Deviation Threshold

The Deviation Threshold is a pre-programmed rule in an oracle feed that mandates an update only when the asset price changes by a specific percentage. This mechanism is used to optimize gas usage, as updating the blockchain price for every minor fluctuation would be prohibitively expensive.

However, if the threshold is set too high, the oracle price remains stagnant while the market moves, increasing the risk of arbitrage. If set too low, the frequency of updates causes network congestion and high transaction costs.

Finding the optimal balance is essential for maintaining a tight correlation between the oracle price and the true market price. This setting is a core component of the protocol's market microstructure.