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.
Glossar
Data Feeds
Stream ⎊ Data feeds, within the context of cryptocurrency, options trading, and financial derivatives, represent structured, real-time or near real-time delivery of market data, order book information, and transaction records.
Financial Derivatives
Stewardship ⎊ Involves engineering these contracts to explicitly manage or incentivize positive externalities, such as climate risk exposure or carbon credit valuation.
Smart Contract
Code ⎊ The contract is fundamentally self-executing code deployed on a distributed ledger, embodying the terms of the agreement in an immutable format.
Decentralized Lending
Service ⎊ Decentralized Lending is the practice of borrowing and lending assets directly through automated, non-custodial smart contracts, eliminating traditional financial intermediaries and relying on algorithmic collateralization for security.
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.