DeFi
Bybit Learn
Bybit Learn
Intermediate
Jun 13, 2022

Nest Protocol (NEST): Speed and Innovation Combined

NEST Protocol is a recently launched price prediction platform based on the Ethereum blockchain that aims to improve the crypto market. The NEST coin is its native token, used in their DAPP, a decentralized smart contract interaction tool. The NEST token is used to meet liquidity needs for the platform.

Have you heard about NEST Protocol? Here, you can find detailed information about what Nest Protocol is, how it works, where you can buy its token — and if it’s worth investing in.

Without further ado, let's get started.

What Is NEST Protocol?

Nest Protocol is a distributed pricing oracle network based on the Ethereum blockchain which uses a special “quote mining” mechanism to ensure that off-chain data is synced to on-chain prices. A distributed pricing oracle network provides price information outside of the blockchain in a decentralized way, without a single point of entry or a governing body.

To fully understand the NEST Oracle protocol, we first need to know what an oracle is and why it's important. When developing a new piece of blockchain technology, it's important to incorporate data from the real world, via smart contracts, into the actual blockchain. What does that mean?

Here's a quick example: If you have a prediction-based blockchain platform that allows users to bet on outcomes of real-world events, like sports games or elections, you need accurate information outside the blockchain in order for your platform to properly function.

The technology used to collect that information is called an oracle. To be effective, oracle data needs to satisfy the following five points:

  1. It needs to be accurate
  2. It should react quickly to market movements
  3. It has to be resistant to price attacks
  4. It needs to be verified directly
  5. It doesn't require a centralized review system

The biggest issue with many oracle services is that they tend to rely on centralized exchanges. Since centralized oracles are controlled by a single source, a significant amount of trust has to be placed on thay entity. The consequences of over-reliance on a single third party can be serious. If the oracle gets compromised, the smart contract — and correspondingly, the entire blockchain — is impacted. NEST Oracle aims to solve this problem by being a truly decentralized oracle.

While there are many decentralized price prediction protocols, such as Chainlink, in the market, NEST stands out in several ways. The most unique is that it forms a price directly on the chain, instead of having to upload external price data on the chain. And unlike other oracles, it also makes use of a verification system.

NEST Protocol: How It Works

Nest oracle protocol

Source: Nestprotocol.org

NEST Protocol is built on a price reference system called "quotation mining." The quotation system allows anyone to participate and use NEST tokens — coins that act as economic incentives within the NEST network. This encourages a more balanced distribution of the network and promotes a trustless system, which is central to the very concept of DeFi. There are three parties interacting in this network, as follows.

Miners: Participants who provide price quotations to the contract. In addition, they need to lock in a specific amount of the quoted asset, and pay a commission fee to receive NEST tokens.

Verifiers: A verifier accepts the quoted price offer, and must also lock a greater volume of the asset, which needs to be more than double that of the miner’s, in order to prevent fraud. If the quoted price differs from the market price, verifiers can trade at the quoted price to earn an arbitrage revenue and submit a new price to be added into the chain.

Price Callers: These are usually DeFi protocols or institutions that pay a fee to the NEST Protocol.

Price Verification

The price is constantly corrected in a price chain. It starts when a quote price deviates from the market price. If an arbitrage trade is performed after the price verification, the miner may incur impermanent loss in their locked assets. This in turn incentivizes miners to offer the most accurate price.

Price Chain

Meanwhile, when a verifier replaces the price quote originally set by the miner, the new quotation has to be verified by yet another miner. The amount locked must be more than double that of the previous verifier.

Block Price

The process continues in a chain, until there’s a quotation that isn’t arbitrage traded. This quotation is deemed effective and is recorded in the blockchain. When the verification period ends, miners and verifiers can retrieve their locked assets.

What Is the NEST Token?

