Decentralized Oracles with Threshold Signatures : A Discrete Public Goods Game Model

Abstract

The blockchain oracle problem is a central challenge in the integration of blockchain in decentralized systems. Ensuring that off-chain data fed into smart contracts is reliable is a problem, and relying on a single oracle introduces a single point of failure. To address this, several decentralized oracle designs have been proposed, including those based on threshold signature schemes. In such systems, a data feed is accepted only if a minimum number of oracles sign it. While this improves robustness, it introduces coordination issues: signing incurs a cost, and individual oracles may prefer to free-ride, expecting others to sign. In this work, we model oracle participation as a discrete public goods game and analyze the conditions under which signing is a rational strategy in equilibrium. We characterize the set of pure and symmetric mixed-strategy Nash equilibria and study how key system parameters, such as the number of oracles, the cost-to-reward ratio, and the signature threshold, affect participation incentives. Our results show that system parameters can give rise to multiple symmetric mixedstrategy equilibria, but that such equilibria disappear when the signing cost reaches as little as 27.5% of the reward.