The Oracle Security Module, referred to as the OSM, is in charge of updating collateral prices periodically that the Maker Protocol then uses. It provides a safety net for the prices that come into the Maker System to protect Vault users in case of flash crashes and short lasting market volatility, as well as compromised price feeds.
An Oracle is a network participant that makes available the price data of various assets to determine important metrics such as the collateralization ratio in a Vault. Those participants draw the data from several Feeds, and the price of each collateral is determined as the median price of those Feeds by the Medianizer contract.
The OSM works by delaying any price updates it receives from the Medianizer by one hour before publishing them as ‘The current price’. This means that Vault owners have one hour to react to any price changes, as well as Maker Governance, if they believe the price being passed to the OSM is incorrect (i.e. due to an exploit or co-ordination of price feeds giving false price information).
Vault Owners will be able to see in advance the next price. This will be shown as Next Price and Next collateralization Ratio in the Vault Management page, as seen in the example below.
This will allow a Vault owner to monitor their Vault to avoid liquidations. Once the Next price becomes the current price and the Vault is under the Liquidation Ratio it will be at risk of liquidation. Before the Current price is updated any Vault owner has time to pay back debt or provide more collateral to avoid being liquidated.
To understand the programming behind the OSM, refer to this page.