A deep dive into PYTH NETWORK, A FIRST- PARTY FINANCIAL ORACLE

Amaphidel

17 min readOct 25, 2022

Financial Markets trader? You need this!

TABLE OF CONTENTS

SECTION ONE

WHY ORACLES?
WHY IS THERE A NEED FOR ORACLES IN SMART CONTRACTS?

SECTION TWO

WHAT IS PYTH NETWORK?
PYTH VISION.
HOW DO I BECOME A STAKEHOLDER AT PYTH?
WHY PRICE AGGREGATION?
HOW DOES HUMAN PROTOCOL WORK?
HOW DO I BECOME A STAKEHOLDER AT PYTH?
PYTH PUBLISHERS METRICS
PYTH KPI
WHY PRICE AGGREGATION?
HOW DO I CLAIM THE PROCESS FOR SPOTTING AN ERROR
PYTH PUBLISHER METRICS
WHY YOU SHOULD USE PYTH NETWORK

SECTION THREE

SECTION ONE

WHY ORACLES?

The need for financial Oracles in DeFi and Smart contracts.

Prices are remarkably important to financial traders. It is the foundation of the financial charts. It is pertinent to note that without day-to-day prices, there will be no charts, which brings up the question,

How is live market data important to smart contracts? If smart contracts are agreements between two parties, where do live data come in?

To answer this question, we would have to explain the terms involved. If you’re new to this concept, this section is for you, however, if you’re acquainted with the concept, you can skip this section. There are three terms involved, Smart Contracts, live data, and Oracles.

Smart contracts are essentially agreements between two parties (usually the buyer and seller) written into code. They execute automatically when the terms and conditions of both buyers and sellers are complete. Smart contracts are designed to run on the blockchain.

Live market data is the current price of assets in the financial markets. These assets vary from stocks to foreign exchange (forex) cryptocurrency and other financial instruments.

An Oracle is an external service that connects smart contracts with information in outside the smart contracts. This could also include live market data and other information, depending on what the smart contract needs.

Here’s how it works. Imagine there’s a smart contract that says if a price stock goes up, you’ll have to close your trades at a certain price level. The smart contract will be able to recognize the prices only using live market data, and the only way for the smart contract to access information outside itself is through an Oracle, and PYTH is one of the best financial Oracles currently.

WHY IS THERE A NEED FOR ORACLES IN SMART CONTRACTS?

(A photo showing the efficiency of smart contracts)

A smart contract, (as discussed earlier) is essentially an agreement between two parties, written in codes. This is because it is automated, and does not need human influence to depict results, as human influence can be biased. Whilst some agreements do not need external data, for example, a smart contract that states payments of land in two halves over six days. If the smart contract is active, it will ensure that payment is done in six days.

In reality, smart contracts are more complicated, and some contracts will need external data, as smart contracts are built such that they can only execute the contracts within them. What if there’s a smart contract where you and let’s say, Tony, enter into, that says if Bitcoin hits 25k, you pay him 500$, and if Bitcoin is below 25k by the end of the week, he pays you 500$?

How does the smart contract know if Bitcoin hit or didn’t hit 25k$ by the weekend? Quite easy, with Oracles. Oracles are smart contracts only way of getting in touch with information from the outside world.

PYTH is one of the best Oracles out there.

Section Two

WHAT IS PYTH NETWORK?

PYTH network is a financial oracle that feeds smart contracts DeFi and the general public live market data of financial markets (which include foreign exchange, or forex, cryptocurrency, equities, and commodities )

PYTH VISION.

PYTH is not the first financial oracle to exist, yet financial Oracles are flawed. One of the major flaws is that some Oracles just carry data from random sources, which are most times incorrect or lagging.

PYTH partners with the best companies that offer accurate live data in real-time, and give precise data analysis to not just smart contracts and DeFi users, but to the general public as well.

