A blockchain oracle is a mechanism that supplies smart contracts with data or computation originating outside the blockchain's native state.
Smart contracts cannot independently observe external market prices, weather, identity records, delivery events, or data on another system. Oracle designs obtain that information and make it available on-chain. They can rely on a single provider, multiple data sources, decentralized reporter networks, cryptographic proofs, or trusted execution environments. The oracle's accuracy, latency, governance, and resistance to manipulation become part of the risk of applications that depend on it.
An oracle supplies external information to on-chain logic. The smart contract determines how that information is used once it is available.
Stablecoin systems can depend on oracles for collateral prices, liquidation thresholds, exchange rates, and other data that directly affect solvency and automated execution.
A crypto-collateralized stablecoin protocol can use an oracle to determine the market value of collateral before deciding whether a vault should be liquidated.