What Is Oracle?

In decentralised finance, oracle allows smart contracts to access external data.

An oracle in a blockchain is an entity that connects blockchains to external systems, allowing smart contracts to execute based upon inputs and outputs from the real world.

Oracles are third-party services that provide smart contracts with external information, while blockchain technology itself is defined as a ledger of decentralized data that is securely shared by select participants.

The most common use case for oracle is to tell the fair value of an asset. This can be a token or a real-world asset.

Oracles are security critical system, as they often report prices and if the price is wrong the underlying protocol may suffer what is called an oracle attack or a price manipulation attack. For example, if in a lending protocol the collateral price is wrong, the loands can be incorrectly liquidated.

Popular oracles protocols include

See also