Oracle

An oracle is a service that delivers external, real-world data to a blockchain so that smart contracts can react to information they cannot read on their own, such as asset prices, weather or sports results.

How it works

Blockchains are deliberately isolated and cannot fetch outside data directly. An oracle bridges that gap by sourcing information off-chain and publishing it on-chain in a form contracts can use. To avoid a single point of failure, decentralized oracle networks gather data from many independent providers and aggregate it, so no one source can feed a false value.

Why it matters

Most useful DeFi applications — lending, derivatives, stablecoins — depend on reliable price data, making oracles critical infrastructure. A manipulated or faulty oracle can cause large losses, which is the “oracle problem” that decentralized designs aim to solve.

Example

A lending protocol uses an oracle price feed to decide when a borrower’s collateral has fallen far enough to be liquidated.