⛓️The Danger of Single Oracle Dependence

Book an audit with Zokyo

Impact: Relying exclusively on a single oracle source presents a considerable risk for any DeFi protocol. This dependency can expose the system to various threats, such as inaccurate data due to oracle manipulation, service disruptions in the event of oracle failures, or outdated information if the oracle data becomes stale. An unforeseen failure or compromise of this sole oracle can potentially jeopardize the entire protocol, resulting in substantial financial repercussions and tarnishing its trustworthiness.

Proof of Concept:

Envision a protocol that fetches data solely from a specific Oracle (for illustrative purposes, let's call it "SingleOracle") to determine the exchange rates between two digital assets, say AssetA and AssetB. Now, imagine a situation where the data providers or "aggregators" used by SingleOracle encounter an internal malfunction, perhaps due to an erroneous update or an unforeseen glitch. This malfunction would cause the protocol's data retrieval function to consistently produce errors or fail outright.

While a real-world code representation could be referenced to elaborate on this, the essence of the vulnerability is clear: the system's inability to fetch accurate data due to its over-reliance on a single source.

This vulnerability becomes even more problematic if the protocol lacks a mechanism to switch to another data source or update the current one's reference. In such scenarios, the SingleOracle becomes a single point of failure, leading the entire system to a standstill.

Recommended Mitigation Steps:

1. Multiple Oracle Sources: Rather than relying on a solitary oracle, integrate multiple sources to fetch data. This not only offers redundancy but also ensures that the system remains resilient against any single oracle's malfunction or compromise.

2. Flexible Update Mechanisms: Establish procedures that allow for easy updates or switches between oracle sources. This ensures that if one oracle becomes unreliable, the system can quickly pivot to another. Implementing these changes via a transparent governance mechanism, coupled with a timelock, can further protect against rash or malicious alterations.