Douro Labs Asks SEC Staff to Set Oracle Standards for Tokenized Stock

A market-data firm has asked SEC staff to say how tokenized-stock venues should choose the price feeds their safeguards rest on. Douro Labs filed the request on 9 October, as a comment on the exemption the Commission granted those venues on 17 September. That order makes a venue disclose whether it uses an oracle, name its providers, and list oracle manipulation among the risks to participants. It says nothing about what makes one source better than another. Douro wants the gap filled through staff guidance, without reopening the order.

The letter is signed by Brandon H. Ferrick, the firm's general counsel, and filed under number 4-927. Douro contributes to the Pyth Network and operates Pyth Pro, an aggregated reference-price service. It has a commercial interest in whatever standard the staff writes, and says so in the letter.

"The Order contemplates AMMs relying on external reference data in several places but provides no principles for evaluating such data," the letter said.

What the exemption took away

The order lifts a complying venue out of Regulation NMS. It is not an exchange, an alternative trading system, a trading center or a market center, so Rules 605, 610, 611, 612 and 613 do not reach it, Rule 611's protection against trading through a better quotation elsewhere included. One obligation survives: the venue must halt when the primary listing exchange halts the underlying stock. Everything else keeping a pool price near the listed market is a control the venue builds, on data it chooses.

The Commission capped symbols and volume instead, reasoning that an automated market maker prices by its pool's asset ratio and can drift from the listed price. Those caps sit against tokenized stock transfer activity that has climbed steeply this year. Douro supports that design. Its argument is narrower: the Commission swapped price protection for disclosure, then left the disclosure without a yardstick.

The four tests it proposes

Douro asks for vendor-neutral principles, published as answers to frequently asked questions. A source should draw contributions from several independent participants that take part in forming the price; aggregate them by a manipulation-resistant method, with a weighted median given as the example; publish contributor identities, sources, methods and calculation logic for audit; and be benchmarked against outside market data.

The record the letter leans on

Most of its weight comes from old failures in which the oracle worked correctly and the data behind it did not. It walks through five: bZx in February 2020, Harvest Finance that October at roughly $34 million in about seven minutes, Cream Finance at approximately $130 million in October 2021, Inverse Finance at about $15.6 million in April 2022, and BonqDAO at roughly $120 million in February 2023. In each, a single venue or reporter set the price, and moving that one source moved everything built on it.

The totals for the wider problem do not agree. Chainalysis counted $386.2 million across 41 oracle manipulation attacks in 2022; Binance Research put 2022 at $403.2 million, inside a total above $892 million for 2020 through 2023. Both figures appear in this letter, three pages apart, and nothing in it reconciles them.

The hours nobody quotes

The order lets a venue trade around the clock. The consolidated tape does not, and outside the hours its processors run, and on weekends and holidays, there is no national best bid and offer for any listed stock. Those are the hours when a venue has nowhere to look but its own pool or an outside feed. Douro offers its own measurement as evidence: across more than 929 million observations in a four-week window, Pyth Pro's prices for the 100 largest US equities sat inside the consolidated quote 94.2% of the time. That is the company's figure for the company's product, and no independent check accompanied it.

The order says staff may publish answers to frequently asked questions as needed, and Douro's letter asks them to use that latitude now. Whether staff answer at all, and what they say about a price that has gone stale, is the open question.