Uniswap’s native UNI token can greatly enhance its utility by becoming a pricing oracle for stablecoins, according to Ethereum co-founder Vitalik Buterin.
In a proposal submitted to Uniswap’s governance platform, Buterin said that a successful decentralized finance, or DeFi, ecosystem relies on a “highly secure pricing oracle,” noting that algorithmic stablecoins, synthetic assets and collateralized loans all depend on oracles. The problem, however, is that Uniswap currently doesn’t provide an oracle for the price of ERC-20 tokens in the truest sense.
“This is a problem,” Buterin explained, adding that “Algorithmic stablecoins need an oracle for the price of ETH/USD to be able to function, and they specifically need an oracle for USD the off-chain fiat asset, and not any specific on-chain instantiation of USD.”
“I recommend that Uniswap and the UNI token step in and provide such an oracle (eg. modeled after the Augur or UMA design), specialized to providing price data that’s robust and extremely costly to manipulate and attack.”
Although Chainlink is being utilized by many projects, the leading oracle provider would be better served with a “more minimalist alternative that’s more laser-focused on optimizing incentives and maximizing cost of attack.” UNI is in a prime position to complement Chainlink, he said.
Uniswap brings value for many reasons, not the least of which is its large market cap. As Buterin noted, Uniswap and Chainlink are the two largest Ethereum-based projects. Interestingly, Uniswap has just recently overtaken Chainlink as the largest DeFi protocol, with a total market capitalization for UNI of $22 billion. LINK, meanwhile, is valued at $20.1 billion.
By supporting pricing oracles and, hence, a more robust stablecoin ecosystem, Uniswap would be in a better position to generate much higher revenue via trading fees. "If we start to also see high-volume and robust synthetic assets emerge on chain, then this would be even more valuable for Uniswap," Buterin said.
Buterin’s proposal has received over 11,600 views and 50 replies at the time of publication.