What Is a Price Oracle and How Does It Prevent Manipulation in DeFi?

A price oracle is a third-party service that provides real-world data, such as asset prices, to smart contracts on the blockchain. Since blockchains are closed systems, they cannot access external data directly.

Oracles act as a bridge. To prevent manipulation, they often use a decentralized network of nodes to source data from multiple reputable exchanges and sources.

By aggregating this data and using mechanisms like weighted averages or medianizers, they create a single, reliable price point that is resistant to manipulation from a single source.