What is State Synchronization?

TL;DR

State synchronization represents an innovative paradigm that goes beyond simple data transfer to ensure complete state consistency between systems. While traditional oracles only transmit single data points, state synchronization synchronizes the entire state including the data’s context, permissions, and constraints. This is particularly important for Real-World Asset (RWA) tokenization, as it ensures financial contract completeness and meets regulatory requirements. Oraclizer is implementing this state synchronization at an economically viable level through its L3 zkRollup architecture.

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Fundamental Difference Between Data Transfer and State Synchronization

In the blockchain world, the term ‘oracle’ has become familiar. However, few people deeply understand what oracles actually do and why we need to seek a new approach beyond the existing oracle paradigm.

Traditional oracle solutions primarily focus on data transfer. This is a mechanism that brings specific data points from the off-chain world (e.g., price information, weather data, sports results) on-chain. While this data transfer-centered approach is simple and intuitive, it has fundamental limitations in supporting the complete interactions required by financial systems or complex business logic.

In contrast, state synchronization elevates this paradigm to an entirely new dimension. State synchronization synchronizes the entire ‘state‘ of a system including not only simple data values but also the context of that data, associated permissions, constraints, and business logic [1]. A state can be described as a complete snapshot encompassing all relevant information of a system at a specific point in time.

“If data transfer is simply delivering a message, state synchronization is delivering the context and rules of the entire conversation.”– Oraclizer Research Team

Importance of State Synchronization in Blockchain

With the advancement of blockchain technology, the tokenization of Real-World Assets (RWA) has emerged as a significant area of financial innovation [2]. However, there are many challenges in the practical implementation of RWA tokenization. The most important among these is the question of how to ensure consistency between on-chain representations and off-chain reality.

At the core of this issue lies the concept of contract completeness. For a financial contract to be complete, it must clearly define how to handle all possible situations. For example, if a government bond is repaid early or reaches maturity, all derivative products or DeFi positions connected to it must react immediately and appropriately.

It is difficult to manage such complete contract states with existing data point transfer oracles. This is because simply transmitting a data point such as “the bond has been repaid” cannot handle all the complex state changes involved.

State synchronization offers a fundamental solution to this problem. State synchronization:

1. Preserves Complete Context: Preserves not only the data but the entire context in which that data exists.
2. Ensures Multi-System Consistency: Guarantees state consistency across different systems.
3. Integrates Regulatory Compliance: Can include regulatory requirements as part of the state definition.
4. Enables Atomic State Transitions: Processes all related state changes atomically.
5. Enhances Security: Strengthens security by handling the entire verifiable state rather than simple data.

How State Synchronization Works

To understand the working principle of state synchronization, let’s examine a simple example: a tokenized representation of a government bond and the DeFi positions derived from it.

First, the approach of a traditional data transfer oracle:

1. The bond matures off-chain
2. The oracle transmits a data point “maturity_status = true”
3. Smart contracts receive this data and process it independently
4. Each DeFi protocol independently determines how to react to this information
5. High possibility of inconsistency between systems

In contrast, the state synchronization approach:

1. The bond matures off-chain
2. The state synchronization oracle captures the complete state change
   • Maturity status
   • Repayment amount and conditions
   • All associated rights and obligations
   • Regulatory compliance status
3. This entire state is synchronized to all connected systems
4. All relevant DeFi positions are automatically updated in a consistent manner
5. Complete consistency across systems is ensured

The key to state synchronization is that it deals with the entire state transition, not a single data point [3]. This ensures that the states of the two systems are completely aligned.

Technical Implementation Challenges and L3 zkRollup Solution

Despite the conceptual excellence of state synchronization, there are significant technical challenges in its actual implementation. The biggest barrier is economic execution cost. Complete state synchronization internally requires dozens or hundreds of sub-transactions, which increases the oracle execution cost. These high costs must be significantly lower than the expected realization benefits sought through state synchronization to be economically sustainable [1].

