Crypto glossary

Oracle

An oracle is a system that brings information from outside a blockchain, most often asset prices, onto the chain so that smart contracts can use it. Smart contracts cannot fetch outside data by themselves.

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Why blockchains need oracles

Every node on a blockchain must reach the same result when it runs a smart contract. If a contract could call a website for the ETH price, different nodes might get different answers at different times and the network could not agree. So outside data has to be written on-chain as a transaction first. The oracle is whatever does that writing.

Prices are the most common use, but oracles also deliver interest rates, sports results, weather data, proof of reserves for tokenized assets and random numbers for games.

How oracles work in DeFi

A lending protocol needs to know what your collateral is worth to decide how much you can borrow and when to liquidate you. Decentralized oracle networks, with Chainlink as a widely used example, collect prices from many sources, have several independent nodes report them and publish an aggregated value on-chain. Other designs read prices from on-chain trading pools, often averaged over time to make manipulation harder.

The oracle problem

A smart contract is only as reliable as its data. If an oracle reports a wrong price, the contract acts on it without question: it may liquidate healthy positions or let someone borrow far more than their collateral is worth.

This has been exploited repeatedly. In October 2022, a trader pushed up the price of the MNGO token on Mango Markets, a Solana protocol whose oracle reflected that price, then borrowed against the inflated collateral and drained more than 100 million dollars.

What users can check

Which oracle a protocol uses, how many sources feed it, how often it updates, and whether thinly traded tokens are accepted as collateral. Protocols that price small tokens from a single pool are easier targets. Oracle failures are a smart-contract risk that users cannot fully hedge.

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Frequently asked questions

Why is it called an oracle?

Because, like the oracles of ancient Greece, it answers questions the contract cannot answer itself, in this case about the world outside the blockchain.

Do oracles only provide prices?

No. Prices are the most common use, but oracles also deliver events, reserve data, randomness and other outside information.

What is an oracle attack?

An attack that feeds a protocol a manipulated price, often by moving a thinly traded market, so the attacker can borrow too much or trigger unfair liquidations.

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All glossary terms · Educational reference only — not investment, legal, tax or financial advice.