In a Financial Derivative, What Is the Role of the “Oracle” in Relation to the Strike Price?
An oracle is a third-party service that provides real-world data, such as an asset's price, to a smart contract on the blockchain. In a decentralized derivatives contract, the oracle is crucial for determining the settlement condition.
For example, it provides the final asset price needed to compare against the strike price at expiration, triggering the contract's payout logic. The oracle's data integrity is paramount for the contract's financial fairness.
Glossar
Decentralized Oracle Network
Network ⎊ A Decentralized Oracle Network (DON) facilitates secure and verifiable data feeds from external sources to blockchain environments, crucial for smart contract functionality within cryptocurrency derivatives and options trading.
Data Integrity
Provenance ⎊ Data integrity within cryptocurrency, options trading, and financial derivatives fundamentally relies on establishing an immutable provenance for each transaction and data point.
Decentralized Derivatives
Architecture ⎊ Decentralized derivatives represent a fundamental shift in financial contract design, moving away from centralized exchanges and intermediaries towards blockchain-based systems.