What Is the Role of an “Oracle” in a Smart Contract and Its Regulatory Implications?

An oracle is a third-party service that provides smart contracts with external, real-world data (like asset prices, weather, or election results) that exists off the blockchain. Oracles are essential for derivatives contracts, such as synthetic assets, which rely on accurate price feeds.

The regulatory implication is that the oracle introduces a point of centralization and potential manipulation. If the oracle feeds manipulated data, the smart contract will execute based on false information, leading to market abuse.

Regulators may therefore focus on the governance and security of the oracle provider.