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The need for an oracle in decentralized finance (DeFi) is a major impediment to adoption in the real world, according to the authors of a Bank for International Settlements (BIS) bulletin. The problems with oracles are both practical and principled, and the study’s authors saw no way around them.
An oracle is a third party that provides real-world data flowing to or from a DeFi protocol. An oracle is centralized by nature, and its presence means a protocol is not fully decentralized—if that is tolerated, then trustlessness is lost, the authors said. That is likely to be a fatal flaw for use with real-world assets, the authors wrote.
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