What Is a “Deviation Threshold” and How Does It Prevent Stale Prices?
A deviation threshold is a percentage change in the asset's price that must be exceeded to trigger a new oracle update. For example, a 0.5% threshold means the oracle only updates if the price has moved by at least 0.5% since the last update.
This mechanism prevents stale prices by forcing an update when the market price has moved materially, while saving on gas costs by avoiding unnecessary updates during stable periods.
Glossar
Threshold
Barrier ⎊ A threshold, within cryptocurrency derivatives and options trading, fundamentally represents a price level that must be breached for a contract to become active or trigger a specific outcome.
Stale Prices
State ⎊ Stale Prices refer to the condition where the quoted price of an asset within a decentralized exchange's liquidity pool or an oracle is significantly out of sync with the true market price on external, high-volume exchanges.
Deviation Threshold
Constraint ⎊ Deviation Threshold functions as a critical constraint within oracle systems, defining the maximum permissible percentage difference between the current on-chain price and a newly calculated aggregate off-chain price.
Avoiding Unnecessary Updates
Update ⎊ In cryptocurrency, options trading, and financial derivatives, minimizing unnecessary updates represents a core tenet of robust risk management and efficient capital allocation.
Deviation
Variance ⎊ Deviation, within cryptocurrency, options, and derivatives, represents the squared difference between an observed value and its expected value, quantifying the dispersion of potential outcomes around a central tendency.