This PYTH does this by getting the best in the businesses; Market makers, trading firms, brokers, and various exchanges to share their first-hand live markets data, and earn an incentive. This brings up an important question

How do you know that PYTH doesn’t also give wrong information on price?

I would first like to emphasize that PYTH does not generate live market data on its own, but does it with the best market makers, brokers, exchanges, and trading firms in the business.

PYTH has a security measure to ensure that these financial institutions are not careful enough not to feed PYTH with wrong information. This is done by ensuring that those companies who decide to publish information for PYTH (known in later paragraphs as Publishers) are liable to lose their stakes if they do provide wrong information on financial prices at any point.

Also, PYTH publishes prices after being compared with about seven publishers before updating their website. This reduces the issue of wrong financial live data at any given time. To also avoid spam, any of the parties challenging the data of a publisher will need to stake tokens too. If the claim is true, the staked token is returned.

HOW DO I BECOME A STAKEHOLDER AT PYTH?

To become a member of the PYTH community, you can join any three categories:

Publishers: These are institutions and firms that have access to live market data, they publish and earn data fees as an incentive. They are rewarded according to the number of accurate market live data they provide.
Consumers: These are the users of this data, either for our general use, or to incorporate in DeFI and Smart Contracts. They are obligated to pay fees and are allowed to use this data for either on-chain or off-chain analysis. This is because it attracts more publishers.
Delegators: these people earn their fees on a particular publisher through staking. They, however, agree to lose their stakes if the publisher can be proven wrong at any point in time.

You can decide to be any of these or all of them, there are no restrictions, and it can help you earn more data fees.

HOW DO PARTICIPANTS INTERACT WITH THE NETWORK?

They are four ways participants interact with the network, these include:

Data staking: this is simply staking data tokens to earn data fees. If you carry out this action, you are seen as a delegator. Delegators also speak for the integrity or the accuracy of a publisher. It is easier for you to pick a publisher who’s had more delegators on a particular publisher, proving that a lot of people believe in the accuracy of the publisher, thereby determining the influence of the publisher. The data fees earned from consumers are distributed between delegators and publishers. The publishers earn 20% of the total pool while 80% is shared amongst delegators (don’t forget, you can take up more than one role at a time!).
Price aggregation: this is a mechanism that compares the prices given by the publishers and reports it as a single feed (such as SOL/USD). This mechanism is used to provide the best live market data at a given time, and it ensures that a monopoly by a few publishers does not exist, and does not allow influence from a small group of publishers.

WHY PRICE AGGREGATION?

There are two reasons why the PYTH network adopted the Price aggregation strategy.

To avoid manipulation: To avoid data publishers trying to gain a monopoly on chain prices, PYTH adopts the price aggregation system. This system takes an average of all data published and publishes it, thereby updating the most accurate data. However, if it was left to a few data publishers, there would be opportunities for monopoly.
Confidence levels: PYTH data does not just take the average of these prices, they also look at the confidence levels. Confidence is built by how much is being staked by delegators on a particular publisher and his live data.
Reward distribution: this determines the share of data fees that will be earned by each publisher, and delegator. The reward distribution ensures that publishers with high-quality feeds are rewarded better, and publishers who don’t publish at all are not rewarded.
Governance: The variables of the three interactive ways mentioned earlier are determined by a voting system. These variables include the percentage to be given to delegators and stakers, the filing of errors if found, etc. They also decide the new products to be listed on PYTH, and the data fees to be staked if a consumer is filing a claim. This is done by using a coin voting system, which makes the PYTH data community important.

HOW DO I CLAIM THE PROCESS FOR SPOTTING AN ERROR?

Anyone can file a claim, irrespective of the roles played. When there is a claim that the financial data is incorrect, PYTH uses the HUMAN protocol. The HUMAN protocol is open-source software that collects off-chain information from different sources (who are impartial judges) and feeds it to the PYTH algorithm, which determines if the claim is right. If right, the publishers are immediately notified and their stakes are slashed. The Ratification process is then conducted, and if found true, their data fees are triggered and paid out to the institution or person.

