Oracle tokens are cryptocurrencies used within blockchain oracle networks to connect smart contracts with real-world data. Blockchains are closed systems by design. They cannot access external information like price feeds, interest rates, weather data, or sports results on their own. Oracles solve this limitation by acting as trusted data bridges.

An oracle token typically plays several roles in this process. First, it is used to pay node operators who fetch, verify, and deliver external data to the blockchain. Second, it helps secure the network through staking or collateral mechanisms. If an oracle provides inaccurate or manipulated data, its tokens can be penalised. This creates a strong incentive for honest reporting.

One well-known example is Chainlink, which supplies price feeds and other data to many DeFi protocols. Other oracle networks include Band Protocol and API3. These systems often rely on decentralised data sources to reduce single points of failure.

Oracle tokens are critical to decentralised finance, prediction markets, insurance platforms, and gaming applications. Without reliable data inputs, smart contracts cannot function correctly. However, oracle risk remains an important concern. Poor data quality or weak decentralisation can lead to faulty contract execution and losses.

In simple terms, oracle tokens enable blockchains to interact with the real world. They form the backbone of many advanced blockchain applications by ensuring that smart contracts receive accurate and timely information.