/biz/ - Business & Finance

It knows this because it knows the price that it isn't.
By subtracting the price that it is from the price that it isn't. Or the price that it isn't from the price it is, whichever is greater. It obtains a difference or deviation.
The oracle system uses deviations to generate corrective commands to drive the price from a price that it is to a price that it isn't. And arriving at a price that it wasn't, it now is.
Consequently, the price that it is, is now the price that it wasn't. And it follows that the price it was, is now the price that it isn't.
In the event that the price it is is not the price that it wasn't, the contract has acquired a variation. The variation being the difference between the price that it is and that it wasn't.
If variation is considered to be a significant factor, it too may be corrected by the contract however the contract must also know the price it was.
The hyperbolic inflation scenario works as follows;
Because a variation has modified some of the information the oracle has obtained it is not sure just the price it is.
However it is sure the price it isn't, within reason, and it knows the price it was.
It now subtracts the price it should be from the price it wasn't, or vice-versa.
And by differentiating this from the algebraic sum of the price it shouldn't be and the price it was, it is able to obtain the deviation and its variation which is called error.