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A primer on oracle economics

Author

Listed:
  • Cong, Lin William
  • Fox, Liam
  • Li, Siguang
  • Zhou, Luofeng

Abstract

Oracle nodes enable smart contracts to access off-chain and cross-chain data, thus bridging information among digital networks and with the real economy. However, reliance on external input creates security and reliability risks in information aggregation and transfer. We describe the general oracle problem, introduce the Oracle Trilemma – highlighting the trade-offs between scalability, decentralization, and truthfulness – and discuss relevant economic issues concerning the role of oracles in applications such as DeFi, supply chain management, gaming, and prediction markets. In particular, we survey off-chain reporting, off-equilibrium alerting, and dynamic incentive design as promising approaches to resolving the trilemma. We further list oracle vulnerabilities and evaluate oracle sustainability through staking and tokenomics programs. Finally, we highlight empirical studies on how oracle integration affects DeFi adoption, token valuation, liquidity, and system risks. We conclude by presenting emerging trends and suggesting open research questions.

Suggested Citation

  • Cong, Lin William & Fox, Liam & Li, Siguang & Zhou, Luofeng, 2025. "A primer on oracle economics," Journal of Corporate Finance, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:corfin:v:94:y:2025:i:c:s0929119925000689
    DOI: 10.1016/j.jcorpfin.2025.102800
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    References listed on IDEAS

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    1. Lin William Cong & Xiang Hui & Catherine Tucker & Luofeng Zhou, 2023. "Scaling Smart Contracts via Layer-2 Technologies: Some Empirical Evidence," Management Science, INFORMS, vol. 69(12), pages 7306-7316, December.
    2. Giulio Caldarelli, 2022. "Overview of Blockchain Oracle Research," Future Internet, MDPI, vol. 14(6), pages 1-38, June.
    3. Nolan Miller & Paul Resnick & Richard Zeckhauser, 2005. "Eliciting Informative Feedback: The Peer-Prediction Method," Management Science, INFORMS, vol. 51(9), pages 1359-1373, September.
    4. Kose John & Leonid Kogan & Fahad Saleh, 2023. "Smart Contracts and Decentralized Finance," Annual Review of Financial Economics, Annual Reviews, vol. 15(1), pages 523-542, November.
    5. Yuxi Cai & Nafis Irtija & Eirini Eleni Tsiropoulou & Andreas Veneris, 2022. "Truthful Decentralized Blockchain Oracles," International Journal of Network Management, John Wiley & Sons, vol. 32(2), March.
    6. Rodney Garratt & Cyril Monnet, 2023. "An impossibility theorem on truth-telling in fully decentralised systems," BIS Working Papers 1117, Bank for International Settlements.
    7. Lin William Cong & Ye Li & Neng Wang, 2021. "Tokenomics: Dynamic Adoption and Valuation [The demand of liquid assets with uncertain lumpy expenditures]," The Review of Financial Studies, Society for Financial Studies, vol. 34(3), pages 1105-1155.
    8. Cong, Lin William & Li, Ye & Wang, Neng, 2022. "Token-based platform finance," Journal of Financial Economics, Elsevier, vol. 144(3), pages 972-991.
    9. Giulio Caldarelli, 2022. "Formalizing Oracle Trust Models for blockchain-based business applications. An example from the supply chain sector," Papers 2202.13930, arXiv.org, revised Mar 2022.
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