As discussed, NEST tokens are used as economic incentives within the NEST Protocol. The tokens are issued on the Ethereum blockchain, following the ERC20 standard. The maximum number of NEST tokens is set at 10 billion. What's unique about the NEST project is that the tokens aren’t issued in advance, and can instead be issued only through quotation mining.

If you want to mine NEST, you need to submit quotations. In turn, you'll receive the tokens as a reward. Additionally, the fees collected by the Ethereum network when presenting quotations will be returned to token holders, which incentivizes users to hold on to their NEST coins.

Furthermore, to use the price quotations calculated by the NEST system, you'll need to pay a fee in ETH. A percentage of this fee will be returned to NEST token holders as ETH — which means that the more users the protocol has, the more fees will be returned.

Key Features of NEST Protocol

NEST Protocol stands out with three key features: Speed, resilience and security.

Speed

The protocol is designed to be fast. To provide correct prices quickly, the NEST network relies on many price providers. The more providers there are, the quicker the prices will be updated.

Resilience

As a decentralized network allowing for free participation of miners and verifiers, the NEST ecosystem doesn’t have a single point of failure, and it doesn't require a centralized review system.

Security

NEST is also designed to be attack-resistant, making it highly secure. The quotation mining process requires an increasingly larger amount of assets to be locked into the contract, which prevents fraud. Participants also face the issue of impermanent loss of their assets, which motivates them to present a true quotation as much as possible.

NEST Tokenomics

As mentioned before, no private sales or pre-mining was conducted for NEST. The only way to acquire the NEST token is through quotation mining, motivating most users to hold the token long-term. The NEST token is deflationary, and with more integration, the users can expect further deflation.

The minted NEST token is split in an 80:15:5 distribution ratio. Miners receive 80% and 15% will be given to the NEST Node, which comprises holders of the NEST Governance token. The remaining 5% is attributed to the NEST developers.

NEST Protocol Pros

There are a few game-changing advantages that make NEST Protocol stand out:

Innovative

While other oracles have to upload price data on the chain, NEST Oracle can load prices directly on the chain with its innovative price quotation system.

Incentive Mining

NEST Protocol incentivizes users to hold on to their NEST tokens through quotation mining. The more token holders who use the protocol, the greater the number of tokens that will be returned to them.

Fast and Functional Market

NEST Protocol is designed to be fast and functional. The network relies on many price providers to quickly update prices. The protocol is also resistant to attacks and therefore secure.

NEST Protocol Cons

On the other hand, there is a key disadvantage of NEST Protocol that we need to take into consideration:

High Maximum Supply

The maximum supply of NEST tokens is 10 billion. That’s a relatively high maximum supply as compared to other protocols. So why is this a problem? Well, high supply sometimes means low demand, which can lead to low prices.

Is NEST Protocol a Good Investment?

As the first oracle to provide actual on-chain price prediction, NEST Protocol provides many potential advantages to the DeFi space. It could potentially be used to balance tokens, automatic settlement mortgage loans and futures.

While it currently has very few partners, NEST shows promise with its innovative technology. It also has many use cases in the DeFi world, being used in a decentralized exchange like CoFiX and on a lending platform like Parasset. However, it faces strong competition from the current oracle leader, Chainlink.

How to Buy NEST

At the moment, the NEST token is listed on multiple popular cryptocurrency exchanges. If you're interested in purchasing NEST, you need to make sure that you're buying from a secure source.

The easiest way is to purchase NEST through cryptocurrency exchanges such as Hotcoin Global, CoinTiger or Huobi Global. Before trading, always DYOR (Do Your Own Research) to ensure that the exchange and crypto project are both listed as "reliable."

Closing Thoughts

The NEST Protocol integrates blockchain data with decentralized real-world data to provide an ever more accurate prediction of the market trend. As a truly decentralized oracle, NEST Protocol helps to solve many issues inherent to a centralized oracle. This increases the likelihood for mass adoption of blockchain technology in the real world, bridging networks together while building a reliable and secure system for all.