A price oracle supplies asset prices to a blockchain application. Lending protocols use these inputs to value collateral and debt; derivative contracts may use them for settlement or risk calculations. The quoted pair matters: an ETH/USD feed expresses a different relationship from an ETH/BTC feed.
How a reference price is formed
An oracle may aggregate observations from several markets and reporters, or derive a time-weighted average from onchain trading pools. These methods answer different questions. An average over a past interval smooths brief price movements but can lag a rapidly changing market.
Updates may follow a schedule, a price-deviation threshold, or a request. A displayed value is therefore not necessarily a live, executable quote. The timestamp, decimal scaling, market coverage, and update rules are part of its meaning.
From data to liquidation
A lending contract can use the reported price to decide whether collateral still meets its requirements. Incorrect or stale data can consequently permit excessive borrowing or trigger inappropriate liquidations.
Using multiple sources can improve resilience, while longer averaging windows may make brief manipulation harder. Neither removes every failure mode. Applications still need suitable liquidity assumptions, freshness checks, and defined behavior during outages or exceptional market conditions.