NEST Protocol is a distributed price oracle network that resides on the Ethereum mainnet. It uses a unique “quotation mining” mechanism to ensure that off-chain price facts are generated synchronously on the chain. The NEST protocol provides price data generated directly on the chain, solving the industry problem of a lack of price facts on the blockchain.
NEST is an ERC-20 token from Nest Protocol, a blockchain oracle that provides a uniquely secure way to get real-world price data into the DeFi ecosystem. Nest Protocol appeared on the market in 2020. Nest Protocol differs from other oracles by using an authentication system. First, the quote is submitted for verification by a miner, along with a processing fee in ETH and the quoted assets in an appropriate proportion: e.g. if a miner says 1 ETH = 100 USDT, he or she must commit 1 ETH and 100 USDT in a smart contract with the price. Then a verifier will trade the asset if there is an arbitrage opportunity or leave it as is. In the latter case, the price is included in a price block on the chain. After the verification period, the miner can withdraw his or her assets from the contract. Miners and “verifiers” are rewarded with the portion of the fee that Oracle’s customers pay for their data requests. Since the applications made through arbitration are rejected, the miners are incentivized to quote prices that are as close to the real market as possible, otherwise they will lose both the commission and the fee they paid on submission. Apart from this handling fee, payments within the network are made in NEST, which also serves as a governance token.
The challenge of price oracles
Price oracles commonly used in the DeFi industry generally display the asset price from centralized exchanges through “trusted” nodes, where the price is “uploaded” to the chain to be used by DeFi protocols. There is a fundamental problem with the verification of such pricing data. Some DeFi projects use price data from decentralized exchanges, but the low transaction volume makes the price data easily manipulated and vulnerable to attack. This raises a very clear market need for an oracle solution that instantly verifies the price to ensure the information is accurate and current, but also prohibitively expensive to attack. This system must also be distributed to avoid the risks of centralization.
Oracle pricing data must adhere to the following 5 key points:
1) Accuracy: Really reflect the market price
2) Price sensitivity: reacts quickly enough to market movements
3) Resistant to attack: The cost of disrupting or influencing the real price is extremely high
4) Instant verification: the verifier is any third party, and no centralized control or threshold is required
5) Distributed Listing System: No centralized rating or threshold is required, and anyone can enter or leave freely
NEST offers a creative solution, including collateralized asset listing, arbitration verification, price chain, beta coefficients and other modules to form a complete NEST Protocol.
incentives and economy
Miners obtain NEST tokens by paying ETH commissions and taking certain price fluctuation risks. Verifiers earn an immediate profit based on the calculation of the price variance, while also bearing the risk of the quoted trade, so for the verifiers the cost/benefit ratio is relatively clear. For the miners, the quote mining model requires a corresponding economic base.
ETH contributed by miners is referred to as X and is returned to NEST holders regularly, usually on a weekly basis. This process builds an automatic distribution model so that each NEST Token has an intrinsic value, which is verifiable on the chain. Just relying on the quotation miner’s ETH is not enough to complete the logical closed-loop system, which goes back to the original intent of building the price oracle. The fact that on-chain pricing is a core issue for all DeFi products means that it is often seen as the most integral part of the DeFi infrastructure. DeFi developers and users have to pay the corresponding fee when using NEST price, denoted as Z. Therefore, the value of NEST is denoted as X+Z. In general, the cost of acquiring NEST is X and NEST creates value for NEST holders across the ecosystem.
The value of NEST is usually greater than its total cost. For each miner, the costs are uncertain, so there is a trading opportunity. Assuming total value is greater than total cost, NEST holders at different costs can compete with each other to achieve an organic equilibrium, similar to that found in the stock market.
All tokens in the entire NEST ecosystem are generated by mining, and there is no reservation or pre-mining. All costs incurred in generating NEST will be returned to NEST holders, and NEST will only be used for incentives. The NEST model achieves full decentralization, as anyone can participate in the system, and its features are similar to Bitcoin. The NEST protocol is an upgrade of the DAO method, where changes must first be proposed and then approved by a usually 51% majority through a community vote before being implemented.
How can you buy NEST Protocol?
Some cryptocurrencies, such as NEST Protocol, can only be purchased with another cryptocurrency on decentralized exchanges. To buy NEST Protocol, you will first need to buy Ethereum (ETH) and then use ETH to buy NEST Protocol.
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