How Is the Reliability and Security of an Oracle’s Data Feed Ensured for High-Value Derivative Contracts?

To ensure reliability for high-value contracts, decentralized oracle networks (DONs) are often used instead of a single, centralized oracle. DONs source data from multiple independent providers and aggregate it.

This process filters out inaccuracies and protects against a single point of failure or manipulation. Reputation systems and staking mechanisms are also employed, where oracle nodes must stake cryptocurrency as collateral.

If a node provides malicious or incorrect data, it can be penalized by losing its stake, which incentivizes honest reporting.