What Is the Primary Security Risk Associated with Using a Centralized Oracle?

The primary security risk is the single point of failure and the required reliance on the central entity's honesty. If the centralized oracle's server is compromised, hacked, or if the operator acts maliciously, the data fed to the smart contract will be incorrect.

This can lead to catastrophic financial loss, such as unfair liquidations or incorrect derivative settlements, as there is no decentralized verification to challenge the bad data.