Pyth Network

Pyth's Pull core mechanism meets the rapid development needs of the current blockchain, especially DeFi.

Author: Dapengtongfengqi

Chapter 1 Project Overview

1.1 Project Introduction

Pyth Network is a new generation oracle project, mainly based on the Pyth Network's proprietary chain on the Solana public chain. The core mechanism is the Pull Price Update Model (the traditional oracle's working mechanism is the push oracle model). It updates only when customers need it. Compared to traditional oracles, Pyth has significant advantages in terms of speed (high update speed of 300-400ms), asset coverage (supports real-time price feed services from over 90 suppliers, 50+ blockchains, 144 service networks, and 162 protocols, second only to Chainlink), and accuracy (high fidelity).

In the token economic model, there are token incentives for data providers (22%) and ecosystem development contributors (52%), effectively encouraging data providers to participate in data provision and ecosystem development contributors to participate in applications.

Therefore, Pyth is rapidly developing, protecting $5.5 billion in funds across more than 50 blockchains (second only to Chainlink). In February 2024, Pyth's oracle trading volume averaged 20% of the total Solana trading volume, and Pyth data providers on Solana paid $225,000 in fees in February 2024. On May 6, 2024, Pyth Data's cumulative trading volume reached $2 billion.

Pyth is very likely to become one of the top two oracles, competing with Chainlink for the leading position.

1.2 Investment Logic

Oracles are essential infrastructure for the development of blockchain. With the vigorous development of blockchain, especially DeFi, the shortcomings of the traditional push model of oracles, such as long time, high cost, and single data (only free internet public resources), have become very apparent. The emergence of Pyth's Pull model perfectly solves these problems, further supporting the rapid development of blockchain, especially the rapid growth of the decentralized finance (DeFi) market. DeFi has enormous development potential, and its total locked value (TVL) may reach trillions of dollars.

Compared to the leading oracle, Chainlink, Pyth is still in the early stage of rapid development. However, it has already firmly ranked second in terms of the number of service networks and protocols, second only to Chainlink, demonstrating its wide applicability and influence, with enormous potential for the future. It has four times the growth potential compared to Chainlink.

In addition, most of Pyth's founding team members are from Jump Trading, with rich experience in the development and operation of blockchain projects.

1.3 Investment Risks

As a decentralized oracle network, Pyth Network, despite its excellent performance in providing high-precision market data, also faces some potential risks. Here are some of the main risks:

1. Data Accuracy and Reliability
2. Decentralization Risk
3. Smart Contract Vulnerabilities
4. Market Competition
5. Regulatory and Compliance Risks

Chapter 2 Technical, Business Development, and Competitive Analysis

2.1 Technology

Pyth Network is a new generation oracle project, initially based on the Solana public chain, and later transferred to its proprietary chain on the Solana public chain.

Pyth consists of three core parts: data providers (mainly exchanges), Pyth Oracle protocol (aggregation algorithm, designed to aggregate data from different providers to create a unified price and confidence interval for each price source every 400 milliseconds), and data users (i.e., end users, such as applications on blockchains supported by Pyth, which read aggregated price sources and seamlessly integrate data into their smart contract logic).

The core mechanism of Pyth, the Pull Price Update Model, has significant advantages in speed, asset coverage, and accuracy compared to traditional oracles:

1. Speed: High update frequency of 300-400ms, compared to several minutes to hours for traditional oracles (even for the leading oracle, Chainlink); low latency due to off-chain price updates.
2. Broad asset coverage: The Pyth protocol can expand to thousands of price feed data, supporting over 90 real-time price feed services from various data providers, including traditional financial institutions, crypto markets, forex, and commodities. This is attributed to Solana's advantages in high throughput and ultra-low-cost transactions. In terms of the number of service networks served, Pyth ranks second, serving 144 networks, second only to Chainlink's 353.
3. Accuracy (high fidelity): Pyth obtains accurate, first-hand prices from traditional and decentralized financial data creators. One key advantage of Pyth's focus on first-hand data is price accuracy. Pyth collaborates with and supports over 40 top institutions in traditional finance and crypto markets, such as Bloomberg, Hong Kong Stock Exchange, Nasdaq, Jump Trading, Virtu Financial, GTS, and Solana.

