What Is an Oracle’s Role in a Decentralized Margin Trading Protocol?
In margin trading, the oracle provides continuous, reliable price feeds for all assets used as collateral and those being traded. Its primary role is to monitor the collateralization ratio of a user's position.
If the underlying asset's price drops, the oracle triggers a margin call or automatic liquidation to protect the protocol's solvency. Timeliness and accuracy are paramount to prevent bad debt accumulation.
Glossar
Collateralization Ratio
MarginRequirement ⎊ The Collateralization Ratio quantifies the amount of posted margin relative to the notional value or exposure of a leveraged position, serving as the primary metric for assessing margin adequacy.
Price Feeds
Source ⎊ Price feeds represent the continuous stream of asset valuation data critical for derivative pricing and risk management, functioning as the foundational input for options models and trading systems.
Decentralized Margin Trading
Leverage ⎊ Decentralized margin trading amplifies potential returns, and losses, through borrowed capital within a non-custodial framework.
Automatic Liquidation
Trigger ⎊ Automatic liquidation represents a pre-defined event within cryptocurrency derivatives markets, notably perpetual futures, initiating a forced closure of a trading position to mitigate accumulating losses and maintain exchange solvency.
Oracle Latency
Propagation ⎊ Oracle latency, within cryptocurrency and derivatives, represents the time delay inherent in transmitting data from a real-world source to a blockchain or decentralized application.