How Do Oracle Services Interact with ERC-20 Tokens in Derivative Protocols?
Oracle services are essential for derivative protocols as they provide real-world data, such as the current price of an ERC-20 token or an external asset, to the smart contract. Since smart contracts cannot access off-chain data directly, oracles securely feed this price information.
This data is critical for triggering key derivative functions, such as liquidations in a perpetual swap, calculating the settlement price of a futures contract, or determining the collateralization ratio of a synthetic asset.
Glossar
Oracle Services
Oracle ⎊ Within cryptocurrency derivatives, options trading, and financial engineering, Oracle represents a critical bridge connecting on-chain environments with external, real-world data.
Erc-20 Tokens
Standard ⎊ ERC-20 tokens represent a technical standard implemented via smart contracts on the Ethereum blockchain, defining a common set of rules for fungible digital assets.
Smart Contracts
Function ⎊ Smart contracts are self-executing agreements with the terms of the agreement directly written into lines of code, residing on a decentralized ledger.
Erc-20 Token
Token ⎊ An ERC-20 token represents a fungible digital asset residing on the Ethereum blockchain, adhering to a standardized technical specification.
Derivative Protocols
Protocol ⎊ Derivative protocols, within the convergence of cryptocurrency, options trading, and traditional financial derivatives, represent codified agreements governing the creation, trading, and settlement of complex financial instruments.