Sitting at the Agora—not the ancient Greek public space, but at a side event for Pyth Network during ETHcc annual conference in Brussels—I’m trying to grasp how they aim to shift control over MEV from validators and block producers to the protocol itself.
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Inspired by Greek mythology, Pyth.Network serves as the oracle for DeFi applications. The company is named after Pythia, also known as the Oracle of Delphi, who was a high priestess in ancient Greece. Renowned for her prophecies, Pythia would enter a trance-like state, often induced by natural gases rising from a chasm beneath the temple.
Pyth, the 2.0 version of the oracle, doesn’t rely on extraordinary powers to predict the prices of cryptocurrencies. It has 107 first-party data providers, and the protocol aggregates the data providers’ inputs to produce a single aggregate price and confidence interval every 400ms for each price feed.
With high-fidelity financial markets as their focus, Pyth.Network bridges the gap between traditional finance and the rapidly growing world of decentralized finance. Any DeFi app needs to know the price of an asset and this is where Pyth.Network comes in.
In this interview, we chatted with Marc Tillement, Director of Pyth Data Association, to learn more about their project and the future of Oracle services in the DeFi space.
Accurate On-Chain Price Updates
Having accurate data is crucial for any financial market, and this is especially true in the world of DeFi. As decentralized applications continue to grow in popularity, the need for accurate and reliable data becomes more apparent. Whether it be for price feeds, market data, or other financial metrics, having access to real-time information is essential. Failure to do so could result in inaccurate valuations and potential financial losses for users.
Pyth.Network addresses this issue by providing on-chain price updates from high-quality data sources, by utilizing a decentralized network of validators. They ensures that the data being reported is accurate and tamper-proof.
A centralized approach creates a temptation for manipulation, which goes against the core principles of DeFi. With Pyth.Network, users can have confidence in the data they are using for their financial decisions.
“Benchmarks are able to fetch any historical date and price.”
Markc Tillement
Whether the data is intentionally or accidentally erroneous, it could significantly impact the DeFi ecosystem. This is where Pyth.Network’s ability to fetch historical data becomes invaluable. By providing access to accurate historical pricing, users can analyze data and make informed decisions without the risk of relying on incorrect or manipulated information.
“How do we not have wrong data? By having lots of publishes, up to 60 per price feed for BTC alone,” explains Marc. Additionally, with algorithms that detect outliers, Pyth.Network can quickly identify and discard inaccurate data as they have multiple first party data providers and are taking the average.
This helps maintain the integrity of the reported data, providing users with a reliable source for their financial analysis. But what if a group of publishers got together and fed wrong data to skew the average? This is where Pyth.Network’s wormhole feature comes into play.
Marc Tillement, Director of Pyth Data Association, EthCC Brussels 2024
The wormhole feature allows for a messaging protocol that can send data from any chain. As soon as incorrect data is detected, the wormhole feature can be used to quickly switch to a different source for that specific data point. This cross-chain communication ensures that even if one source is compromised, the data can still be obtained accurately from another source.
The Pyth DAO
To be a part of the Pyth DAO, a user would need to stake $PYTH token. This DAO is responsible for maintaining the network, such as adding new publishers and monitoring data accuracy. The staked tokens act as a form of collateral to ensure that the DAO has a vested interest in ensuring the integrity of the network.
Economically, an attacker would have to be insanely well-capitalized to manipulate the network. However, they are also disincentivized as they would potentially ruin a well-working system. With high staking requirements, it becomes financially unfeasible for an attacker to invest in enough tokens to significantly impact the network’s accuracy.
Pyth started with price feeds, but it can technically create any new protocol. Potential future protocols could include data feeds for weather, sports scores, or even real-time traffic information, just to name a few. That’s because the Pyth DAO constitution states all the power that the DAO has, including the ability to create new protocols.
EthCC Brussels, 2024
MEV and OEV
Every time Aave or any other similar platform that needs to liquidate collateralized assets, it goes through a price feed. As more and more DeFi platforms emerge, the use of these data feeds will only increase. With that comes the issue of MEV (Maximum Extractable Value), where miners can manipulate prices to their advantage when reordering transactions on the blockchain.
Pyth Network introduced Express Relay to ensure MEV is shared with the protocols, allowing them to distribute the value to fairly.
Express Relay operates by linking DeFi protocols with a network of searchers through protocol-controlled auctions for valuable transactions, such as liquidations. According to a statement shared with Blockster, this system claims to eliminate MEV (Miner Extractable Value), significantly reducing the cost of critical operations like liquidation rewards—the discount offered to searchers for liquidating underwater positions. Searchers, specialized actors who identify and exploit MEV opportunities, include Flow Traders, Wintermute, Auros, Flowdesk, Caladan, Tokka Labs, and Swaap Finance, as noted by the Pyth Network.
“Express Relay is a natural progression from Pyth’s core oracle production. It ambitiously serves to reduce value extraction by intermediaries and improve liquidation execution efficiency, effectively tackling this form of MEV.”
Tim Wu, Wintermute Head of DeFi
Using Express Relay, the searcher with the most competitive bids secures the right to perform the transaction, the team said. This enables searchers to compete more aggressively over transaction values, allowing DeFi protocols to enhance their liquidation reward incentives. It is designed to promote a more equitable DeFi ecosystem, yielding greater savings for protocols that can be redirected toward more productive initiatives or passed on to users.
“MEV will never disappear but the part they play will be smaller.” Marc Tillement
Marc explains that the idea behind OEV is not to completely eliminate MEV but rather minimize its impact by providing a more efficient and fair price discovery mechanism. This allows for smoother operations on the blockchain without worrying about price manipulation.
Final Thoughts
Every asset has its own trading price. Each exchange will present a different price for the same asset at any given time. This can be due to factors such as liquidity, market demand, and supply. Many people don’t think about this, but this creates a problem with discrepancies in price across exchanges.
With Pyth Network, this issue is addressed by providing a secure, reliable, and efficient data feed for real-time asset prices. This not only benefits traders but also projects that rely on accurate price data for their operations. Traders can make better informed decisions, while projects can improve their risk management and overall efficiency.
Although the difference is typically only a few dollars, a more consistent and accurate pricing mechanism benefits both parties and strengthens the integrity of the entire blockchain ecosystem. Pyth.Network is becoming the oracle of choice for many DeFi protocols, and with its growing network of validators and data providers, it is quickly becoming a crucial component in the DeFi space. The future looks promising for Pyth.Network and its impact on the blockchain industry.
