# Royco Talks #2 - Why Oracles Are the Backbone of DeFi

**Published by:** [Royco](https://blog.royco.org/)
**Published on:** 2026-06-11
**Categories:** royco, defi, oracles, redstone, talks
**URL:** https://blog.royco.org/royco-talks-2-why-oracles-are-the-backbone-of-defi

## Content

If you've heard "the oracle was wrong" after a hack, but never really understood what an oracle is or what it does, this one's for you. Mike from Redstone joined Shiv from our engineering team to walk through how oracles work, why Royco uses a specific kind, and where their limits actually sit. What is an oracle, and why does DeFi even need one? Mike opened with the simplest possible explanation: an oracle is what tells a blockchain the price of an asset. Sounds obvious until you think about it. There's no single price of Bitcoin. There are dozens of exchanges, each quoting slightly different numbers at every second. If a protocol asks one exchange for the price, it can be manipulated. If it asks every exchange and they disagree, the protocol has no idea what to do. An oracle solves that. It pulls data from multiple sources, applies consensus, and gives the blockchain a single price it can trust. Without that, almost nothing in DeFi works. At Royco: Every market, every tranche, every coverage decision depends on knowing what an asset is actually worth. Without an accurate oracle, nothing in Royco would work as designed. Why does Royco use fundamental oracles and not the usual market ones? Shiv made a distinction most people never hear: there are two kinds of oracles. A market oracle tracks the price an asset is trading at right now. That works for things like BTC or ETH, where the value comes purely from the market. But it doesn't work for assets that have a balance sheet underneath. A yield bearing stablecoin can briefly trade below its actual value during volatility, or above it when demand spikes. What the market quotes and what the asset is worth aren't always the same number. That's where fundamental oracles come in. Instead of looking at the market, they look at the reserves, the cash flows, the backing. The price reflects what the asset really is. If Royco used a market oracle, a Senior tranche could take a "loss" from a five-minute depeg on a thin DEX. That isn't necessarily a loss at all. The protocol shouldn't react to it as one. At Royco: Royco's Cap and Neutrl markets are priced through fundamental feeds from Redstone. The protocol only reacts when the real, underlying value of the asset moves. That's the only way tranching works. What can't an oracle do? Here's something Mike said worth holding onto: a "perfect" oracle doesn't exist, because no system can compress all external data into a single mathematical certainty. What the good ones do is get close enough that the difference disappears in practice. His exact words: "There is no single point of truth. What you do is get as close to it as you can." Getting there takes work. Multiple data sources running in consensus, guardrails that catch anomalies before they hit the chain, and years of running without a single misstep. The honesty about the limit is what makes the rigor credible. The proof is in the track record. At Royco: Choosing an oracle is one of the most important decisions in DeFi. Redstone has been running cleanly since 2021, and that's why they're behind the Royco markets that need fundamental pricing. Watch the Full Episode Royco @roycoprotocol What's the difference between a market oracle and a fundamental oracle? @mkmassari from @redstone_defi got into it with @ShivaanshKapoor from Royco engineering, and into why Royco prices its tranches on fundamentals. Watch the full episode 19 9:36 PM • May 29, 2026

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