However, if the claim is found to be false after the ratification process (a ratification process is one where people who own PYTH tokens vote based on the results of the HUMAN protocol), the data fees are immediately reversed to the rightful owners to avoid spam. It is pertinent to ensure your facts are straight before challenging the accuracy of a feed.

HOW DOES HUMAN PROTOCOL WORK?

First, it collects the data from the requesters: Requesters are people, institutions, or protocols that submit an error for evaluation. Then the exchange occurs. In the exchange phase, the data fees staked are left in a private account (an escrow account) and held. If the claims are true, the money is returned to the requester, and if not, the requester loses the data fees. Then the request is then looked at by the workers who could be individuals, institutions’ websites, or labor pools, they are independent of PYTH network.

PYTH PUBLISHERS METRICS

PYTH publishers metrics is a system that shows historical data of publishers, to ensure that delegators will be able to pick their choice publisher based on historical data, and developers can test the accuracy of their data based on historical data feeds. These metrics are transparent and open for anyone interested to see. These metrics include:

Price series

A photo of Price graph from the whitepaper

Price series are represented on the price graph. The price graph shows how closely related a publisher’s price is to the aggregate published at a given time. It also shows periods where the price was not close to the aggregates.

Uptime

Uptime shows how regularly a particular publisher has been publishing over a period of time. It shows the regularity and reliability of a particular publisher.

Calibration

A calibration graph shows the closeness between the data and the confidence levels. It is pertinent to note that the confidence levels are based on the number of stakers backing a particular publisher. The closer the two variables are, the higher your calibration points score.

Quality graph

A photo of price-quality from the whitepaper

A quality graph, in summary, shows how efficiently the publisher’s past price can lead to future aggregate prices.

PYTH KPIs

PYTH checks its key performance indicators monthly and it is transparent on the website! These KPI’s include Total volume Secured (TVS), which is represented by the total and accurate price feeds, and client downloads, which include the total number of downloads by DeFI protocols and Smart Contracts.

WHY YOU SHOULD USE PYTH NETWORK

If you’re a developer interested in smart contracts and DeFi, it’s no news that Oracles are necessary, these are reasons why you should trust PYTH

The publishers are visible, which helps you trust the quality and accuracy of the market live data.
It is not just one publisher’s live data, but an aggregate of various top publishers, which improves the accuracy of the information, and avoids bias.
There are frequent updates on the PYTH network, up to 200,000 thousand price updates a day! This way, you can have financial data all year round!
Delegators staking their data fees for the prices updated by publishers is enough proof that PYTH does not give inaccurate live data at any given time.
PYTH does not have intermediaries. Who’s means there’s no middleman asking for extra charges for the financial data given.
The financial data PYTH offers is wide-ranging. It’s not just crypto data but also forex prices, US equity pairs, and even the prices of metals.
PYTH algorithms and security measures ensure that there’s only quality data being published, and the rate of getting incorrect information at a given time is minimal.
PYTH is accountable for growth as it asks for suggestions from users and publishers every month, and checks its metrics to discover if it has achieved its KPI for a particular month, and what to work on. This is a clear indicator that the project is not built around hype, but is doing everything in its power to stand the test of time.

SECTION THREE

PYTH PAST, PRESENT AND FUTURE

PAST

PYTH network launched in April 2021, and reached devnet in four months, before launching its mainnet in the same month. In August 2021, it launched its mainnet on Solana mainnet and has been offering live financial markets data ever since.

PRESENT (ACHIEVEMENTS)

Today, PYTH network can boast of having about 65 publishers, and releasing live financial data across forex, crypto and US options with about 80 pairs.

PYTH has over 500k downloads from consumers and developers, which is a milestone that PYTH is gaining popularity in the Oracle business.