The working principle of Pyth's Pull Price Update Model is as follows:

[Image of Pyth's Pull Price Update Model]

Most oracles typically use two models, push or pull, to solve problems. Most oracles use a third-party push model, where oracle nodes obtain data from first-hand sources (i.e., exchanges) or second-hand sources (i.e., data aggregators such as CoinGecko and Kaiko). For example, Chainlink's main price source oracle nodes obtain data from second-hand sources.

Push model oracles push price updates to individual blockchains at set intervals, incurring gas fees for each on-chain update. Adding price sources or reducing on-chain update latency will increase costs for the oracle network, hindering its scalability. In addition, obtaining data requires multiple trust assumptions: the primary source is correct and stable, the secondary source is correct and stable, and the oracle network is stable.

It is precisely because of the many drawbacks of the push model that Pyth Network has proposed the pull model. On the one hand, through its network of first-hand data providers, it solves the two trust assumptions of third-party data reliability. First-hand data is directly provided by exchanges, market makers, and DeFi protocols within the network (such as Jane Street, Binance, and Raydium). These data providers are incentivized with tokens (which will be explained in the token economic model) to act honestly and provide strong and accurate data to maintain a good reputation and avoid being banned by the protocols.

On the other hand, the pull model shifts the cost to the ultimate data users to reduce the overall network cost, where price sources are updated based on demand rather than at set intervals. When data users initiate price updates, the updates are pulled into the same DeFi transactions on-chain (e.g., asset swaps, perpetual settlement, etc.). Pyth redirects these costs and efficiently expands the suite, as demonstrated by its frequent updates of 451 price sources.

Pyth Network is not limited to a specific blockchain and has actively received real-time market data from Pyth to power its DeFi ecosystem on over 45 blockchains. After more than 400 data sources complete price publishing and data aggregation on Pythnet (Pyth's application chain), price updates are transmitted across chains through Wormhole, extending asset price data to dozens of blockchains.

2.2 Business Development

Pyth's business development is also very rapid, currently securing over $55 billion in asset value and supporting cryptocurrency, stocks, forex pairs, ETFs, and commodity price information on over 50 blockchains and 162 protocols.

Pyth's oracle protects 95% of the value on blockchains. As of January 2024, Pyth also protects over 90% of the value on 9 other blockchains and over 50% of the value on 16 other blockchains.

In February 2024, Pyth's oracle trading volume averaged 20% of the total Solana trading volume; at the same time, Pyth data providers on Solana paid $225,000 in fees in February 2024.

On May 6, 2024, Pyth Network announced that the cumulative trading volume of Pyth Data reached $2 billion on X platform.

With continuous support for many blockchains, many projects have adopted Pyth's oracle network. Here are some well-known projects:

Synthetix

Synthetix is a decentralized liquidity protocol that can create synthetic assets, called Synths, which track the value of cryptocurrencies and real assets (such as currencies, commodities, and stocks). Synthetix allows users to invest in various assets without actually holding them, broadening investment opportunities and enhancing liquidity in the cryptocurrency market. A key component of Synthetix's functionality is its integration with the Pyth network oracle, which provides high-fidelity, real-time price sources crucial for maintaining the accuracy of Synths' value.

Helium

Helium is a decentralized Internet of Things (IoT) network that incentivizes participants to deploy wireless devices to provide coverage for the network through a token-based incentive system. Helium uses the Pyth network oracle to provide accurate on-chain market prices for its native token, HNT. These prices are crucial for a range of network activities, including converting burned HNT into Data Credits (DC) and accurately measuring fund allocation. While Helium is not DeFi, the use of the Pyth oracle in Helium's decentralized connectivity platform highlights the importance of accurate data in managing protocol economics, even outside the traditional DeFi space.

Eclipse

Eclipse recently raised $50 million in a Series A funding round to launch the first second-layer blockchain using Solana Virtual Machine (SVM) for execution and Celestia for data availability, while using Ethereum as a settlement layer for security. The launch of Eclipse will attract liquidity from Ethereum users and guide them into decentralized applications on the second-layer Solana. As a leading oracle on Solana, Pyth will support many suites for applications launched on Eclipse.

