What Are the Challenges in Pricing Options within a Decentralized Finance (DeFi) Smart Contract?

Pricing options in DeFi is challenging due to blockchain limitations. Complex pricing models like Black-Scholes require significant computational power, which can be expensive and slow on a blockchain (due to "gas" fees).

Smart contracts also need reliable, real-time data feeds (oracles) for key inputs like asset volatility and interest rates, which can be difficult to secure and trust in a decentralized setting. Market liquidity on decentralized exchanges can be lower than in traditional markets, leading to less efficient price discovery and potential slippage when executing trades based on the calculated option prices.