(Powered by Pyth Network)

Oracles are a crucial component of the BakerFi protocol**,** their primary responsibility is to provide up-to-date token prices data to our smart-contracts. Our protocol rely on this precise information for proper and healthy strategy operation and function.

Our system consume aggregated prices and external data powered Pyth Network.

How does BakerFi utilize oracles?

The oracle is responsible for updating, storing, and distributing up-to-date token prices relevant to the system. It also disables exchange functionality if prices are not fresh and provides functionality to perform exchange rate conversions between currencies.

Why are the Accurate Prices are important ?

1. Risk Management: Accurate pricing ensures that the collateralization ratios are maintained correctly. If the value of the collateral drops significantly, it can trigger liquidations. Accurate pricing helps in assessing the true value of collateral relative to borrowed assets, enabling better risk management.
2. Liquidation Protection: Undercollateralization occurs when the value of the collateral falls below a certain threshold relative to the borrowed amount triggering for instance an AAVE liquidiation . Accurate pricing helps in identifying such situations early, allowing the protocol itself to take necessary actions to rebalance the position before it leads to liquidation.
3. User Confidence: Providing accurate pricing enhances user confidence in the protocol and fosters trust in our operations.

Overall, accurate pricing is fundamental for maintaining the integrity, stability, and efficiency of BakerFI. It plays a critical role in risk management, preventing undercollateralization, maintaining market stability, fostering user confidence, and ensuring compliance with regulatory requirements.

<aside> 💡 Responsibilities of an oracle on BakerFi

• Updates, stores, and distributes up-to-date token prices relevant to the system like the:
  • Strategy Collateral Pricing
  • Strategy Debt Token Price
  • Vault/Strategy Position Values
  • Vault/Strategy’s Shares Values
• Provides functionality to perform exchange rate conversions between strategy shares. </aside>

Why Pyth Network?

Pyth Network price feeds publish financial market data to multiple blockchains where the BakerFi wants to operate. Pyth's market data is contributed by over 90 publishers, including some of the biggest exchanges and market making firms in the world. Each price feed publishes an aggregate of publisher prices that updates multiple times per second making the prices more accurate specially for DeFi dapps that rely heavily on update prices operate continuously with relevant and updated information.

Pyth Protocol uses an push model that allows any protocol that requires an updated price to initiate a price update based on the accurate Pyth Hermes Network.