Oracle Risk

Definition ∞ The potential for external data feeds, known as oracles, to introduce vulnerabilities or inaccuracies into smart contracts that rely on off-chain information. Oracle risk arises if the data provided is incorrect, manipulated, or unavailable, leading to erroneous smart contract execution and potentially significant financial losses. This risk is particularly relevant for decentralized finance applications that depend on real-world price data, event outcomes, or other external inputs. It represents a critical attack vector for many blockchain protocols.
Context ∞ Oracle risk is a frequently discussed security concern in decentralized finance news, with numerous exploits attributed to manipulated or compromised price feeds. The development of robust, decentralized oracle networks, such as Chainlink, aims to mitigate this risk by aggregating data from multiple sources and employing cryptographic proofs. The ongoing challenge involves ensuring the integrity and censorship resistance of these external data inputs to prevent market manipulation and protocol failures.