Blockchains are designed to be insular, meaning that they are purposely shut off from other sources of information. This is done to ensure that on-chain data is as pure, provable, and correct as possible. While this model may guarantee trustless systems, it is impractical for more widespread adoption because it ignores the outside world that is becoming more connected every day.
Oracles were developed to solve this issue by bridging closed blockchain systems and the real world. These third-party systems create an infrastructure for accurate data transfer to-and-from smart contracts. The concept of blockchain oracles has existed almost since the origin of smart contracts themselves. Early efforts included Augur (a decentralized prediction market conceived in 2014) and Oraclize (which later rebranded to Provable Things). However, Chainlink quickly became the quintessential entry in the market, with its reliable price feeds for decentralized finance (DeFi) protocols.
Launched in 2021, Pyth Network is an oracle originally designed for the Solana blockchain. It has become a multi-chain solution for providing pricing data to the DeFi space. Like Chainlink, Pyth serves the role of an oracle by providing real-world data to on-chain protocols, but its data providers are the main difference. Whereas Chainlink’s pricing data comes from node operators, Pyth’s comes from financial institutions.
PYTH is the network’s governance token, allowing holders to vote for changes to Pyth’s development.
How was Pyth Network developed?
Pyth Network developed in an incubator program run by Jump Crypto, an arm of Jump Crypto Group, a large trading firm based in Chicago. This formative connection to traditional finance (TradFi) helped foster the relationships that the project uses to retrieve real-world data.
The team behind Pyth founded Douro Labs in 2023 to oversee the project’s development. Duoro is based in Porto, Portugal and led by Michael Cahill (CEO), Ciarán Cronin (COO), and Jayant Krishnamurthy (CTO). All three have backgrounds at Jump to go along with various experiences in finance and software engineering.
Since its inception, Pyth has partnered with—and fundraised from—several large players in both the TradFi and crypto spaces. This includes Jump Trading, Virtu Financial, Multicoin Capital, CoinShares, and the now-defunct FTX and Alameda Research. Pyth launched as a Solana-based protocol in April 2021, and boasted almost 100 data providers by December 2023. In fact, one of the earliest data providers was Bitstamp, who joined in 2021.
By March 2024, Pyth could claim more than $5 billion in total valued secured (TVS) assets, accounting for nearly 10% of the oracles space behind projects such as Chainlink and Chronicle. Further, at that time nearly 10% of all Solana transactions were attributable to Pyth. Through the end of 2023 and into 2024, the development team also focused on making Pyth a cross-chain solution, allowing support for Arbitrum, Avalanche, Hedera, and many other blockchains.
How does Pyth Network work?
Pyth is designed to be a highly accurate and efficient oracle, feeding asset pricing data (e.g., the prices of crypto assets such as BTC and ETH, as well as non-crypto assets like equities) into on-chain DeFi protocols. In this case, “accuracy” refers to the veracity of the asset prices provided by the network, and “efficiency” refers to high-frequency and low-latency updates. Put another way, Pyth aims to provide correct data to its end-users—smart contracts and the crypto traders who use them—as quickly as possible.
The network accomplishes this by using a two-participant system. Consumers are users of smart contracts that pull from Pyth’s pricing feeds, and they are charged a flat rate per request (“update”). Publishers are market participants like trading companies, exchanges, and other financial institutions who provide price data to the network and collect fees from consumers for this service. By using these first-party sources of data, rather than third-party aggregators, Pyth can promise speed and accuracy. However, the project has faced scrutiny because some see this as a form of centralization within the DeFi space.
The protocol’s Pythnet appchain (application blockchain) is a fork of Solana in which each publisher runs a validator on a Proof of Authority (PoA) network. Pythnet aggregates prices from all publishers, so each asset it lists has one reference price. These prices are then broadcast across blockchains through pre-existing cross-chain messaging protocols to on-chain contracts, allowing Pyth’s data to reach users on any number of networks. Furthermore, data is only transferred when users request (“pull”) it, which is more gas-efficient than other oracles that “push” data regardless of demand for it.
How is the PYTH token used?
PYTH is used for governance of the Pyth Network.
Community members can obtain PYTH tokens to participate in votes that direct Pyth’s development, like setting fees, guiding rewards for data publishers, approving updates, and defining how assets are listed on the network.
Token economics and distribution
There is a maximum total supply of 10 billion PYTH. The token was initially launched in November 2023 and saw 1.5 million PYTH entering the circulating supply, including an airdrop in which 90,000 wallets received 255 million PYTH. Tokens were set to be unlocked at 6- to 12-month intervals over the course of 3.5 years (ending in 2027), and of the total supply 52% were allocated to ecosystem growth, 22% to publisher rewards, 10% each to protocol development and private sales, and 6% directly to the community and through the initial launch.
Conclusion
- Pyth Network is an oracle that provides real-world pricing data for crypto and non-crypto assets to blockchain-based smart contracts.
- As it was founded and incubated by those with a background in traditional finance (TradFi), Pyth has close links to TradFi institutions and uses these links to supply its pricing data.
- Pythnet is a fork of Solana that allows “consumers” to pull data from “publishers” for a fee, creating an efficient data economy.