Exploring Pyth Network: The Unrivaled Giant of Price Oracles
Table of contents
- What are Oracles in Web3?
- What are the Types of Oracles?
- What are Price Oracles?
- The issue with Price Oracles
- Properties of Good Price Oracles
- Examples of Price Oracle Platforms
- The Pyth Network
- Characteristics of the Pyth Network
- About Pyth Network's Future
What are Oracles in Web3?
In simple words, oracles act as a bridge between blockchain smart contracts and real-world data. They bring external data from off-chain sources to the blockchain. By this, oracles enable smart contracts to use that information.
This information can be of any kind; it could be the price of an item, the results of a poll or even the forecast of weather. Oracles can also supply information from one on-chain protocol to another, or from a blockchain to an external source.
Oracles are known for their diverse functionalities in the blockchain Industry.
What are the Types of Oracles?
Oracles vary based on what they do. Their names explain their functions. Some popular Oracles include:
Cross-chain Oracles gather and help move data between different blockchains. The Band Protocol and DIA Oracle platforms are well-known examples. Cross-chain Oracles aid interoperability between blockchains. Popular protocols like Boba and CELO now use Cross-chain Oracles.
Compute-enabled Oracles use off-chain computation to solve problems that would have been tough if they were to be resolved on-chain. Compute-enabled Oracles transfer the result of their off-chain computation into the blockchain. Examples of protocols that use compute-enabled oracles are Mina Protocol and Immutable X.
One unique functionality of Oracles that is popular among cryptocurrency users and Blockchain developers is the Supply of Price.
What are Price Oracles?
A Price Oracle is a specific kind of oracle that supplies price to blockchain applications.
These applications include but are not limited to decentralized exchanges, lending protocols, derivatives platforms, and even betting applications.
Price Oracles supply all kinds of price-related data, and cover prices of cryptocurrencies, commodities, stock derivatives or even index futures.
Price Oracles are a very important facet of the blockchain Industry. This becomes clearer when you realize that almost everything a trader does with cryptocurrencies is related to price.
The average blockchain participant uses or trades cryptocurrencies, and price is the most important element of his trading path. Arbitrageurs, derivatives traders, spot speculators, and even developers of blockchain applications are all very conscious and aware of the implications of getting the right supply of price.
The issue with Price Oracles
If you have been in the Web3 space for some time, you would know that several attacks come from Oracles' price manipulation.
This makes the right supply of price to become extremely important.
Price Oracles are a constant point of exploitation for bad actors in the space. The MANGO exploits and Harvest Finance exploits have proven this.
Properties of Good Price Oracles
Reliable Price Oracles have two major characteristics:
A diverse range for collecting and accepting prices, and
An absence of time latency.
Having a diverse range for collecting and aggregating prices (both on-chain and off-chain), before relaying them to a protocol ensures that:
The price is not easily manipulated.
The protocol is getting the very best of prices.
Time latency has been suggested in the past as a way to ensure that the price of a commodity being relayed on-chain is the right price and not a manipulated figure.
This, however, is a dangerous way to deal with the volatility that is associated with cryptocurrencies and their related products.
Therefore, it is pertinent that a protocol that is price-oriented or offers any kind of financial services has an oracle that can deliver up-to-second prices which is also universally correct.
Examples of Price Oracle Platforms
Many Protocols that offer financial services have their price Oracles. Each uniswap upgrade (V2, V3) has price oracle tools that developers can easily work with to supply prices of various crypto products to their protocols.
Coinbase offers a Price Oracle API that allows anyone to get signed price data for Bitcoin and Ethereum. This API provides per-minute updates, straight from the market that Coinbase provides.
There also exists a plethora of protocols that are solely Price Oracles. These Oracles feed platforms with aggregated asset prices that are collected from different sources in the Industry. These protocols are preferred by several platforms because they are more accurate and provide the best data in terms of price.
Price Oracle platforms like Band Protocol, Nest Protocol, DIA, and Pyth Network have been integrated with more than 300 protocols in the Industry.
