What Is the “Oracle Problem” in DeFi and How Does It Relate to Price Feeds?
A TWAP is used to calculate the average price of an asset over a specific time interval, where each price point is weighted by the amount of time it was active. DeFi Oracles use TWAPs to provide a price feed that is resistant to flash loan attacks and momentary price spikes.
By smoothing out volatility, the TWAP ensures that smart contract executions, like liquidations or settlements, are based on a fairer, more representative market price.
Glossar
Decentralized Oracle Networks
Architecture ⎊ Decentralized Oracle Networks (DONs) represent a robust infrastructure designed to provide reliable external data to smart contracts without relying on a single, centralized entity.
Single Point of Failure
Concentration ⎊ In crypto derivatives, this risk materializes when excessive collateral or governance control resides with a small number of entities, such as a few large liquidity providers or key developers.
Average Price
Calculation ⎊ The Average Price represents the volume-weighted mean execution price of an underlying asset or derivative contract over a specified interval, crucial for settlement procedures in many crypto derivatives markets.
Pull Oracle
Oracle ⎊ A Pull Oracle is a data delivery architecture where the consuming smart contract actively initiates a transaction to request and retrieve the latest off-chain data, typically a market price, from the oracle network.