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Blockchain, crypto, and other decentralized financial solutions require an entirely new approach to the way we process, distribute and manage data. Many of them try to make operations on digital money safe and robust. One of them is Pyth. If you are just starting out, you might not have heard of them yet, but they are essential for services that operate on digital assets - like DEXes, AMMs, as well as other decentralized finance (DeFi) projects or NFT marketplaces.
Pyth is a platform that collects unique data on chain from various professional exchanges and traders. The goal behind this project is always to keep smart contracts updated with verified, real-time market data. It’s not only about cryptocurrencies but all types of financial assets that users wish to exchange, like equities and commodities. Right now, Pyth covers more than 30 globally located assets published in milliseconds to make sure that all interested parties are aware of the current status of global markets.
Pyth is a specialized oracle solution, and hence tries to address the problem of bringing off-chain and unique data on-chain without introducing powerful, centralized institutions that can just write any kind of data onto the blockchain networks. Blockchains are tamper-proof, accessible, and censorship resistant, which makes them so awesome. However, if you want to bring data ‘from outside the blockchain’, e.g. the prices of certain assets that are not native to the blockchain so that it can be used in smart contracts, you need entities that provide and write this data on-chain so that it can be tamper-proof, accessible and censorship resistant. Now if only one, or very few parties are allowed to do so, one would need to trust these parties.
Thus, we need middleware - a system that will collect the required data, send it to the parties that require it, validate it, and do it regularly to make sure every information is consistent. That’s when Pyth enters the stage. It provides the necessary data for smart contracts to be even smarter.
If we want to unlock the full potential of blockchain, we need to enable it to work beyond basic binary questions that can be answered with a simple yes or no. That’s the main principle of such networks, which makes their reliability and security higher. All the data that is exchanged within one blockchain is stored inside it. However, it is impossible to use this technology for more advanced transactions without the middleware.
Pyth was created to solve this problem and, as a result, unlock the blockchain’s endless possibilities. For instance, if we want to display the price of Bitcoin or any other cryptocurrency, it will differ depending on the source. To find out this information, data from multiple sources is required. To make it trustworthy, we need agents that will offer secure and verified access to numerous exchanges and trading apps. One of them is Pyth and its network of data providers.
Even though there is a sophisticated technology behind how Pyth works, it can be explained in a quite simple way. Basically, traders and exchanges are constantly sending information between each other - in both directions. The Pyth network takes the data from the most high-quality sources through a network of independent data providers, aggregates it, and displays the data in the most accurate, up-to-date way possible
Why is that the best way to provide reliable info? Because the prices on exchanges are regulated by traders, and even though they are usually quite similar, sometimes one place can suffer from manipulation or attack. Ergo, taking data from one place can be highly inadequate.
To understand how the financial market works, you need to know that it is regulated by combining two types of data: prices of orders that traders wish to trade and prices at which trades have just occurred. Many parties take part in these transactions. It all depends on the market - for example, the US exchanges are regulated by the law, and a concrete number of entities are included in the market. This means that even though there are many transactions, settlements are easier and the fragmentation smaller.
On the other hand, when it comes to cryptocurrencies, there are no centralized institutions responsible for clearing. Moreover, the exchanges can block transfers and withdrawals, which also influences the resource movement between parties. No matter which market is taken into consideration and what is their individual situation, the Pyth network collects data from a pool of reliable sources to showcase the most accurate and valid prices of various assets without relying on a single source.
The internet has been strongly evolving since the day it was born. We are past the era when offline businesses started to digitalize and had to convince their customers that it is safe and beneficial to do various activities online. The Pyth team believes that we are entering the next stage, in which protocols handle most of the available (financial) services. Their goal is to make people trust technologies like blockchain and adopt them as a standard. Providing high-quality, accurate, and latency-sensitive financial data is crucial for this industry because it relies on such information.
In the decentralized ecosystem created by Pyth, there are several roles to be played by the involved parties, and all of them contribute to the final result. Data Providers publish correct data and gain rewards out of it. Delegators prove that this data is reliable and trustworthy based on the historical accuracy of the provider. Curators decide which data should be sourced, and Consumers use it as they please. These elements guarantee that Pyth network works precisely as it should and always displays validated data, no matter which market we are interested in.
As a relatively new company founded in 2021, Pyth managed to partner up with many exchanges and trading parties - which is quite impressive. They work with such recognized businesses as Bitstamp, Akuna, CoinShares, Genesis, Talos, 0x, and many more. They constantly add new top-notch partners, in order to have access to the most high-quality data so that the prices of assets are available with the least amount of latency.
Interested? Check out more on the Pyth website.
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Please note that none of this is to be considered financial nor investment advice. We highly advise you to always do your own research (’DYOR’) before interacting with any of the projects or tools we write about. Crypto is a highly dynamic and fast paced environment with lots of moving parts that can quickly change.