# The Blockchain Oracle Problem in Decentralized Finance--A Multivocal Approach
###### Abstract  
Decentralized Finance (DeFi) takes the promise of blockchain a step further and aims to transform traditional financial products into trustless and transparent protocols that run without involving intermediaries. Similar to how 2017 was the year of ICOs, 2020 was the year of DeFi, with more than fifteen billion dollars of total investments. The decentralized platforms utilize oracles to retrieve asset data from the external world, but their choice and management criteria are often unknown to the end-users. If oracles are poorly selected or managed, the funds of a rising number of investors are inevitably in danger. The issue, known as \"the oracle problem\", which makes real-world applications controversial and debated due to the loss of decentralization, had recently drawn attention to DeFi, given the crescent number of related hacks that caused the loss of millions of dollars held in DeFi projects. Through a multivocal approach that considers academic papers, whitepapers, preprints, and opinion posts, this study aims to shed light on the pattern that identifies the oracle problem in DeFi and outline the most promising ways to overcome the related weaknesses. This research supports the view that the oracle problem in decentralized finance bears specific characteristics which require standardization and appropriate economic incentives to be addressed. blockchain; decentralized finance; oracles; smart contracts +
Footnote †: journal: Applied  
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Footnote 1: email: caldarelli@um.edu.mt  
This issue, brilliantly described by Egbertz [13] and discussed in a recent book [14], is known as \"the oracle problem\" and affects all blockchain real-world applications. The consequences of having insecure oracles are different according to each real-world application, but in the DeFi space, considering the rising amount of investments, the potential drawbacks of a poorly designed oracle could be detrimental. Despite the criticality of the issue, this problem has not raised much interest in neither industry nor academia. A recently published article shows that only 15% of journal articles about real-world blockchain applications take into consideration oracle-related issues [15; 16]. Despite being the most problematic considering the amount of capital involved, the DeFi sector, is not taking a step further to address the problem. As a recent study on DeFi oracles outlines, \"Although oracles play a critical role in DeFi ecosystem, the underlying mechanics of oracles are still vague and unexplored\" [17]. This paper's scope is to analyze the oracle's role in the DeFi space, focusing on the most widely used applications and outlining the issues connected to their implementation [18]. Inspired by the works of Al-Breiki [19] and Manoj Kumar [20], we aim to identify the roles oracles are playing in DeFi applications. Furthermore, risks and drawbacks are identified and discussed according to their relevance and impact. The following research questions summarize the focus of this study:  
1. What is the role of oracles in decentralized finance according to the existing literature? 2. What are the current risks connected with the implementation of oracles in DeFi, and how are they being addressed? Being an extremely recent topic, given the fact that just around a year has passed since the DeFi explosion [21], gathering enough academic papers may be unfeasible. This is probably not due to the low interest in DeFi but to the time required for publishing and indexing. However, there are many available online articles that discuss the subject and give an overview of the issues related to oracles. For that reason and for the scope of this paper, we decided to adopt a Multivocal Literature Review, including peer-reviewed resources from scholarly databases and so-called grey literature, comprised news, blogs, reports, and other official documents (whitepapers).