Pyth Network: The Connector of the Traditional Financial World in the Solana Ecosystem
Pyth has actually become a bridge connecting Crypto and traditional finance, and has helped many traditional institutions open the first door to the WEB3.0 world.Author: Deep Tide TechFlow
What are the most anticipated projects in 2022?
If I had to nominate, then without a doubt, the Solana ecosystem oracle Pyth Network is on the list: a mysterious and powerful team background; numerous top Wall Street financial institutions and large crypto organizations collaborating with Pyth to provide data sources…
In June, one of the largest market-making firms on the New York Stock Exchange, GTS, announced that it would collaborate with the decentralized oracle project Pyth Network to enter the decentralized finance space.
Institutional exchange LMAX Group announced it would provide forex and cryptocurrency trading data to Pyth Network.
Large high-frequency trading market maker Virtu Financial announced it would provide stock, forex, futures, and cryptocurrency market data to Pyth Network.
In July, the Bermuda Stock Exchange BSX announced it would provide real-time stock market data to Pyth Network.
The cryptocurrency derivatives exchange FTX announced it would provide cryptocurrency price data to Pyth Network.
In September, digital asset commercial bank Galaxy Digital announced it had signed a cooperation agreement with Pyth to provide on-chain trading data.
In November, quantitative trading technology company Tower Research Capital (TRC) announced a partnership with Pyth Network, with TRC providing real-time Bitcoin price data to Pyth.
In December, global digital asset financial services company JST Capital announced a partnership with Pyth to provide real-time institutional-grade cryptocurrency market data.
……
Why are large traditional financial and crypto institutions choosing to collaborate with Pyth? What are the differences between it and Chainlink?
What is Pyth?
Before understanding Pyth, you first need to know what an oracle is.
According to a previous definition by the People's Bank of China, an oracle is a mechanism that writes external information into the blockchain, functioning to bridge external information into the blockchain, completing the data communication between the blockchain and the real world. It allows deterministic smart contracts to react to the uncertain external world and is the only way for smart contracts to interact with external data, as well as the interface for data interaction between the blockchain and the real world.
In simple terms, an oracle is a bridge connecting the blockchain world and the real world, allowing the blockchain world to access real-world data.
Today, oracles have become an indispensable infrastructure in the crypto world, especially in the DeFi sector.
Lending protocols rely on price oracles to determine when to liquidate a user's loan. If a user's collateral falls below a certain threshold, that account can be liquidated.
Derivatives platforms use oracles to calculate the value of crypto assets, including options, futures, and synthetic assets.
Index platforms (like Set) use oracles to retrieve the prices of index components.
Without oracles, the crypto world would lack traffic lights and become chaotic.
Pyth Network aims to bring high-fidelity financial data (Hifi) into DeFi, delivering real-time real-world financial market data to solve DeFi's access issues to real-world data.
Pyth has outlined detailed goals:
Using Pyth data will make smart contract data more accurate.
Allow DeFi to fully access vast amounts of high-fidelity financial service data, enabling smart contracts to work more intelligently.
Connect market data from the world's largest professional traders and exchanges to any smart contract.
Obtain verified data from high-quality nodes at millisecond speeds.
Since the mainnet officially launched in August, a total of 37 Solana on-chain applications have integrated Pyth's oracle services, covering DEX, derivatives, DeFi lending, stablecoins, synthetic assets, ETFs, asset management platforms, infrastructure…
Star projects in the Solana ecosystem, such as jetprotocol, lifinity, and drift, all use Pyth for pricing.
What is the difference from Chainlink?
When talking about oracles, Chainlink is an unavoidable topic. What are the differences between Pyth and Chainlink?
Overall, Pyth adopts a design approach that is completely different from Chainlink, with the core difference being: who submits data on-chain?
In Chainlink's mechanism design, there are three roles: data demanders, oracle nodes, and data sources, with third-party nodes submitting data for aggregation, acting as intermediaries and also earning profits.
Pyth's mechanism eliminates third-party intermediaries, allowing data providers to directly place their data on-chain. This is the core difference and is what Pyth has always promoted as "Hi-fi for DeFi," enabling high-fidelity financial data to go directly on-chain.
