What Is the Role of an ‘Oracle’ in Linking Real-World Events to a Smart Contract?
An oracle is a third-party service that provides external, real-world data to a smart contract, enabling it to execute based on conditions outside the blockchain. For options trading, an oracle might provide the settlement price of an asset at expiration.
They act as the bridge between off-chain information (like stock prices or weather data) and the on-chain execution logic. Decentralized oracle networks mitigate the risk of a single point of failure and data manipulation.
Glossar
Real-World Events
Catalyst ⎊ Real-world events, within cryptocurrency, options, and derivatives, function as exogenous shocks impacting pricing and volatility regimes.
Oracle
Mechanism ⎊ An Oracle is a service that securely feeds verified external information, such as the spot price of Bitcoin, into a smart contract to trigger actions or calculate derivative payoffs, acting as a crucial data bridge.
Off-Chain Information
Source ⎊ Off-chain information refers to data that exists outside the blockchain network, originating from traditional financial markets, APIs, or real-world events.
Decentralized Oracle Networks
Architecture ⎊ Decentralized Oracle Networks (DONs) represent a robust infrastructure designed to provide reliable external data to smart contracts without relying on a single, centralized entity.