Can an Oracle Be Used to Trigger a Margin Call in a Decentralized Lending Smart Contract?

Yes, this is a primary function of oracles in decentralized finance (DeFi). In a decentralized lending protocol, a borrower deposits collateral, and the smart contract monitors its value relative to the loan amount.

An oracle continuously provides the real-time price of the collateral asset to the smart contract. If the oracle reports a price drop that causes the collateral's value to fall below a predetermined threshold (the liquidation ratio), the smart contract automatically triggers a margin call, which in DeFi typically means the position is flagged for liquidation.