Oraclizer is addressing this problem through its L3 zkRollup architecture. This approach, which enables economical oracle execution through gas cost optimization, provides three key benefits:

1. Economical Execution Cost: Makes complex state synchronization economically viable through more than 93% gas cost reduction
2. Scalability: High transaction throughput and short block times
3. Security Preservation: Inherits the security model of Base L2 while improving efficiency

Through this architecture, state synchronization can evolve from a mere theoretical concept to a practical, implementable solution.

Practical Applications of State Synchronization

The innovative potential of state synchronization is clearly evident in various practical use cases:

Financial RWA

Financial RWA such as tokenized bonds or structured products have complex contract conditions [2]. State synchronization allows these complexities to be accurately reflected on-chain and maintains a consistent state across all relevant systems. For example, when events such as early repayment or interest rate changes occur for a bond, all related derivative positions are automatically and accurately updated.

Gaming RWA

Gaming assets are particularly interesting use cases. In traditional approaches, when game assets are tokenized, they tend to move independently of the game’s economic balance, creating problems. State synchronization ensures complete consistency between in-game states and tokenized asset states, allowing developers to effectively manage the game economy while preserving the tokenized value of assets.

Cross-chain DeFi

Cross-chain state synchronization between DeFi protocols distributed across different blockchains is a particularly powerful use case [4]. This enables complex DeFi strategies across various chains, leading to innovative financial products that transcend the limitations of a single chain.

State Synchronization and Regulatory Compliance

Another important aspect of state synchronization is its integration with regulatory compliance. When real-world assets are digitized, meeting regulatory requirements is not an option but a necessity [1].

Oraclizer’s state synchronization approach integrates regulatory compliance as a core element of implementation. This includes the following elements:

1. Traceability: Complete audit trail of all state changes
2. Privacy: Providing necessary transparency while protecting sensitive information
3. Enforceability: Effective implementation of regulatory requirements
4. Finality: Ensuring clear legal finality of state changes
5. Tokenizability: Supporting regulatory-compliant tokenization for various asset types

This approach serves as a bridge between regulatory bodies, financial institutions, and the DeFi ecosystem.

Future Outlook

State synchronization represents not just a technical improvement but a fundamental paradigm shift in how blockchain and the real world interact [3]. This is an essential element in realizing the true potential of tokenized assets.

As state synchronization technology continues to develop, we can expect the following changes:

1. Accelerated growth of RWA tokenization
2. Emergence of more complex and sophisticated on-chain financial products
3. Blurring boundaries between traditional finance and DeFi
4. Formation of a new financial ecosystem where regulatory compliance and innovation coexist

Oraclizer is leading the way in accelerating this future through the development of L3 zkRollup-based state synchronization solutions.

Conclusion

The transition from data transfer to state synchronization in the evolution of blockchain oracles represents a significant leap [1]. This is a development beyond simply delivering data points, toward ensuring complete consistency and interoperability between on-chain and off-chain worlds.

State synchronization has the potential to solve many fundamental challenges faced by RWA tokenization [2] and can meet key requirements including regulatory compliance, contract completeness, and consistency between systems.

Economic implementation through L3 zkRollup architecture is an important step in transforming this concept from theory to reality and will play a crucial role in shaping the future of finance.

While the journey of state synchronization is still in its early stages, its potential impact and depth of change will mark a true paradigm shift in the history of blockchain technology [3,4].

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References

1. Horizen Korea, Oraclizer Core Team. (2024). A Regulatory Compliance Protocol for Asset Interoperability Between Traditional and Decentralized Finance in Tokenized Capital Markets.

2. Bank of America. (2023). Tokenization of Real-World Assets a Key Driver of Digital Asset Adoption. CoinDesk. https://www.coindesk.com/business/2023/04/14/tokenization-of-real-world-assets-a-key-driver-of-digital-asset-adoption-bank-of-america

3. Caldarelli, G., & Ellul, J. (2022). Overview of Blockchain Oracle Research. Future Internet, 14(6), 175. https://www.mdpi.com/1999-5903/14/6/175

4. Hassan, S., Da Cunha Castanho, R., Kumar, R., & Al-Jaroodi, J. (2023). From trust to truth: Advancements in mitigating the Blockchain Oracle problem. Journal of Network and Computer Applications, 217, 103687. https://www.sciencedirect.com/science/article/abs/pii/S1084804523000917