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How Pyth Propagates Financial Data At The Speed of Light | Mike Cahill

By Lightspeed

Published on 2024-02-15

Discover how Pyth Network is transforming the oracle landscape, bringing real-time financial data to blockchain with unparalleled speed and accuracy.

The notes below are AI generated and may not be 100% accurate. Watch the video to be sure!

The Rise of Pyth Network in the Oracle Space

Pyth Network has emerged as a game-changer in the world of blockchain oracles, rapidly becoming a cornerstone of the crypto ecosystem. As a highly optimized oracle network integrated with over 50 chains and 300+ applications, Pyth is revolutionizing how financial data is propagated and utilized in the decentralized world. Mike Cahill, a core contributor to Pyth, joined the Lightspeed podcast to discuss the network's innovative approach to solving crypto's oracle problem and its vision for the future of financial data on-chain.

The Value of Financial Market Data

At the heart of Pyth's mission is the recognition of the immense value inherent in financial market data. Mike Cahill explains, "You can get all the world's financial market data after about 15 minutes for free. So all of the value is somewhere between time of zero and 15 minutes." This critical insight drives Pyth's focus on optimizing for the "tiny little sliver" where data is most valuable – as close to real-time as possible.

The traditional financial world has long understood this value, with the six largest exchanges making approximately $7 billion annually from selling market data alone. This represents about 20% of their revenue composition. Pyth aims to disrupt this model by bringing this high-value, real-time data directly on-chain, making it accessible to decentralized applications and protocols.

Oracles: The Linchpin of Crypto

Oracles play a crucial role in the blockchain ecosystem by bringing external data on-chain. As Cahill points out, "The blockchain solves for state... anything external to that or exogenous to that needs to be brought in somehow." This is where oracles come in, providing a bridge between the off-chain world and on-chain applications.

However, not all oracles are created equal. Pyth differentiates itself by prioritizing speed and accuracy, focusing on delivering financial data at the lowest possible latency. This approach is particularly crucial for DeFi applications, where even milliseconds can make a significant difference in trading and lending decisions.

Pyth's Unique Approach: The SVM Appchain

One of Pyth's most innovative moves was the launch of its own SVM (Solana Virtual Machine) appchain. This decision was driven by the need for a dedicated, high-performance environment optimized for oracle data propagation. By creating PythNet, Pyth ensures that its core functionality is isolated from potential issues on other networks, providing unparalleled reliability and speed.

Cahill explains, "PythNet is a singular environment and knock on wood has not gone down. So it's isolated from Solana and during Solana's downtime today, none of the other chains that Pyth's connected to had any sort of exposure." This architecture allows Pyth to maintain its service even when other networks face challenges, ensuring continuous availability of critical financial data.

Permissionless Integrations: A Key to Pyth's Success

One of Pyth's standout features is its permissionless nature. Unlike some competitors that require direct engagement for integration, Pyth allows any application or protocol to utilize its data without prior approval or contact. Cahill emphasizes, "If you want to use Pyth prices, you actually can just use them. And that's a unique characteristic that... we fully believe in."

This open approach has contributed significantly to Pyth's rapid adoption across the blockchain ecosystem. By removing barriers to entry and making high-quality financial data freely accessible, Pyth has positioned itself as an essential infrastructure layer for the decentralized finance landscape.

Data Publishers: Quality Control and Incentives

Pyth's network relies on a diverse group of data publishers, including major trading firms and exchanges. These publishers contribute their data to the network, creating a robust and reliable source of financial information. But how does Pyth ensure the quality and accuracy of this data?

Cahill outlines several mechanisms:

  1. Disclosed publishers: Users can see who is publishing data, allowing for reputation-based trust.
  2. Price and confidence intervals: Each publisher provides not just a price but also a confidence interval, allowing for more nuanced data aggregation.
  3. Computational weighted median: Pyth uses sophisticated algorithms to aggregate data, weeding out outliers and potential manipulations.
  4. Minimum publisher requirements: Each symbol requires a minimum number of publishers, ensuring redundancy and reliability.

These measures combine to create a system that Cahill rates as "about a six out of 10" in terms of trust minimization – a score he believes is higher than any other protocol attempting similar goals.

Pyth's Airdrop and Governance

In a significant move to decentralize its ecosystem, Pyth recently conducted an airdrop of its native token. This airdrop reached over 90,000 wallets across 40 chains, making it one of the most extensive and inclusive token distributions in crypto history. The airdrop aimed to bring users of Pyth-powered applications into the governance fold, even if they weren't previously aware of Pyth's role in their DeFi activities.

As of the podcast recording, over 150,000 wallets were staked in the Pyth protocol, showcasing the strong community engagement and belief in Pyth's vision. This level of participation is particularly impressive when compared to other major DeFi protocols, highlighting Pyth's growing importance in the ecosystem.

Economics and Trust Minimization

Pyth's economic model is built into the protocol itself, addressing one of the key challenges in the oracle space – incentivizing accurate and timely data provision. The network uses a combination of inflation rewards and transaction fees to compensate data publishers and stakeholders.