Additionally, because there is no need to share revenue with nodes, it also enhances the profitability of subsequent data providers.
This difference also extends to the choice of blockchain. Chainlink's data aggregation can occur on-chain or off-chain. If it is on-chain aggregation, each oracle node must pay gas fees when submitting prices to the on-chain contract, while off-chain aggregation only submits one aggregated price on-chain, which is less costly.
However, Pyth chose Solana as its base, where the high TPS and low gas environment make it simple and direct for data providers to submit their prices on-chain for aggregation. Therefore, Pyth's feature also lies in on-chain aggregation.
Directly eliminating intermediaries and allowing data providers to price on-chain is not an easy task; besides technology, strong business development capabilities are also crucial, which is an advantage Pyth has compared to other oracles.
Data on stocks, bonds, futures, forex, and commodities is often held by a few large centralized institutions, such as large market makers like GTS on the New York Stock Exchange. Pyth's ability to collaborate with these large financial institutions to centrally process real-world financial data and directly aggregate it on-chain is Pyth's area of expertise and unique advantage.
Overall, compared to other oracle solutions, Pyth's features are reflected in:
Currently, 41 traditional financial institutions and top crypto institutions provide data sources for it, including one of the largest market-making firms on the New York Stock Exchange, GTS, and top derivatives crypto exchange FTX, with more partners continuously increasing.
Eliminating third-party intermediaries, allowing data sources to directly aggregate and provide data on-chain.
Team Background
Currently, the Pyth team has not publicly disclosed information about its project team members, maintaining an air of mystery. However, through GitHub code submissions, we can glimpse the builders behind Pyth:
Records show that the Jump Trading team members are currently the most important 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 Oxford University, involved in Pyth's coding work;
Evan Gray: Vice President of Engineering at Jump Trading, involved in Pyth's coding work;
Alex Davies: Head of Product Development at Jump Trading, one of the first 10 employees in Jump Trading's European division, also involved in Pyth's coding work.
Additionally, in the podcast "The Jump Off Point" released by Jump on April 7 this year, then-President and Chief Investment Officer Dave Olsen detailed the project, stating that it was incubated by Jump.
Who is Jump Trading?
Jump Trading has been referred to as one of Wall Street's most mysterious high-frequency trading firms, serving as a clearing unit for CME (Chicago Mercantile Exchange) and providing liquidity for Robinhood.
This year, Jump Trading is no longer low-key, announcing in September the launch of a new $350 million fund for equity and token investments related to crypto in areas such as DeFi, blockchain infrastructure, and Web 3.0.
However, Pyth is not solely managed by Jump; to support Pyth's development, the Pyth Data Association was established, headquartered in Switzerland, with members including heavyweight institutions from Wall Street, such as Jump, SBF's former employer Jane Street Capital, SIG, and market maker Virtu Financial.
As for Pyth's investment institutions, there has been no detailed disclosure, and Crunchbase is also not complete. Currently known investors include Jump Trading, Alameda Research, Sino Global Capital, Multicoin, GBV, and others.
Pyth Token
Given that Pyth has not yet issued a token, investors' focus often centers on whether a token will be launched, when it will be launched, and what the economic model will be.
From the information currently available, Pyth is likely to launch a token.
In a previous WSJ report, there was a statement that "companies like Virtu (market maker) are currently providing data to Pyth for free. However, this service may eventually transform into a model where companies are rewarded for their data—possibly a new Pyth token."
Therefore, to ensure that data providers are not "generating power with love" indefinitely, Pyth needs to issue a token for incentives and form a healthy economic model operating system, which also means that top Wall Street market makers like GTS and Virtu will hold Pyth tokens.
From this perspective, Pyth effectively becomes a bridge connecting crypto and traditional finance, helping many traditional institutions open the first door to the WEB3.0 world.
Although, after Pyth encountered issues on Solana and its pricing for Bitcoin dropped by 90%, severely deviating from the real market, it has faced criticism. However, from a developmental perspective, Pyth still represents a newer, stronger force; the crypto world needs incremental growth and to expand outward.
In 2022, Pyth is worth paying attention to.
