What Role Do Oracles Play in Executing Financial Derivatives Managed by Smart Contracts?

Oracles act as a bridge between the blockchain and the real world. A smart contract for a financial derivative, like a futures contract, needs external data such as the real-time price of an asset to trigger its execution.

Oracles are trusted data feeds that provide this off-chain information to the smart contract. For example, an oracle would report the price of oil on a specific date to a smart contract, which would then automatically settle the futures contract based on that price, ensuring the contract's conditions are met with accurate, real-world data.