Oracle

Blockchains cannot see anything outside themselves. A smart contract on Ethereum has no way to know the price of ETH in dollars, the weather, or the result of a football match unless someone puts that data on-chain. An oracle is the system that does this. It collects information from outside sources and publishes it in a form that contracts can read.

Price oracles are the most important kind. Lending protocols use them to decide when a loan is undercollateralized, and stablecoins use them to maintain pegs. Chainlink is the largest oracle network. It aggregates prices from many independent node operators and data sources so that no single party can falsify a feed.

Oracles are a frequent point of attack. If an attacker can manipulate the price a contract relies on, even briefly, they can borrow against inflated collateral or trigger wrongful liquidations. Protocols that used a single DEX pool as their price source have lost tens of millions of dollars this way. Robust oracles use multiple sources and time-weighted averages.