An Oracle is a conceptual solution that takes off-chain information from the real-world and submits an immutable copy of this information into blocks, making it open for future use of smart contracts.
Oracles provide a solution to the transparency issue many cryptocurrency projects face. By taking off chain information and supplying the data in an immutable way, smart contracts can pull data from the oracle from blocks that contain the information. The information transmitted from the oracle can include things that can’t be tracked or monitored by the blockchain. This includes user payment information, changing/updating government policies, real world events (such as economical crises, pandemics, etc.), and even user account history.
By providing a completely transparent layer of transparency, trust is gained from lenders and borrowers in a way unseen in the cryptocurrency industry. For example, Instead of blindly lending someone Ethereum without any sort of history or proof of previous fulfillment of lending requirements, a lender can look into the users past ability to repay what is owed on what was borrowed. This allows the lender to have a sense of confidence or lack-there-of in the user depending on their information. Other factors can also influence this confidence. But it would not be possible without the added oracle layer.