Innovation in the Blockchain Field: The Future of Oracle Machines and the Rise of the NEST Protocol

In the summer of 1954, computer science pioneer Alan Turing passed away in his home in Manchester, England. This genius, who laid the foundation for modern artificial intelligence and computer science, ended his legendary life in a tragic manner. To commemorate this outstanding scientist, an important computer science award is named after him.

In Turing's research, there is an interesting concept: a magical box that can continuously provide data to computers. In centralized systems, data input is not difficult, but ensuring the authenticity of information and preventing human intervention has become a technical challenge.

In the pursuit of "information authenticity" in the Blockchain world, the concept of the Turing experiment is being explored in new forms. With the rapid development of decentralized finance (DeFi), the "Oracle Machine" that provides price data for DeFi products has evolved from a niche technology to a mainstream application, entering the sight of crypto community users.

Currently, various oracle machine projects are flourishing, each with its own characteristics. Among them, NEST Protocol adopts a unique approach by placing the price formation process directly on the blockchain. Through user participation in different trading pairs' "quote mining" and arbitrage games, "actual prices" are formed, eliminating the trust cost associated with off-chain processes. In the NEST protocol, the system provides generous token incentives for quoting "miners," allowing participants to earn ETH revenue distribution weekly and share in the benefits brought by ecological development.

The "pricing mining" mechanism of the NEST Protocol has the simplicity and reliability similar to Bitcoin's POW, while its token economic model shares a similar essence with the current popular "liquidity mining", providing ample incentives for each participant. It can be said that the NEST Protocol demonstrates the ideal form of an Oracle Machine by completing all work processes of the oracle on-chain.

There are many ways to implement an Oracle Machine, and most designs rely on independent off-chain gaming systems, providing data through an off-chain node network and returning to the on-chain after reaching consensus. This method has certain trust costs, and users must trust the process of obtaining off-chain data. Therefore, many Oracle Machine projects are striving to ensure the authenticity of off-chain network data and the credibility of nodes through mechanism design, but this often leads to complex mechanisms that are difficult to control.

The NEST protocol adopts a different strategy by directly engaging in games on the chain to form real "price facts", rather than merely providing low-cost "price information". The generation of "price facts" in the entire system mainly relies on two types of participants: quoting miners and validators.

The quoting miner deposits a certain amount of two tokens (such as ETH and USDT) into the NEST contract proportionally based on what they believe to be a reasonable market price and pays a handling fee. There is a minimum threshold for quoting, and the current minimum quoting unit is 30 ETH. A handling fee of 1% is required when participating in the quoting.

After the user completes the quote, the price will be announced for a period of time and open to challenges, currently set at 25 blocks, approximately 5 minutes. If no arbitrageurs take advantage of the price during this time, the price is considered reasonable and can be regarded as the current market price. Otherwise, the price will be corrected to the market price by the arbitrageurs. Arbitrageurs must also provide a quote that is twice the size of the funding for the order, to allow subsequent arbitrageurs to challenge.

This mechanism of price discovery through "real money" can largely prevent price manipulation, forming "price facts" on-chain throughout the process. Data callers can see the entire process without needing to trust the data source. Correct quotes will be incentivized, while malicious quotes will lose funds due to arbitrage. As the liquidity pool grows and the scale effect of NEST becomes evident, the cost of malicious quotes will become extremely expensive, subject to correction by the entire market. Therefore, compared to trusting off-chain data from certain nodes, the prices formed on-chain are truly decentralized facts.

In addition, holders of NEST tokens can regularly receive dividends from the fees collected by the system and play a more important role in NEST 3.0. For example, when creating and bidding for any new ERC20 Token/ETH trading pair, both the creator and bidders need to use NEST tokens, and participants who bid but fail to win can even get back their bidding funds in excess, thus incentivizing market participation.

However, when we compare the entire track horizontally, we will find that NEST's current market position does not fully match its actual value. Its rich and comprehensive token economic model gives it enormous growth potential.

