Commonly known in the blockchain space as Oracles, Signal Providers provide off-chain data onto the blockchain. While smart contracts themselves were a huge leap for crypto, it had one major limitation, getting data from the outside world. Smart contracts cannot natively contact the outside world, they need an entity to exist off-chain to provide data on-chain in a manner that is trusted. This is the function of a Signal Provider to the Flare Network.
As stated above, a Signal Provider’s main function is to provide data to the Flare Time Series Oracle (FTSO). Currently, Signal Providers on the Flare Network are tasked with providing reliable, accurate pricing data for tokens that are supported on the Network. This data in turn gets used by applications on the network. In the future more asset prices and potentially different types of data, such as commodity prices or weather, will be made available.
Network applications will be the main consumers of off-chain data. One of the first categories of network applications on the Flare Network is DeFi. Pricing data from Signal Providers will be needed in order for a user to do things like trade tokens, or participate in liquidity pools.
In order to promote accurate data, the FTSO incentives Signal Providers by rewarding them with Spark (FLR), based on the accuracy of the data. Now you may think that is good for the Signal Providers, but how as a normal user can I also earn these rewards? There is a way, it is called vote delegation.
Not everyone has the desire or technical know-how to become a Signal Provider, and that’s ok. The Flare Network allows you to delegate your vote to a Signal Provider. What this means is that for every Spark (FLR) token you hold, you are given a vote. This vote can be delegated, risk-free, to one or many signal providers at any time. The vote delegation is risk-free because you never lose custody of your Spark (FLR) and you can redistribute your vote at any time without penalty.
Below illustrates the vote delegation process where token holders of Spark (FLR) delegate their vote to a Signal Provider. Signal Providers supply pricing data, such as the price of FLR/XRP, to the FTSO and are rewarded with Spark (FLR) if their price falls within the median. This data is then used by application on the network.
Signal Providers earn rewards by how accurate their data is. Accuracy is calculated by the FTSO from a weighted price of all signals for a given asset in a certain time period. The price is weighted by the vote count for each voting cycle. After a weighted distribution is calculated the top and bottom 25% are discarded, leaving the median 50% getting the rewards. Voting cycles happen frequently.
This is a powerful mechanism as it rewards Signal Providers for giving accurate data while also allowing users who delegate their votes to a Signal Provider to earn yield risk-free with little to no effort. You don’t lose any Spark (FLR) if your vote does not fall within the median, you just don’t earn any rewards for that cycle.
Signal Providers play a key role in allowing the network to grow and to give regular holders of Spark (FLR) the ability to participate and earn passive income.