What Is the Role of an Oracle in a Smart Contract Derivative?

Oracles provide external, real-world data to the blockchain, which smart contracts cannot access natively. For derivatives, this data is crucial for determining settlement, such as the price of an underlying asset at a specific time or an index value.

They act as a bridge, securely feeding verified, tamper-proof information to trigger the contract's execution, like paying out a long position if the price target is met.