Author of the opinion: Will Fey, Co-founder of Ammalgam and smart contract developer

We talk about oracles as if they are a pipeline system: an invisible utility that allows prices to flow into protocols. Oracles are not neutral infrastructure. They are dependencies. Over time, they have become political.

DeFi is built on a promise: permissionless markets, composable systems, and minimized trust.

However, by 2025, most major lending and trading protocols route their most sensitive functions—liquidations, collateral checks, pricing decisions—through a single oracle network.

This is not decentralized. This is a design risk.

This is not a criticism of those building oracles. The issue is structural.

Protocols outsource pricing to avoid manipulation, delays, and gas costs. It makes sense on paper. But what happens when oracles stall? When delays spike to 30 seconds? When erroneous data sources force the liquidation of solvent accounts?

We have already seen this happen, just last week. That may have been the worst time, but it is not the first time. And it will not be the last.

Venus suffered a $100 million liquidation spiral triggered by manipulated price sources. Mango Markets was drained after its oracle was exploited in a coordinated attack. Fortress DAO lost millions due to oracle manipulation. Panic spread through lending protocols during the CRV event in July 2024 as the value provided by oracles plummeted. In March 2022, Inverse Finance lost over $15 million when attackers manipulated pricing oracles to borrow more than the value of their collateral.

Protocols repeatedly say the same thing: "It's an oracle problem." But that is precisely the point. If a single price source can destroy a system, that is a severe design flaw.

The danger is not just technical vulnerability. It is the quiet infiltration of centralization. When core systems rely on a few privileged data sources, DeFi is no different from fintech.

If your protocol's solvency depends on Chainlink's next price movement, then Chainlink is upstream governance over middleware.

Oracles determine when liquidations occur, the value of your collateral, and how much you can borrow. This is meaningful control. However, users cannot vote on data source configurations, cannot audit every step of the pricing pipeline, and often do not even know when key parameters change.

Data source logic can be updated, sources can be replaced, or thresholds can be recalibrated without on-chain governance or community oversight.

This is soft governance through dependency—unvoted, opaque, and increasingly significant. The result is that DeFi users unknowingly rely on a few irresponsible participants to achieve outcomes that affect billions in value. Data providers become de facto risk managers, deeply embedded in protocol logic, yet are not subject to the same scrutiny or checks and balances.

Interestingly, some newcomers have begun to rethink this model, focusing on transparent infrastructure, on-chain observability, and minimizing latency. This new approach and innovative architecture have gained attention in certain circles, even briefly appearing in DefiLlama metrics before being removed. Whether Stork becomes an alternative, the momentum towards oracle diversification should have emerged long ago.

This is not a rejection of oracles. It is a call for optionality.

Oracles are useful, but they cannot be the only input. Some new architectures are already attempting alternatives. Protocols are exploring on-chain liquidity references, internal AMM-based pricing, and fallback mechanisms that adapt to volatility or failures.

Resilience means having more than one way to determine the truth. If your protocol dies because of a single oracle failure, you were never decentralized. You are fragile.

We need systems that reward participants for taking risks, punish behaviors that jeopardize shared liquidity, and adapt to stress in real-time. Most importantly, we need systems that do not rely entirely on infrastructure beyond the control of the protocol.

Optionality is the true ultimate goal. Not because it is elegant, but because it is robust.

DeFi cannot survive solely on trustless code—it needs systems that can bend without breaking. Infrastructure choices are not just technical; they are political. Every dependency is a vote. If we continue to vote for a single oracle culture, we should not be surprised when they become gatekeepers.

Because when the next event occurs (and it will), you do not want to be the one explaining why your $80 million liquidation event was "just an oracle problem."

Author of the opinion: Will Fey, Co-founder of Ammalgam and smart contract developer.

Related: Bunni DEX becomes the second crypto project to shut down this week

This article is for general informational purposes only and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Original text: “Opinion: Oracle Dependency is Becoming a ‘Soft Governance’ Trap for DeFi”

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