Oracle
A blockchain oracle supplies smart contracts with data or results that the blockchain cannot reliably obtain from its own on-chain state.
✦ Key Insight
DeFi protocols may use oracle data for collateral values, liquidations, derivatives, and stablecoin mechanisms. Incorrect, stale, manipulated, or centralized oracle data can cause bad liquidations, insolvency, or other protocol failures.
✕ Common Misconceptions
An oracle does not make bad data automatically trustworthy. Check the data sources, update frequency, deviation thresholds, fallback logic, manipulation resistance, and whether one party can control the result.
Detailed Explanation
In Practice
Dig Deeper
Smart Contract
A smart contract is blockchain-deployed code that can hold state and execute predefined rules when called.
Stablecoin
A token designed to hold a steady value, usually one US dollar.
Liquidation
Liquidation is the forced reduction or closure of a leveraged or collateralized position when required risk or collateral thresholds are breached.
Collateral
Assets you lock up to secure a loan or a leveraged position, which can be seized if the position falls below its required threshold.
DeFi Due Diligence
DeFi due diligence is the process of evaluating a decentralized finance protocol's contracts, governance, liquidity, dependencies, security history, and economic risks before use.