More and more often we talk about DeFi and Blockchain, but the blockchain alone does not make any sense.
Let me explain: if we do not have verified data that can activate Smart-contracts, Blockchain is reduced to a simple public archive with the peculiarity of notarization of a data.
A little limiting, don't you think?
Smart-contracts, in order to work, need data that are, most of the time, Off-Chain; in the sense that they are data produced by other entities and therefore their reliability is not certain.
To be able to certify that the data required by the Smart-contract is accurate and reliable, the Oracles are used (and required).
These oracles are nothing more than lines of code, therefore software (even if in some cases it is a real processor) that receive data from the outside and validate them through APIs or the cross-checking of market data.
One of the peculiarities of smart-contracts - and it is the main feature of decentralization - is the autonomy of activation and operation when a condition occurs.
For example (and this is the first smart-contract that ever existed) the payment of a software license: the smart-contract receives the payment, then you can start (or continue) to use that particular program.
However, the bank transfer accountant is not on-chain, because she is part of the world outside of it, part of a system that is unknown to her (the blockchain).
To ensure that the accountant of the transfer can reach the Smart-contract, oracles come into play.
The oracle will have to take the accountant, verify it with the current account to which it was sent and confirm or not the veracity of the payment.
Let's assume for a moment that the Oracle omits the credit checks of the sum and takes it for granted, since I have presented an official document, that I have paid for the license. Despite myself, I do not have sufficient funds to process the transaction and it is canceled; obviously, since the Oracle must personally verify certain dynamics, my bank does not bother in the least about communicating the SBF to the oracle.
Result
I continue to use the program without having the slightest right, in fact the necessary fee has not been paid because it is unavailable.
As it is logical to assume if this misunderstanding happens to 1 person, not bad, but if it were to happen to half of the people who are using the service, the company would suffer a lot of damage.
This is a simple example to broadly understand the importance and functioning of the Oracles.
DexToken makes extensive use of the Oracles, indeed, we could call them the engine of the protocol; in fact, in order to activate the Smart-contract that manages the Speculative AMM, it is necessary to know what the current value of the token is.
Link is currently the pioneer in the design of Oracles, indeed let's say that Link is the leader in the development of Oracles; in fact, many DeFi applications rely on ChianLink Oracles.
First of all, Binance, in order to make its data accessible and verifiable, has relied on ChainLink technology, which through its Oracles makes its verified and consequently certified data available to other Blockchain realities.
For more information on ChainLink technology, I refer you to my E&S Cryptocurrencies made accessible column: here and here the articles dedicated to ChainLink.
Together with ChainLink it is also necessary to indicate Band as a project; in fact it is one of the first projects to leave the Ethereum Blockchain to rely on the Cosmos one. Band's goal is to be able to connect real-world data to smart contracts.
For this reason Band has had a 100x increase, for DeFi, the crosschain of data is vital, and Band is what it does for it; however Band, has a very dangerous aspect that should be replaced: unlike ChainLink which puts the Oracles in contact with the protocol, for the verification and confirmation of data; the data provided by the Band Oracles are considered correct, regardless and the verification will be done later.
Basically it's based on trust, and I don't think that's fair
