Blockchain Oracle
A service that supplies real-world data — such as asset prices — to smart contracts on a blockchain.
What is Oracle?
A blockchain oracle is a third-party service or network that connects smart contracts to external, off-chain data that the blockchain cannot natively access. Because blockchains are deterministic and isolated systems, smart contracts cannot independently fetch real-world information such as asset prices, interest rates, weather data, sports scores, or FX rates. Oracles bridge this gap by fetching external data and submitting it on-chain in a trusted form. In DeFi, price oracles are critical: lending protocols use price feeds to determine collateralization ratios and trigger liquidations; derivative protocols use them to settle contracts. Centralized oracles (a single data source) create a single point of failure; decentralized oracle networks like Chainlink aggregate data from multiple sources and use cryptographic staking incentives to ensure accuracy. Oracle manipulation — artificially moving the price a protocol reads — is a common DeFi attack vector that has caused hundreds of millions in losses.
Example
Chainlink supplies Aave with real-time ETH/USD price feeds from dozens of data aggregators. When ETH's price drops, the Chainlink oracle updates the on-chain price. Aave's smart contract reads this updated price, calculates that certain loan positions are undercollateralized, and triggers liquidations automatically. Without the oracle, the smart contract would have no way to know the current ETH price.