How Pyth Is Changing the Oracle Game w/ Jayant Krishnamurthy
Sep 19, 2023
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Jayant Krishnamurthy, Co-founder of Duoro Labs, discusses how Pyth is revolutionizing blockchain oracles by addressing challenges and expanding to over 30 blockchains. They explore the PITH Network, optimizing multi-chain protocols with miracle trees, the evolution of DeFi, bridging limitations, and the challenges and design space for oracles. They also discuss operating Pith in a bear market and compare Solana and Ethereum ecosystems.
Pyth is a first-party oracle that addresses the limitations of existing oracles by using a network of over 80 data providers to report data directly to the blockchain, ensuring access to real-time and reliable information.
Data providers are incentivized to participate in Pyth because they have a stake in the network and can monetize their proprietary data, which allows them to enter the crypto space and gain exposure to the decentralized finance sector.
Pyth's pull model and provision of confidence intervals enhance the performance, reliability, and security of its oracle solution by reducing costs, providing uncertainty measures, and enabling informed decision-making by downstream protocols.
Deep dives
The Importance of Oracles in Blockchain
Oracles are essential in bringing real-world data onto the blockchain, as blockchains by default cannot access external data. Pith is a first-party oracle that addresses the limitations of existing oracles. Unlike traditional oracles that scrape data from the web, Pith has a network of over 80 data providers, including major financial firms. These data providers report the data directly to the blockchain, ensuring access to valuable and real-time data. Pith uses a blended source approach, taking prices from various data providers and combining them using a robust algorithm. This design ensures no single data provider can manipulate the price and provides reliable and accurate data for blockchain applications.
Incentives for Data Providers in Pith
Pith's unique incentive structure brings together data providers who are typically competitors in the financial industry. Data providers participate in the Pith network because they have a stake in it and own a piece of the network. Additionally, these firms have proprietary data that they are not monetizing and see Pith as an opportunity to generate revenue from that data. By collaborating with Pith, these firms can enter the crypto space and gain exposure to the growing decentralized finance sector. The combination of ownership in the network and newfound monetization opportunities make it attractive for data providers to participate in Pith.
The Pull Model and Confidence Intervals in Pith
Pith operates on a pull model, where data payloads are generated off-chain and then retrieved and verified on-chain by users or protocols that need the data. Unlike push model oracles that continuously update prices on-chain, Pith's pull model is more efficient and reduces costs. Pith also provides confidence intervals along with price data, which reflects the uncertainty and accuracy of the data. Downstream protocols can use these confidence intervals to make informed decisions and manage risk. The combination of the pull model and confidence intervals enhances the performance, reliability, and security of Pith's oracle solution.
Building PithNet and Expanding to Multiple Blockchains
Pith initially launched on the Solana blockchain, which optimized for low latency and high transaction throughput. However, recognizing the need to provide price data to various blockchains, Pith developed PithNet, a separate Solana-based network for aggregating and delivering prices to other chains. PithNet simplifies the process of extending to other chains and allows for scalability in terms of the number of data feeds. By utilizing Solana's technology and architectural advantages, Pith achieves high frequency and low latency updates on multiple blockchains, catering to the needs of DeFi protocols and other applications.
The Business Model and Future Sustainability of Pith
Pith has a monetization model in place, where users pay a small fee when they put a price payload on the blockchain. The fees can be adjusted by Pith's governing body in the future. This monetization model ensures sustainability and enables Pith to collect revenue as usage grows. Comparing to traditional finance markets, where market data fees make up a significant portion of exchange revenue, Pith anticipates a similar revenue model. However, with the dynamic nature of the market, the specific fee structure and revenue distribution for oracles may evolve over time.
Oracles are an essential part of how real-world data gets integrated into DeFi smart contracts, but historically, that process has been fraught with challenges. In this episode, Jayant Krishnamurthy (Duoro Labs) explains how Pyth is addressing these challenges and redefining how a blockchain oracle can work. Originally built on Solana’s L1, Pyth is a low-latency, high-frequency oracle that has expanded beyond the Solana ecosystem and now provides data feeds for over 30 blockchains. The way it does this is through Pythnet – the first network to deploy the Solana codebase for an application specific blockchain.
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