What Is the ‘Oracle Problem’ in Decentralized Finance?
The Oracle Problem is the challenge of securely and reliably feeding external, off-chain data into a trustless, on-chain smart contract. If the external data is incorrect, manipulated, or unavailable, the smart contract's execution will be flawed, potentially leading to incorrect settlement and financial loss.
The contract's security is only as strong as its Oracle feed.
Glossar
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.
Oracle Problem
Discrepancy ⎊ The Oracle Problem, within cryptocurrency and derivative markets, represents a fundamental challenge in bridging off-chain real-world data with on-chain smart contracts, creating a potential for systemic risk.