What Is the Function of an Oracle in the Settlement of a Decentralized Derivative Contract?

An oracle is a third-party service that securely and reliably feeds real-world data, such as asset prices or event outcomes, onto the blockchain. In a decentralized derivative contract, the oracle provides the necessary price data at the time of expiration or exercise to determine the settlement value.

Without a trusted oracle, the contract cannot be settled autonomously based on external market conditions, making it crucial for trustless execution.