New images of DeFi oracles?An in-depth analysis of the Pyth Network

Basic Information

Token Name : PYTH

The Pyth network is an oracle network that allows users to access the prices of cryptocurrencies, real-world stocks, and more, and helps users understand the latest prices of various assets such as cryptocurrencies and stocks. The platform offers a special price indication service that not only tells you the current price of an investment, but also gives a so-called “confidence interval”, which is equivalent to a probability range of price accuracy.

This price and confidence interval is obtained by aggregating multiple data sources from various players in the market, such as exchanges or other financial institutions, who provide up-to-date and authentic market information. By aggregating data in this way, the Pyth network ensures that even if someone wants to mislead the market through false information or price manipulation on other platforms, it will be difficult to influence this aggregate price it offers. This is how it ensures price reliability.

Figure 1: Pyth AUD/USD price source (Pyth, n.d.)

The native token of Pyth will be PYTH and will be used to pay for update oracles. The price feed on Pyth will remain the same until someone pays for this update. This token will also be used to address the following issues:

• The size of the update fee
• Publisher Reward Distribution
• Approval of on-chain program updates
• How to list new price sources, including any reference data
• How to give publisher permissions

Competitors

**Chainlink | Price: $15.53 | Market Cap: $**893,252,853

Chainlink is a data-providing oracle that allows smart contracts to access real-world data. Its latest feature, the Cross-Chain Interoperability Protocol (CCIP), provides users with a single interface for multiple blockchains. LINK, Chainlink’s native token, is used for node staking.

Band | Price: $1.46 | Market Cap: $199,256,414

The Band protocol is also a data-providing oracle. Like Chainlink, it can fetch real-world data, but it can also connect APIs directly to smart contracts. Its native token BAND, which is also used for node staking.

Token Economic Model

Figure 2: Diagram of the proportional process of PYTH release (Pyth Network, 2023)

The total release period is approximately 42 months. That’s quite a long time. It should also be noted that in May 2024, around the time of the next BTC halving, a significant portion of the tokens will be released. In addition, all rewards will be released at the same rate and time, except for the community and launch.

Judging from the information released by them, a significant portion of the Token will be allocated to the ecosystem, and the specific proportions are as follows:

Figure 3: PYTH Token Distribution Table (Pyth Network, 2023)

Investors

Top 5 investors (13 investors in total):

• CMT Digital
• Everstake Capital
• IMC Trading
• Jump Crypto
• Kucoin Labs

Notably, PYTH also received a grant of 40,000 OP from the OP Foundation.

Bullish Fundamentals

1. Advantages of Data Aggregation: The Pyth network provides price information by integrating data from multiple sources, which makes it particularly strong against the competition. Data providers on other platforms may have different pricing information due to delays or inaccuracies in data transmission. By consolidating this data, Pyth effectively reduces this inaccuracy.
2. Increase market transparency: The Pyth network can be a very valuable tool for the cryptocurrency market as it increases the transparency of the market. The increased transparency of the market will attract investors who may otherwise be unfamiliar or inaccessible to cryptocurrencies.
3. User’s willingness to pay: At the moment, it seems clear that users are willing to pay for newer, higher-quality data. This shows that the services provided by the Pyth network are valuable to users. However, there are also some uncertainties about whether users are willing to pay (e.g., the problem mentioned in Bearish Fundamentals).

Figure 4: Number of data updates in the last month (@cctdaniel, n.d.)

Figure 5: Number of user interactions in the last month (@cctdaniel, n.d.)

4. Platforms that work with Pyth Network:
   • Vela Exchange
   • Unidex *Hmx
   • Synthetix

These are the data providers of the Pyth network. Each platform provides data within its specific domain, which is used by the Pyth protocol to create more comprehensive and accurate market price information. By partnering with these platforms, the Pyth protocol is able to capture market dynamics from multiple angles, providing users with richer data and information.

Bearish Fundamental Factors

1. Saturation of the data-provided market: The data-providing market is already very saturated, and the Pyth network can only provide price information, which makes the amount of data it may provide much lower than its competitors. While Pyth may make it a little more prominent by offering confidence intervals, other data providers are more than capable of adding this feature.

2. Risk of providing malicious data: Pyth mainly uses data aggregators to prevent publishers from providing malicious data. (Licensed publishers can upload data for free). However, in order for its price oracle to run smoothly, the following conditions need to be met:

   • Requires a significant number of publishers.
   • Multiple attacks cannot occur at the same time (if they do, more publishers will be needed to mitigate their impact).
   • In the past week, there were only 39 active publishers. At present, it seems that this mechanism needs more participants to join in order to have greater security.

3. Pyth’s Fee Structure:

Pyth’s payout structure follows the “volunteer dilemma” model in game theory:

Comments:

• i describes the situation in which an individual benefits from having information
• l Describes the loss suffered by an individual as a result of possession of the information
• p describes the costs associated with updating the information

From this point of view, only when nodes cooperate with each other and jointly publish accurate data, each data update node can get the maximum token reward.

Think of the table above as a matrix, if a user needs to pay individually to update the information, and only has access to that information after the payment, they may actually be more inclined to pay (leaving only two cases, (2,1) and (2,2)). However, due to the potential for prostitution (getting information without paying), users may actually be very reluctant to pay, or at least wait for the information to be updated. For example, if David wants to invest in ETH Fang (ETH), he may choose to wait a day to see if there are any updates, rather than updating immediately. Not only did this lead to a decrease in revenue, but it also led to a lag in website updates, and prices were not updated regularly. The study found that a model like this would require a lot of decentralized application (dApp) integration, or any type of smart contract integration, where the smart contract requests a price on a regular basis. This means that there is no thought process involved in waiting/getting price information for free.

This section highlights the issues that the Pyth network may face in terms of its payment and incentive mechanisms. Since users may wait for others to pay for updates in order to get free information, this may lead to website updates that are not timely enough, affecting the efficiency and profitability of the Pyth network. This suggests that Pyth may need to consider more effective incentives and integration strategies to facilitate more frequent and timely data updates.

Citation Source

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