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.
Glossar
Smart Contract
Code ⎊ The contract is fundamentally self-executing code deployed on a distributed ledger, embodying the terms of the agreement in an immutable format.
Margin Call
Trigger ⎊ A margin call in cryptocurrency, options, and derivatives markets represents a broker’s demand for additional funds to bring an account back to the minimum required margin.
Decentralized Finance
Architecture ⎊ Decentralized Finance, or DeFi, fundamentally reimagines traditional financial infrastructure through blockchain technology, specifically leveraging smart contracts to automate and execute financial agreements without intermediaries.