Friday could be one of the worst black swan events in DeFi history. On paper, liquidations on centralized exchanges (CEXs) and decentralized exchanges (DEXs) exceeded $19 billion. The actual number is likely much higher. Many were surprised that on-chain lending markets remained largely unaffected, but this result can be misleading. Markets experienced significant volatility: PAXG on @binance was $3,600 EURC on @coinbase was $1.085 USDE on Binance was $0.65 These are not decouplings. Mispricing on a single platform is not a structural loss of parity. However, if these price discrepancies persist, the price impact will spread to decentralized exchanges (DEXs) and lending markets, depleting liquidity and triggering liquidations at a rate exceeding the system's ability to absorb them. On the @aave platform alone, $4.8 billion in positions are at risk, potentially facing a $180 million fine. If these liquidations were already liquidated, the asset would return to zero before the stabilizer could react. We avoided this situation because of deliberate design choices regarding risk management. One of these was the decision to price USDe 1:1 with USDT (also a shoutout to @LlamaRisk!). The Limitations of Traditional Oracles Traditional price oracles are a pale version of true oracles. They aggregate quotes from the secondary market and assume that these order books reflect fair value. This assumption works for liquid, fungible assets. But it doesn't apply to the new asset-backed, mechanism-dependent tokens that currently dominate the DeFi space. Applies to the following tokens: - USDe - LRT - PT - Tokenized RWA Value is determined by primary liquidity, reserve composition, and redemption mechanisms. Treating all tokens as homogeneous ignores these inherent dependencies and redemption paths that define their true economic value. A true oracle must go deeper. It must integrate every structural layer. Reserves, counterparties, redemption logic, protocol logic, and dependencies all combine to form a risk-aware measure of value. Otherwise, you're not pricing an asset, but quoting volatility. The Convergence of Price, Proof, and Risk This is where price, proof of reserves, and risk oracles converge. They aren't independent systems, but rather interdependent layers within the same framework. For asset-backed tokens, value can't be defined solely by price oracles. It stems from a combination of market pricing and proven reserves—the interplay between what the market observes and what can be proven to exist. Price oracles reveal external market signals that reflect secondary market behavior. Proof of reserves oracles contextualize these signals in verifiable collateral, confirming the economic backing that gives the token its meaning. Risk oracles concretize both, determining the value of an asset within a specific system based on its structure, liquidity, and correlation with other risk exposures. In other words, price without proof is speculation, and proof without context is static. True valuation in DeFi depends on the synergy of these three layers: market, backing, and risk, operating in real time. Proof-of-reserve oracles are a step forward, but we're still far from the ultimate goal. There's currently no standard for attestation frequency or depth. Every gap between attestations is a blind spot, where solvency is assumed rather than verified. The ideal state is continuous, real-time attestation, enabling real-time, observable reserves that update as conditions change. We're working towards this, but we're not there yet. ** In the complex world of DeFi, oracles are application-specific risk tools, not universal truth machines.** Lending markets don't necessarily need to use the same oracle as perpetual swap exchanges. Each system must decide what kind of volatility it wants to absorb and what kind of volatility it's willing to pass downstream. There's no free lunch; price stability always shifts volatility elsewhere. The question is who absorbs it and when. For lending systems that prioritize depositor safety, hard-coded 1:1 parity may be a reasonable trade-off, but it's not universally optimal or the ultimate solution. The potential net asset value risk hasn't disappeared; it's just shifted. Good risk design makes this transfer explicit, transparent, and priceable. A Call for Self-Regulation If you are an asset issuer minting tokenized risk-weighted assets (RWAs), stablecoins, or money market instruments, you must establish a Proof of Reserve (PoR) system and work with oracles to provide PoR oracles. Without it, integrators like lending marketplaces, perpetual decentralized exchanges (DEXs), and treasury managers will blindly provide credit based on your assumptions about solvency. If you are an integrator: - Exchange - Lending Protocol - Treasurer You need to work directly with asset issuers and risk partners to understand each asset's structure, redemption logic, and reserve mechanisms. Otherwise, your users will be exposed to risks that should be managed at the protocol level. The Path Forward Yesterday could have been worse for DeFi. The systems we are building now mirror the scale of traditional finance, but have yet to achieve its discipline. True progress in financial infrastructure comes not from speed, but from precision, transparency, and shared standards. The design of every oracle, asset, and market involves a series of trade-offs. The next phase of DeFi will belong to those who recognize this truth early and build with rigor, not those who move the fastest.