How Does the “Oracle Problem” Affect the Reliability of Synthetic Assets?

The "oracle problem" is the challenge of securely and reliably bringing accurate, off-chain data (like the price of a stock) onto a decentralized blockchain for use in a smart contract. This is critical for synthetic assets, which rely on the oracle to maintain their price peg.

If the oracle is compromised, feeds incorrect data, or is centrally controlled, the synthetic asset protocol can be exploited, leading to incorrect liquidations, peg failure, and massive losses. The reliability of the synthetic asset is only as good as the reliability of its oracle.