What Is the Function of an “Oracle” in DeFi?
An Oracle is a third-party service that securely and reliably brings external, real-world data onto a blockchain for use by smart contracts. Since blockchains are deterministic and isolated, they cannot access external data directly.
Oracles are essential for decentralized finance (DeFi) protocols that need accurate price feeds, event outcomes, or other off-chain information.
Glossar
Decentralized Finance
Architecture ⎊ Decentralized Finance, or DeFi, fundamentally reimagines traditional financial infrastructure through blockchain technology, specifically leveraging smart contracts to automate and execute financial agreements without intermediaries.
Oracle
Mechanism ⎊ An Oracle is a service that securely feeds verified external information, such as the spot price of Bitcoin, into a smart contract to trigger actions or calculate derivative payoffs, acting as a crucial data bridge.
External Data
Bridging ⎊ External Data refers to any off-chain information, such as asset prices, interest rates, or real-world event outcomes, that must be securely relayed onto a deterministic blockchain environment for smart contract execution.