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.