2.3 Competitive Analysis

2.3.1 Market Position

Pyth Network is currently considered the fourth-largest oracle project, with a total locked value (TVL) of $21.12 billion, second only to Chainlink, WINkLink, and Chronicle.

In terms of the number of service networks, Pyth ranks second, serving 144 networks, second only to Chainlink's 353.

CertiK gave Pyth a security score of 87.53, placing it in the top 10% of the protocols they surveyed.

2.3.2 Competitive Analysis

The oracle field is a fiercely competitive industry dominated by Chainlink. Due to the lack of transparency in how oracle nodes obtain data, critics have referred to Chainlink as a "black box." Data sources are not identified on-chain or on Chainlink's oracle node website. In contrast, by copying the transaction hash from Pyth's price information page to any Solana block explorer, every data point on the Pyth network can be traced back to the public keys of individual providers. While data on Chainlink can also be traced back to Chainlink oracle nodes, Pyth's data providers are first-hand sources. Unlike Chainlink's data, Pyth's disclosed data comes from internal operations of exchanges, trading firms, market makers, and others. However, the public keys of the providers are not publicly associated with their identities, adding an additional layer of trust network for Pyth to manage its providers, initially composed of licensed providers.

Pyth focuses on traditional financial and cryptocurrency price information, while Chainlink has a variety of products, including Cross-Chain Interoperability Protocol (CCIP), Reserve Proof Information Sources, and developer tools (VRF, API features, and automation services) and its market data sources. Therefore, Pyth's main product challenges Chainlink's leading market data feed product, although Pyth also provides a random number generator through Pyth Entropy.

In terms of applications:

Pyth protects $55 billion in assets through 162 protocols on over 50 blockchains.

Chainlink protects $387 billion in assets through 371 protocols on 19 blockchains.

Both systems have their own advantages and disadvantages in terms of market data information flow. Pyth's model is more suitable for expanding the quantity of price information flow while maintaining a high update frequency. However, Pyth's ability to maintain high-fidelity data depends on the assumption that the cost of reputation and consensus exceeds any potential benefit of malicious behavior to the providers. Its network stability depends on the normal operation of Wormhole. In contrast, Chainlink's model has lower trust in the original data sources and the relationship between the oracle network and the supported blockchains, as it obtains data from secondary aggregation sources and publishes directly to the target chain. However, expanding data information flow and covering a wider range of blockchains requires higher costs. Therefore, as the cryptocurrency market continues to grow, new protocols need to consider and balance the cost and risk when implementing different oracle price information flows.

Chapter 3 Team and Financing Situation

3.1 Team Situation

The startup company is Douro Labs, with core members including:

CEO: Michael Cahill, who previously worked on special projects at Jump Crypto.

COO: Ciaran Cronin, who previously worked at Jump Trading. He holds a Master's degree in Financial Economics from Cork University College.

Chapter 3 Team and Financing Situation

3.1 Team Situation

CTO: Jayant Krishnamurthy, Chief Technology Officer of Douro Labs, the development company behind Pyth, and a software engineer at Jump Trading. He holds a Ph.D. in Computer Science from Carnegie Mellon University.

CIO: Harnaik Kalirai, former Chief Integration Officer at Jump Trading, with years of experience in system integration and operations. He graduated from the University of Bedfordshire in the UK.

In addition, it is understood that, in addition to the above core executives, members of the Jump Trading team are also the most important code contributors to Pyth:

• Jeff Schroeder: Technical Director at Jump Trading, primarily responsible for Pyth's core code.
• Samir Islam: Technical Director at Jump Trading, holds a Master's degree in Computer Science from the University of Oxford, and has been involved in Pyth's code work.
• Evan Gray: Vice President of Engineering at Jump Trading, involved in Pyth's code work.
• Alex Davies: Product Development Director at Jump Trading, one of the early 10 employees at Jump Trading's European branch, also involved in Pyth's code work.

3.2 Financing Situation

According to Rootdata, Pyth has received investments from institutions such as Delphi Digital, Ailliance Dao, GBV Capital, Republic Capital, HTX Venture, KuCoin Labs, and Ryze Labs, with a current market value exceeding $5 billion. It is noteworthy that PYTH also received a grant of 40,000 OP from the OP Foundation.

