How Do Oracles Provide Necessary Data for Decentralized Options Pricing?
Oracles are decentralized data feeds that securely bring real-world and off-chain information onto the blockchain for use by smart contracts. For options pricing, oracles provide critical, real-time data points such as the underlying asset's spot price and, crucially, its implied volatility.
This data ensures that the options protocol's pricing mechanism, whether AMM or Black-Scholes based, uses an accurate and tamper-proof input, which is essential for fair premium calculation and preventing manipulation.
Glossar
Decentralized Data Feeds
Provenance ⎊ Decentralized data feeds, within cryptocurrency and derivatives, establish verifiable data origins, crucial for smart contract execution and mitigating oracle risk.
Decentralized Oracles
Attestation ⎊ Decentralized oracles, within cryptocurrency and derivatives, represent a pivotal shift in data sourcing, moving away from centralized authorities to verifiable, distributed networks.
Off-Chain Information
Source ⎊ Off-chain information refers to data that exists outside the blockchain network, originating from traditional financial markets, APIs, or real-world events.
Fair Premium Calculation
Calculation ⎊ Fair Premium Calculation is the quantitative process of deriving an option's theoretical value, representing the price at which no immediate arbitrage opportunity exists.