Cahill explains that 22% of the token supply is earmarked for publishers, with the exact distribution mechanism to be determined by governance. Additionally, Pyth charges minimal fees for data updates, currently set at "one way, zero, zero, zero, zero, zero, one" – the lowest possible fee on most blockchains where Pyth is deployed.

This economic model aims to strike a balance between incentivizing high-quality data provision and keeping costs low for users. As Cahill notes, the goal is to "build a financial system that can be profitable at fractions of the cost of the existing financial system," potentially opening up access to sophisticated financial tools for billions of people worldwide.

The RWA Opportunity: Bringing Real-World Assets On-Chain

The conversation then turned to the exciting frontier of Real World Assets (RWAs) and how Pyth could play a role in bringing these assets on-chain. Cahill sees this as a significant opportunity, albeit one that requires careful consideration and innovative approaches.

In the near term, Pyth is focused on expanding its coverage of traditional financial instruments, aiming to have over 1,000 symbols by the end of the year. This expansion will cover a wide range of assets, including crypto, equities, interest rates, commodities, and metals.

Looking further ahead, Cahill envisions Pyth potentially providing data for more complex RWAs, such as real estate prices per square foot. He explains, "I think that somewhere that Pyth can innovate on. And then I think that there is this trend which I described in the very beginning, which is why large language models have sort of reversed the course of the openness of the web to a certain extent, which will end up creating more and more private datasets, which will expand the likely types of information that will be available through something like Pyth."

This expansion into RWAs could open up new possibilities for DeFi applications, allowing for more sophisticated financial products and increased liquidity for traditionally illiquid assets.

Where Chainlink Went Wrong: Pyth's Competitive Edge

When discussing Pyth's rapid rise in the oracle space, it's natural to draw comparisons with Chainlink, the long-standing leader in the sector. Cahill offers a candid assessment of where he believes Chainlink may have missed the mark, providing insight into Pyth's competitive advantage.

According to Cahill, Chainlink's approach focused on solving the problem of getting data on-chain, but with a fundamental assumption that "all the world's information was on the internet and it doesn't matter how fast you get it on there as long as it's updated in a couple seconds." This approach, while solving certain problems, didn't optimize for the critical factor of speed in financial data.

Pyth, on the other hand, was built from the ground up with a focus on delivering the most valuable data – real-time financial information – as quickly as possible. This focus on latency and the specific needs of high-frequency trading and DeFi applications has allowed Pyth to carve out a significant niche in the market.

Moreover, Pyth's permissionless model stands in contrast to Chainlink's more enterprise-focused approach. While Chainlink often requires direct engagement and custom setups for each integration, Pyth's data is immediately available to any application on supported chains, without the need for contact or approval.

Evaluating Crypto's Ecosystems

As Pyth expands its reach across multiple blockchain ecosystems, Cahill offers insights into the strengths and unique characteristics of various networks. While careful not to play favorites, he highlights several noteworthy aspects:

  • Solana's developer experience: Despite its reputation for complexity, Cahill notes that Solana's coding environment is actually more developer-friendly than often perceived.
  • Sui and Aptos: These networks offer high-performance environments with impressive customizability and efficiency.
  • Ethereum and L2s: While Pyth hasn't had significant penetration on Ethereum's L1 due to its focus on high-throughput chains, L2 solutions like Optimism and Arbitrum have seen exciting developments.
  • Monad: This newer network shares some DNA with Pyth in terms of its focus on hardcore systems engineering and performance optimization.

This multi-chain approach allows Pyth to leverage the strengths of various ecosystems while providing consistent, high-quality oracle services across the blockchain landscape.

The Future of Financial Data On-Chain

As Pyth continues to evolve and expand its offerings, the potential impact on the broader financial ecosystem is profound. By bringing real-time, high-quality financial data on-chain, Pyth is laying the groundwork for more sophisticated DeFi applications, improved risk management, and potentially, the tokenization of a wide range of real-world assets.

Cahill envisions a future where Pyth could expand beyond traditional financial data to include other valuable datasets, such as weather information or sports scores. As the value of real-time data increases, particularly in light of developments in AI and large language models, Pyth's infrastructure could become even more critical to the decentralized economy.

The success of Pyth also points to a broader trend in the crypto space – the growing importance of specialized, high-performance infrastructure layers. As the industry matures, we're likely to see more protocols like Pyth that focus on solving specific, critical problems with highly optimized solutions.

Conclusion: Pyth's Role in Shaping the Future of Finance

Pyth Network's rapid rise in the oracle space is a testament to the critical importance of high-quality, real-time data in the blockchain ecosystem. By focusing on speed, accuracy, and permissionless access, Pyth has positioned itself as a key infrastructure layer for the future of decentralized finance.

As the crypto industry continues to evolve and mature, protocols like Pyth will play an increasingly important role in bridging the gap between traditional finance and the decentralized world. With its innovative approach to data provision and its commitment to trust minimization, Pyth is not just solving the oracle problem – it's reshaping how we think about financial data in the digital age.

