What Is an Oracle and Why Is It Critical for DeFi Derivatives?

An oracle is a third-party service that securely feeds real-world, off-chain data, such as asset prices or event outcomes, into a blockchain smart contract. For DeFi derivatives, oracles are critical because smart contracts need accurate, timely, and tamper-proof price data to determine settlement, margin calls, or contract execution.

Without reliable oracles, the contracts cannot function correctly.