From the perspective of project valuation, the Oracle Machine track currently presents a situation where one company dominates. As of the data on September 29, the leading project's circulating market value reached $3.4 billion, which is 48 times that of NEST. As the proposer and practitioner of the "price facts" solution, NEST has significant upside potential. With the flourishing development of the entire DeFi sector, NEST is expected to become the preferred solution for more projects.

The token economic model is an important criterion for measuring the development potential of a project. A diversified incentive model can provide positive incentive feedback for ecosystem participants from multiple perspectives. This incentive feedback not only stimulates the prosperity of NEST in the secondary market but may also become a stable long-term investment choice for users.

In addition to introducing incentive and game mechanisms during the data generation phase, NEST has a unique incentive design for token holders. Holders of NEST and nToken can deposit their tokens into the contract and collect the system's ETH earnings for that week on a weekly basis.

This design adds a dividend mechanism beyond governance, providing token holders with more motivation to participate in ecological construction and attracting more people to engage with and use NEST. Currently, the earnings from NEST and nToken mainly come from the transaction fees of quoting miners and the data usage fees submitted by downstream applications. All fee collection and distribution are completed by smart contracts, ensuring transparency throughout the process.

By forecasting the growth of NEST's free cash flow and considering specific circumstances to provide the cash flow growth rates for the first and second phases, we can value NEST. Assuming that the weekly revenue of NEST maintains linear growth in the first phase for 5 years, with a weekly increase of 138 ETH. After 5 years, in the perpetual period of the second phase, the revenue growth rate of NEST drops to 0. Setting the discount rate at 7%, the current valuation of NEST is 0.005 ETH; when the discount rate is 10%, the current valuation of NEST is 0.0035 ETH.

According to the data from October 7, the current NEST price is about 0.000151ETH, which means the valuation is 23-33 times the current price. It can be seen that both NEST and nToken are valuable assets with long-term growth potential. Compared to other cryptocurrencies that lack cash flow support, the steadily growing quoted cash flow of NEST Protocol provides strong support for its price.

On the other hand, the nToken system in the NEST protocol supports quotes for any ERC20/ETH trading pairs. Users can initiate the creation of Oracle Machine trading pairs, which then enter the auction process. When the Oracle Machine is successfully auctioned and activated, the funds participating in the bidding will be permanently destroyed. This mechanism, to some extent, grants NEST the possibility of "infinite deflation." With the integration of more valuable projects and the increase in trading pairs, NEST tokens will also continue to be destroyed, and the deflation in quantity will further enhance the value of the tokens.

Compared to the simple "information flow" Oracle Machine, the path for NEST to form "price facts" on-chain is not smooth. Most Oracle Machine systems choose a lower-threshold consensus model for rapid expansion. However, regarding the question of whether to "trust data" or "trust facts", NEST clearly has its own unique answer.

Bidding with the actual funds of on-chain miners creates a sandbox bidding market, where interests drive validators (arbitrageurs) to continuously correct data, making it the true price. As the bidding market flourishes, the entire NEST protocol ecosystem will become increasingly powerful. In contrast, the information import-based Oracle Machine field has formed a red ocean due to low entry barriers, and the emergence of malicious projects during competition may reduce people's trust in "price information."

It is not about moving data onto the chain, but rather generating real data in a decentralized manner on the chain. This trustless approach will undoubtedly scale with the development of the DeFi ecosystem, which in turn will further enhance the efficiency and accuracy of the data, creating positive feedback. As the number of validators and arbitrageurs increases, the transfer costs of projects will continue to rise. The NEST protocol, which has a first-mover advantage, even has the potential to create a winner-takes-all situation and become a new benchmark in the Oracle Machine track.

There is an important saying in the crypto community: "Don't trust, verify". The NEST network is clearly a practitioner of this saying. When building a "perfect" quotation system, one must assume the presence of the most lies and the greatest malice. Only when true on-chain information can still be formed in such a harsh environment can it be considered an excellent Oracle Machine system.