What Is the “Oracle Problem” in the Context of Decentralized Finance?

The "oracle problem" is the challenge of securely and reliably bringing external, real-world data onto the immutable, deterministic blockchain for use by smart contracts. Since blockchains cannot access off-chain data natively, they must rely on oracles.

If the oracle data is inaccurate, delayed, or malicious, the smart contract will execute its logic incorrectly, leading to flawed financial outcomes. It is the main vulnerability point for many DeFi applications.