An oracle plays a crucial role by establishing a connection between smart contracts on the blockchain and external world data sources. It acts as a bridge that enables smart contracts to interact with real-world information, which is not originally accessible within the blockchain network.

Smart contracts in DeFi rely on accurate and timely information to execute their predefined conditions and actions. Oracles serve as trusted sources of off-chain data, supplying information such as price feeds, market data, weather conditions, or any other relevant data needed for the functioning of smart contracts.

Oracles retrieve data from various sources, such as APIs, web scraping, or decentralized networks, and deliver it to blockchains. The data provided by oracles helps trigger events, determine outcomes, or initiate actions within smart contracts.

Making sure that oracles are accurate and dependable is very important to ensure that DeFi applications are trustworthy and reliable. Special care is taken to ensure the security and authenticity of oracle data, as malicious or incorrect data can have significant implications for the execution of smart contracts.