Exploration of Price Mechanism in the Blockchain World

In the development of Blockchain technology, the decentralized Price Mechanism has always been an overlooked but crucial issue. With the rapid growth of decentralized finance (DeFi), both industry insiders and outsiders have begun to gain preliminary understanding and exploration of on-chain Price Mechanisms. How to generate prices as a key variable on-chain in a way that better aligns with the essence of Blockchain is a direction worth further research.

Bitcoin, as the world's first blockchain project, pioneered the concept of "Blockchain." The first over-the-counter transaction of Bitcoin occurred in Florida, USA, where a programmer exchanged 10,000 BTC for two pizza vouchers, thus establishing Bitcoin's initial price: 0.003 cents. Although this transaction was merely a market act between two individuals and did not possess general equilibrium attributes, it marked the germination of Bitcoin's monetary trading attributes.

With the popularity of Bitcoin, cryptocurrency exchanges have emerged, and the "Price Mechanism" has also appeared. Various participants, including miners, believers, capitalists, ordinary investors, and futures players, all require this variable of price. The game among these participants gradually improves the general equilibrium properties of Bitcoin. However, with the rising popularity of Bitcoin and the shift of traditional finance towards crypto assets, the opacity of centralized exchanges and the phenomenon of the strong getting stronger have become increasingly serious.

Centralized exchanges and pure on-chain interactions have significant differences in their computational units. The computation unit of exchanges is milliseconds, while the blockchain uses "Block" as its unit; a Bitcoin block takes 10 minutes, and an Ethereum block takes 13 seconds. This difference leads to transfers being completed on-chain, while the trading price is provided by centralized exchanges, creating a disconnect between the two. In the cryptocurrency space, where effective regulation is lacking, data falsification is hard to avoid, and hot money and leverage can more easily run rampant.

After the global financial crisis in 2008, "trust" and "security" became important topics. The birth of Bitcoin provided a protocol concept that is not based on "trust". Bitcoin's decentralized nature enables issuance and transfer that is not controlled by any entity. In order to deconstruct the "trust entity", Bitcoin employs a mechanism that appears to be inefficient but is highly secure: every transaction requires confirmation from all nodes in the network.

After more than a decade of development, Bitcoin has become a system that can easily facilitate the transfer of value worth over a hundred million dollars, without the need to trust any third-party entity. In contrast, large asset transfers in traditional sectors involve complex review and assessment processes, resulting in lower efficiency. The Bitcoin protocol provides humanity with a new trust mechanism that is free from centralized risks.

In the field of crypto assets, the price mechanism refers to the pricing process. The pricing of Bitcoin is jointly determined by various players involved in its ecosystem. Can this complex game process be made public on the chain? Can it be generated on the chain in a decentralized manner, similar to the transfer process? With the increase in the degree of decentralization and the number of participants in the game, will its security also improve, and will the capacity it can support become larger?

Ethereum's programmable finance provides innovative opportunities for enthusiasts in the crypto space. As the market cap and locked value of DeFi continue to rise, the issue of price variables becomes increasingly important. When the amount of funds supported by DeFi reaches hundreds of billions, trillions of dollars, or even higher levels, we need to rethink the question of trust.

Currently, most DeFi protocols require on-chain prices, such as the liquidation price for collateral loans, the instantaneous price for trading swaps, and the settlement price for financial derivatives. Most DeFi protocols choose to use oracles with node pricing or have the project party output prices themselves. This method usually involves connecting to the API of centralized exchanges, directly uploading price data or taking the average from multiple nodes. However, this method still heavily relies on centralized factors, which is contrary to the "decentralized" and "trust" machine essence of Blockchain.

In addition, the current oracle does not output prices when the price request criteria are not met. This mechanism does not align with the essence of Blockchain and cannot support a larger market capacity.

NEST Protocol chooses to continue the decentralized route of Bitcoin, completing the production process through non-cooperative games and outputting price information flows. NEST allows for quoting and verifying oracles for any opened ERC20 Token/ETH without permission and without third-party guarantees. The identity of the quoters is not important; the key point is that anyone can verify this price.

The more participants there are in the NEST Protocol game, the safer the system becomes, and the larger the amount of funds it can accommodate. This is akin to the mechanism of Bitcoin, which is also based on self-verification rather than trusting any arbitrary entity.

Bitcoin has absorbed the century-old ledger systems of traditional fields, conducting transfers through decentralized mechanisms on the protocol. NEST has moved the battlefield of price games in the crypto world from centralized exchanges to its own protocol, which will be a protracted battle of consensus. The on-chain world and the real world are two parallel worlds, and managing the price information flow of on-chain native assets in a decentralized manner is the first step towards the traditional field.

"Decentralization" is a civilization that showcases the unique abilities of humanity to transform intelligence into language, logic, and fiction, creating unprecedented existence. Blockchain is a science whose essence lies in proposing hypotheses, and then conducting induction, proof, and falsification. The price mechanism game continues the hypothesis of the decentralized spirit of blockchain; although we cannot assert it will definitely succeed, the direction is correct. After all, in the field of blockchain, successful samples are still few, and we need more exploration and practice.