The journey of Pyth Network serves as a compelling case study in how specialized, focused solutions can create immense value in the blockchain space. As we look to the future of finance, it's clear that Pyth and similar infrastructure protocols will be at the forefront, enabling the next generation of financial applications and bringing the benefits of decentralization to a global audience.

Facts + Figures

  • Pyth Network is integrated with over 50 blockchain networks and 300+ applications.
  • The six largest traditional exchanges make approximately $7 billion annually from selling market data, representing about 20% of their revenue.
  • Pyth launched its own SVM (Solana Virtual Machine) appchain called PythNet to ensure reliability and speed.
  • Pyth's airdrop reached over 90,000 wallets across 40 chains.
  • As of the podcast recording, over 150,000 wallets were staked in the Pyth protocol.
  • Pyth aims to have over 1,000 price symbols by the end of the year, covering crypto, equities, interest rates, commodities, and metals.
  • 22% of Pyth's token supply is earmarked for data publishers.
  • Pyth charges minimal fees for data updates, set at "one way, zero, zero, zero, zero, zero, one" – the lowest possible fee on most blockchains where it's deployed.
  • Pyth processes about 4.5 million updates per day that are paying fees.
  • Pyth's trust minimization system is rated by Cahill as "about a six out of 10," which he believes is higher than any other similar protocol.
  • Pyth requires a minimum number of publishers for each symbol, typically between 5 and 10.
  • Pyth can have up to 64 publishers on any single price feed.
  • Pyth has over 100 data sources, including major trading firms and exchanges.

Questions Answered

What is Pyth Network?

Pyth Network is a highly optimized oracle network integrated with over 50 blockchain networks and 300+ applications. It focuses on providing real-time financial data on-chain, with a particular emphasis on speed and accuracy. Pyth aims to revolutionize how financial market data is utilized in the decentralized finance ecosystem by making high-quality, low-latency data accessible to a wide range of applications and protocols.

How does Pyth ensure the quality of its data?

Pyth ensures data quality through several mechanisms. First, it uses a diverse group of disclosed publishers, allowing users to assess the reputation of data sources. Each publisher provides not just a price but also a confidence interval, enabling more nuanced data aggregation. Pyth employs a computational weighted median to aggregate data, which helps weed out outliers and potential manipulations. Additionally, each symbol requires a minimum number of publishers, typically between 5 and 10, ensuring redundancy and reliability in the data provided.

What is PythNet and why was it created?

PythNet is Pyth's own SVM (Solana Virtual Machine) appchain, created to provide a dedicated, high-performance environment optimized for oracle data propagation. By launching its own chain, Pyth ensures that its core functionality is isolated from potential issues on other networks, providing unparalleled reliability and speed. This architecture allows Pyth to maintain its service even when other networks face challenges, ensuring continuous availability of critical financial data across all integrated blockchains.

How does Pyth's economic model work?

Pyth's economic model is built into the protocol itself, combining inflation rewards and transaction fees. 22% of the token supply is earmarked for data publishers, with the exact distribution mechanism to be determined by governance. Pyth charges minimal fees for data updates, currently set at the lowest possible fee on most blockchains where it's deployed. This model aims to incentivize high-quality data provision while keeping costs low for users, with the goal of building a financial system that can operate at a fraction of the cost of traditional systems.

How does Pyth differ from Chainlink?

Pyth differs from Chainlink in several key ways. While Chainlink focused on solving the general problem of getting data on-chain, Pyth optimized specifically for delivering real-time financial data with the lowest possible latency. Pyth's permissionless model allows any application to use its data without prior approval, in contrast to Chainlink's more enterprise-focused approach. Additionally, Pyth's dedicated appchain and focus on high-throughput chains set it apart in terms of performance and scalability.

What role could Pyth play in bringing Real World Assets (RWAs) on-chain?

Pyth could play a significant role in bringing RWAs on-chain by providing reliable, real-time price feeds for a wide range of assets. In the near term, Pyth is expanding its coverage of traditional financial instruments. Looking ahead, it could potentially provide data for more complex RWAs, such as real estate prices per square foot. This expansion could enable more sophisticated DeFi applications and increase liquidity for traditionally illiquid assets, opening up new possibilities in the tokenization of real-world assets.

How did Pyth's recent airdrop impact its ecosystem?

Pyth's recent airdrop was one of the most extensive in crypto history, reaching over 90,000 wallets across 40 chains. This distribution significantly expanded Pyth's community, bringing users of Pyth-powered applications into the governance fold. As a result, over 150,000 wallets are now staked in the Pyth protocol, showcasing strong community engagement and belief in Pyth's vision. This level of participation is particularly impressive compared to other major DeFi protocols, highlighting Pyth's growing importance in the ecosystem.

What future developments can we expect from Pyth?

In the near future, Pyth aims to expand its coverage to over 1,000 price symbols by the end of the year, including a wide range of financial instruments. Looking further ahead, Pyth may explore providing data for more diverse datasets, potentially including weather information or sports scores. As the value of real-time data increases, particularly with developments in AI and large language models, Pyth's infrastructure could become even more critical to the decentralized economy, potentially reshaping how we think about financial data in the digital age.

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