CURRENT CLIENTS OF PYTH NETWORK

The current clients of PYTH network include

Borrow, lending, and yield applications such as Tulip, Port Finance, Solend.
Automated Market Makers (AMM) such as Lifinity, Delta FI, Hydraswap, DEXes such as Mango Markets, Drifts,
Options and Derivatives platforms such as Ribbon Finance, HXRO network, Stablecoins like (UXD, Hubble, Hedge, and other varieties of users,

CURRENT DATA PUBLISHERS

The current data publishers include renowned market makers, financial institutions, trading firms and exchanges such as AAX, Akuna Capital, Gate.oo, Gemini publishers, Raydium, Jump trading, KU coin, IEX cloud, LMAX group, BSX, Kaiko, KGI securities, ML tech, Huobi Global, Jane Street, CDAP, Chicago Trading Company, Talos, Tower Research Capital, Two sigma, Optiver, Bitso, XBTO, X Bullion, Talos, Tower Research Capital, G-Research, amongst others. The reputation of the publishers goes well to commend the quality of PYTH network.

PYTH network has boarded on chains such as Solana, BNB and of recent, Aptos.

Every day, reputable Publishers and consumers are joining our list of clients, you can too!

PYTH node providers

PYTH network uses the best node providers, which have access to publish data directly on chain. These nodes include Blockdaemon, Everstake, Coinbase cloud, Figment Syndica, Triton, and a host of others.

These node providers ensure that live financial data is accessible to DeFI and Smart contracts on the chain, and at top speed, the best accurate information. The consumers (smart contracts and DeFi projects who use these nodes do not have to worry about development operations, PYTH is dedicated to solving these problems for DeFI by combining independent node providers and reliable data sources to ensure not just accuracy, but ease.

Tokenomics

They are 10 million PYTH tokens in existence, and there are no intentions to increase. However, 85% of the tokens are locked and are going to be released monthly for the next seven years. This system is to ensure a gradual increase of tokens over time, the table below shows allocations of tokens

N/B: the locked tokens unlock over seven years with an initial one-year cliff.

Also, PYTH data has reserved incentives for early adopters of the Oracle and has a major problem.

“If there are no data fees yet for new products, how would these products be published?” PYTH network foresaw the circumstances (known as the cold-start problem) and has some incentive measures, one being incentivizing early publishers of new products (in this case, pairs).

Also, when the products are recently published, no claim is taken seriously until there are a sufficient number of publishers to make the feed robust.

PYTH vs Other Oracles

It is a well-known fact that every solution creates its own problems, and Oracles, though built to ensure efficient data to Smart contracts and other DeFI applications, PYTH is built to solve the obvious problems of these projects, making it a better fit. Here is a rundown of a few problems with Oracles on the blockchain.

Cost: Because of the collation of data from various sources, and the need to incentivize these publishers. Oracles tend to charge consumers a high fee rate, and the possibility of Financial data on chain data being accurate is not guaranteed. PYTH network solves that problem. By building a system of Delegators (Stakers), the cost of Oracle usage is minimal, and in some cases even free! The aggregate algorithm used ensures that the market data is accurate, ensures that publishers who do not give accurate data, or data at all are not being incentivized, and ensures there is accurate financial data on the Oracle all day long!
Duration of updates: PYTH’s system of incentivization is dependent on just the accuracy of the data, but also the frequency of the accurate data published. Unlike other Oracles that source free data published on the internet, PYTH is proud to partner with the top financial market firms, exchanges, and market makers, which gives confidence in accurate live data at any given time. Also, the PYTH algorithm updates at a speed of about 400ms, which gives about 800k updates daily!
Third-party collusion: when there are a few prominent publishers in a particular oracle, it is quite easy for these publishers to manipulate live data or commit fraud. However, PYTH network can boast of over 65+ publishers (and counting) with well-known integrity, and with its aggregate system, there is a minimal possibility of fraudulent prices being published. Also, if you perceive that a particular publisher is giving out inaccurate live data, you can file a claim and if proven, earn a percentage data fee from their incentives.

