While Chainlink price feeds are commonly used for getting the latest asset prices, you can also use Chainlink oracles to build dApps that fetch reliable historical price data.
Latest asset prices and historical price data are important in the asset pricing process, particularly for price discovery.
Asset pricing has been decided based on different models of prediction for different situations. There are two main pricing principles like “general equilibrium asset pricing” and “rational asset pricing”.
There have been many models developed for different situations – all of these pricing models evolve from these two principles.
When making an investment decision, we need a body of knowledge in the decision making process. We need data like the investment asset, assessing rate of return based on investment through principles.
In General Equilibrium Theory, price is decided by market pricing and by supply and demand.
In Rational pricing the derivative pricing is calculated in such a way that they are arbitrage free. This approach creates a unique price risk for each asset.
Also, “in the absence of arbitrage, the market imposes a probability distribution, called a risk-neutral or equilibrium measure, on the set of possible market scenarios, and this probability measure determines market prices via discounted expectation.”
Every investor is looking to work in a risk neutral manner. So, they keep observing the prices to make their decisions. Some follow pricing models. Thus, the accuracy of real-time price is important. And, ChainLink makes it possible to have just that.
Also, Chainlink’s decentralized oracle networks are critical infrastructure which augment DeFi smart contracts by connecting them to secure and reliable real-world market data.
People are in and out of DeFi Liquidity Pools for short and long time period, for which accuracy is crucial.
Meanwhile, Request Network are using Chainlink Price Feeds to enable “crypto payment for fiat-denominated invoices.” This permits companies to maintain their accounting in fiat currency, simplifying the auditing process and keeping compatibility with traditional systems.
Crypto payment for fiat-denominated invoices is a breakthrough because with crypto being highly volatile, merchants are concerned about the exact pricing for the different cryptos. If there comes in place an accurate price feed that reliable then adoption of crypto payments can be accelerated. So, this is already in place with ChainLink.
ChainLink Oracle accuracy makes it possible to have high-quality price references for forex-based AMM. Therefore, Chainlink’s on-chain price oracles will help optimize capital deployment in a precise and tamper-proof manner.