To support Pyth's development, the Pyth Data Association, headquartered in Switzerland, was established. Its members include heavyweight institutions on Wall Street, such as Jump, SBF's former employer Jane Street Capital, SIG, and market maker Virtu Financial.

Chapter 4 Token Economy

4.1 Token Total Supply and Allocation

The maximum supply of PYTH tokens is 10 billion, with an initial circulation of 1.5 billion (15%). The remaining 85% of PYTH tokens were initially locked and will be unlocked 6, 18, 30, and 42 months after the initial token issuance. The specific allocation is as follows:

• Issuer Incentives: 22% of the total supply, allocated 2.2 billion PYTH to Pyth Network's data providers.
• Ecosystem Development: 52% of the total supply, allocated 5.2 billion PYTH to support contributors to Pyth Network, including developers, educators, and researchers.
• Protocol Development: 10% of the total supply, allocated 1 billion PYTH to core contributors focused on building oracle tools, products, and infrastructure.
• Community and Launch: 6% of the total supply, allocated 600 million PYTH for early-stage activities and initiatives, with these tokens fully unlocked on the first day.
• Strategic Contributors (Private Placement): 10% of the total supply, representing 1 billion PYTH allocated to strategic contributors, with these tokens fully locked and unlocked according to the above schedule.

4.2 Token Unlock Schedule

On May 20, 2024, 21.25% of the allocation will be unlocked, with strategic contributors unlocking 250 million PYTH, protocol development unlocking 212 million PYTH, ecosystem development unlocking 1.12 billion PYTH, and issuer data providers unlocking 537 million PYTH.

The same percentages will be unlocked on May 20, 2025, 2026, and 2027.

4.3 Token Governance Model

The PYTH token is an SPL token on Solana, equivalent to ERC-20 on Ethereum, with its core function being governance. PYTH holders can guide protocol development by staking assets and voting to support Pyth Improvement Proposals (PIPs). The governance covers typical topics that can be modified, including on-chain software updates, reward structures for data providers, rules for creating licensed providers, and the existence of fees for oracle updates. The Pyth DAO consists of the Pythian Council and the Price Feed Committee, both of which hold elections every six months to rotate committee members. This system ensures active participation and alignment with Pyth's goals.

Chapter 5 Target Valuation

Currently, Pyth's circulating market value is $643.43 million, and its Fully Diluted Valuation (FDV) is $4.29 billion. In comparison, Chainlink's circulating market value is $9.71 billion, and its FDV is $16.54 billion.

Although Pyth ranks fourth, behind Chainlink, WINkLink, and Chronicle, it is the only decentralized pull-mode oracle model among them. It supports over 50 blockchains, far exceeding Chainlink's 19, and has rapidly grown to serve 144 protocols, second only to Chainlink. With the rapid growth of the decentralized finance (DeFi) market, Pyth's potential for development is significant, and there is a great hope for it to become one of the top two oracle projects in the future.

Therefore, based on half of Chainlink's total market value and considering the current bull market, Pyth is given a valuation space four times that of Chainlink. With the current price at $0.4253, the target price is expected to reach 1.7, and it is recommended to sell above 1.7.

Chapter 6 Price Trend and Market Heat

6.1 Price Trend

The overall trend of Pyth's price is upward, reaching a peak of over 1.15 in early March, followed by a retracement to 0.4 due to the overall market impact. With the reopening of the bull market, the price is expected to resume its upward path.

6.2 Market Heat

The market's attention to Pyth has been very positive. Despite the price retracement due to the overall market correction, the market and Key Opinion Leaders (KOL) have maintained a positive focus on Pyth. There has been a noticeable increase in KOL's attention to Pyth recently, indicating the technical advantages and future prospects of Pyth.

Chapter 7 Conclusion

In conclusion, Pyth's pull-core mechanism meets the rapid development needs of the current blockchain, especially in DeFi. Its high speed, broad asset coverage, and high fidelity are essential for the vibrant development of the blockchain. While Pyth is still in the early stages of development, it has grown to be second only to Chainlink in terms of supported blockchains, service networks, and protocol numbers. With its potential for growth, Pyth is expected to have a bright future.

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