THE FUTURE

PYTHs Goals and Mission

PYTH, as established earlier, was built to solve the problems of Oracles, but there are a lot of variables involved, which we will discuss below

WHY PYTH NETWORK IS IN THIS BUSINESS

PYTH network is in the business because they understand the potential of DeFI and its importance in the crypto space. They plan to build an efficient system that will be reliable by DeFI systems and smart contracts as the possibilities of DeFI knows no bounds. PYTH believes that DeFI will soon be adopted even by the traditional financial markets and span up to trillions of dollars in TVL in the nearest future. To be part of such a future, PYTH network is building an efficient project.

PYTH network is also aware that the business of data is a large one, and that a lot of companies have decided to hoard these data to sell them at high prices. PYTH realizes how hard it is for a developer or a regular consumer to access the data. PYTH’s system is making sure that consumers will have access to these data without having to pay huge prices for these products. This is achieved by attracting these huge financial institutions to become publishers and being paid incentives, without putting pressure on the consumers.

PYTH believes in the transparency of financial data and expects that it should be open to everyone, developer or not. For this reason, PYTH network has provisions for everyone. For investors, PYTH has given the opportunity of becoming a delegator, for traditional financial companies, Market makers, and exchanges willing to join the project have been given opportunities to become publishers, and people and institutions who need these data for their smart contracts and DeFI protocols as Consumers. There are no restrictions, as an institution or a person can be all three at the same time.

PYTH is tired of latent Oracles who don’t outsource the best data available to make things easy for DeFI projects. They realize that some Oracles do not even give accurate data, and it is not updated as regularly as possible, yet charge huge fees. For this reason, PYTH network has built an efficient and sufficient system to last for a long period of time. They, however, see this as a huge problem and their mere existence is to solve this issue.

It’s been a year since the launch and the PYTH network has hit over 65+ publishers with a client list increasing almost on a daily basis, this goes a long way to speak of the dedication of the team to achieve success in financial data for smart contracts and DeFi protocols.

WHAT’S NEXT?

Cross Chain: PYTH is planning to go cross-chain. It began on the Solana blockchain and launched mainnet on the BNB chain. They are looking at L1 and L2 layers including Ethereum, Polygon, NEAR, Avalanche, Fantom, Algorand, Arbitrium, Sui, etc.

Recently, PYTH network has launched on Aptos testnet and are looking forward to improving its networks on various cross-chain, thanks to DeFI. Developers understand the quality of PYTH data and its speed, and rely on it heavily. For this reason, PYTH network launched firstly on the Solana block chain. The developers of the Solana block chain choose PYTH network because of its ability to get quality live financial information, and regular updates dtop companies in the data business, as they are the only oracle on solana DeFi that has access to such premium information, and gives it at a minimal cost, to be used for DeFI protocols and Smart Contracts.

WORMHOLE: how does it work?

What is Wormhole

Wormhole is a messaging protocol that can connect to various blockchains such as Ethereum, Solana, Terra, Binance Smart Chain, Avalanche, Oasis, and Fantom. PYTH network uses the Wormhole protocol to ensure that prospective data users using the wormhole generic protocol can request prices through the Wormhole, and those prices show up in the native chain of the consumers, without having to switch blockchains.

This design helps to cut out costs for the consumers and makes the data available only when requested. It also allows consumers to benefit from other users’ requests as data on a native chain means data for all who use the native chain.

MYTHS OF PYTH NETWORK

There are no data fees in circulation for non-consumers or non-publishers. To access PYTH tokens, you have to be a participant.
The live data is open source, but to be used in smart contracts or DeFI, data fees have to be paid by using PYTH tokens.

CONCLUSION

PYTH network has solved one of the most pressing problems of an oracle by providing live financial data with accuracy and reputable publishers, why not try them today? Join at:

Discord:https://discord.gg/QUvyS8WH

Website: https://pyth.network/

Twitter: https://twitter.com/PythNetwork