Oracle Problem

The 'oracle problem' refers to the difficulty of blockchains incorporating external data, such as price feeds, real-world event outcomes, or activity on other blockchains. Such information is often necessary for smart contract logic to be executed properly. For example, some DeFi lending platforms require external price data to ensure borrowers maintain adequate levels of collateral. These smart contracts may automatically liquidate one's position based on this external data.

Blockchains are deterministic, single data systems that reflect a specific series of internal events (transactions). For this reason, blockchains cannot natively source, interpret and react to off-chain data. Instead, a blockchain oracle must translate off-chain data into a blockchain-readable format and deliver it to smart contracts for consideration.