What Is the ‘Oracle Problem’ in Relation to Options Contracts on a Blockchain?

The oracle problem is the challenge of securely and reliably feeding real-world data, such as the underlying asset's price or an expiration date, into a deterministic smart contract. Since blockchains are isolated, they cannot access external data directly.

An 'oracle' is a third-party service that verifies and relays this off-chain data. If the oracle is compromised or provides incorrect data, the smart contract's execution will be flawed, potentially leading to incorrect settlement.