Some tricks of the trade employed by today’s booming decentralized finance (DeFi) platforms are being used for a completely new paradigm: decentralized data marketplaces.
Announced Thursday, blockchain-based data monetization startup Ocean Protocol is teaming up with Balancer Labs to create the first automated market maker (AMM) for data.
Ocean Protocol is about helping people and businesses unlock data and monetize it, spreading the benefits of data and AI beyond the handful of organizations that hoard, control and get rich from it. Creating efficient data marketplaces is really the lynchpin of this, according to Ocean founder Trent McConaghy. Thus the collaboration with Balancer.
“Many people have tried to build data marketplaces in the past, but have been held back by issues of privacy and control. With blockchain and compute-to-data, Ocean is addressing this,” McConaghy said in an interview. “So our goal is to unlock this data economy with data marketplaces, connecting the buyers and sellers of data. These can be individual humans, families, small companies, large companies, cities, nations, etc.”
Ethereum-based Ocean creates data tokens, which can represent a particular dataset – be it an individual’s DNA or something much larger and more valuable, like all of Daimler’s self-driving car data. The tokens act as an on-ramp to the data, which is stored elsewhere. The second part of the puzzle is establishing a marketplace where this tokenized data can be discovered, priced and traded using Ocean’s native token (OCEAN) or other cryptos like ether (ETH) or dai (DAI).
Pricing data is hard. Now, with the third version of Ocean, McConaghy has concluded AMMs like Uniswap do the job best.
Unlike an auction-based approach, AMMs continue to price throughout the asset’s lifetime. And unlike order books, they don’t need a lot of upfront liquidity and a double coincidence of wants. As such, AMMs – which have been instrumental in DeFi’s $13 billion ascent – can be thought of as robots that are always ready to buy or sell.
The Balancer pool functions as a “self-balancing weighted portfolio and price sensor,” which means it behaves like an index fund – if a given asset out- or under-performs, it is respectively sold or bought to keep its value share of the total portfolio constant. But this is done in a decentralized manner without human intervention.
This is basically what DeFi application Uniswap does, but Balancer has the added advantage of allowing non-equal weights among tokens in the pool (e.g. 90/10 vs. 50/50). That means someone with lots of data tokens can offer these without having to tie-up a great deal of Ocean tokens or other cryptos.
McConaghy pointed to a trend where people are launching things on AMMs, and in the case of an Ocean data-token pool he has coined the term “initial data offering” or IDO.
“Our community has been really loving this term and using it a lot internally,” McConaghy said, adding:
“Basically it’s an example of liquidity mining for the people. Right now when people want to do liquidity mining on Balancer or other tools, they need to have assets. This works well for the whales, and it works even for some medium-sized folks, but the small guys are completely priced out because of gas prices. But we all have assets, as in our data assets; I have location data or whatever, and I’m going to start putting it up there and see what happens as the price gets automatically discovered.”
On the subject of the high gas costs associated with deploying pools on Balancer, the Ocean partnership has led to a useful tweak of Balancer pool contracts to use the ERC-1167 proxy pattern to reduce gas costs.
“The idea of having millions of different tokens and pools wasn’t viable with today’s gas prices on Ethereum, so it’s very nice the way we have extended Balancer to make it cheap for the creation of new data pools,” said Balancer Labs CEO Fernando Martinelli, adding:
“It doesn’t cost a lot for someone to just put up their location data or their DNA data. It’s great because it’s shown us the need to create more efficient markets – something that’s going to be addressed in our version two.”