Our focus is the Pyth Network.
Let's explore the different facets of this Price Oracle that has become the absolute giant of price oracles.
The Pyth Network
Pyth Network is one of the most in-demand price Oracles amongst blockchains and Decentralized Finance(DeFi) applications at the moment. It stands out from all other price oracles with the architectural structure of its oracle and its meteoritic growth.
Pyth Network is a cross-chain price oracle platform that delivers market data and up-to-date asset prices to both on-chain and off-chain protocols transparently and reliably. It collects data from more than 80 price providers and distributes them to more than 22 blockchains and several crypto applications.
Pyth network works by collecting data directly from data providers (first party only). This data is published on pythnet, a private blockchain owned by Pyth.
The aggregator program then aggregates the price of a specific asset that the data providers issued to Pythnet. Data collectors (Decentralized applications and any interested user) can request these data in a ‘pull model’. Aggregated asset prices can be pulled by interested user(s) on demand.
Data providers are incentivized to provide data (asset prices) with a confidence interval value (a metric that allows minor flexibility in prices being updated). These incentives are mostly in the form of PGAS, a token that is controlled by the Pyth Data Association. Data providers are also required to participate in staking to discourage bad actors from acting as data providers.
Pyth Benchmarks are a core feature of Pyth that allows users to retrieve historical prices from Pyth’s price feeds. Recently implemented by Thalesmarket, Benchmarks are useful for resolving market prices on financial products that might have expired in the past.
Characteristics of the Pyth Network
Generally, Pyth Network is characterized by
● Low latency
Pyth takes pride in how fast it is in delivering prices to its users. Prices are delivered at the rate of 400ms, a speed that is envious in the crypto space. It is also worth noting that these prices are continually updated and supplied at this rate, creating one of the lowest latency rates of any decentralized price Oracle available.
● Multiple Providers
Pyth also takes pride in having first-party providers (these parties create and own the data they provide) that supply prices to Pythnet.
Many of these providers (e.g. Coinbase) provide asset prices to Oracles through Interfaces that get the prices directly from the demand and supply of each asset on the provider’s platform.
This makes these data more authentic, and less prone to third-party manipulation. Pyth gets its price feeds from more than 80 publishers, including big names like the Chicago Board Options Exchange.
● Multiple Price Feeds
More than 300 asset prices are updated and made available through price feeds for pyth users to access.
Price feeds can be viewed on the pyth network website. They are available across more than 30 different blockchains. This is a feat that only Pyth has achieved among all price oracles available for DeFi applications.
Also, these prices are not just crypto assets. They are almost all financial products that are globally available to traders that have price feeds on the Pyth network.
Pyth network is very transparent with its price sources. With Pyth’s architectural design, it is possible to view prices published by each data provider along with the confidence intervals they provided. With this, consumers of these prices can trust the data and act on it.
About Pyth Network's Future
Pyth network’s future does not leave much room for guesswork at the moment. With more than 340 price feeds across more than 30 blockchains and several first-party providers, it is safe to say that even now, Pyth is the unrivaled giant of price oracles.
Launched in 2021 and facilitating more than 100 billion dollars in transactions across blockchains, it is not far-fetched to see that even multipurpose oracles like Chainlink have some catching up to do.
Each day, there is a new application that integrates the Pyth network as a consumer of its prices. The list of first-party providers also keeps growing across different financial products.
Pyth network is redefining how price oracles work, and making price feeds available to every kind of user, irrespective of their technical know-how.
Getting involved with the Pyth network is easy; the first step would be to join the Pyth community. Pyth has a welcoming community that's excited to include Web3 and DeFi enthusiasts of all kinds.
Whether you're a developer, researcher, or contributor in the DeFi/dApp space, there's a friendly platform with the right support to help you get involved and build. The Pyth team is always there to assist, valuing their community a lot. Jump into Pyth's Discord and Telegram groups and make sure to bring some good vibes with you!
As a consumer or even a cryptocurrency speculator, you can learn more about Pyth and get involved with the network by visiting the website at Pyth.network
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