have established a closed commercial loop of "data–facts–consensus"; and whether they have scalable advantages in next-generation use cases (RWA, AI, and cross-chain interoperability).

In summary, oracles are no longer peripheral actors in the crypto narrative; they are gradually becoming the "fact benchmark systems" and "order-generation engines" of the on-chain world. Structural opportunities are already emerging, and the investment logic must be redefined accordingly.

V. Conclusion: The Structural Dividend Era for Oracles Has Arrived

The oracle sector now stands on the cusp of the evolution of the blockchain ecosystem, playing a pivotal role in bridging information between the on-chain world and the real world. As on-chain applications grow more complex and the demand for tokenizing real-world assets accelerates, oracles are no longer merely price data feeds; they are becoming the "intelligence hubs" and "order-generation engines" that enable the trusted execution of smart contracts. Multi-dimensional technological advancements and further expansion of use cases have brought oracles unprecedented development potential and revaluation opportunities.

In the future, oracle projects will continue to evolve toward greater decentralization, modularization, and use case-specific design. The convergence of AI and on-chain data and the tokenization of RWAs will inject sustained growth momentum into the sector. Investors should evaluate the value of oracle projects across three key dimensions, namely, integration with on-chain protocols, the presence of a closed-loop commercial model, and scalability, focusing on innovative players with long-term moats and structural growth potential. In general, the oracle sector is shifting from a supporting actor to the "intelligence hub" of the blockchain world. Its ecosystem value and investment opportunities are non-negligible. The structural dividend era has arrived.