Research Summary
The report discusses the investment in Pyth Network, a leading first-party oracle in crypto, and its unique approach to handling latency-sensitive financial data. It also introduces the concept of Oracle Extractable Value (OEV) and the potential for applications to capture and redistribute this value.
Key Takeaways
Pyth Network’s Unique Approach
- First-Party Data: Pyth Network’s oracle design is based on the premise that financial data is proprietary to its creators. It partners directly with first-party data partners such as market makers, trading desks, and exchanges to deliver direct, low-latency price updates on-chain.
- Pull-Based Price Publishing Model: Pyth allows smart contracts to pull precise data at the exact moment they need it, resulting in fresher, more accurate prices. This design also reduces costs for user-protocols and applications as they don’t need to constantly pay gas for unnecessary updates.
Oracle Extractable Value (OEV)
- Introduction to OEV: OEV is a subset of Miner Extractable Value (MEV) where applications rely on an oracle update for arbitrageurs or liquidators to capitalize on state inconsistency. This presents opportunities for oracles to capture some of the MEV that emerges from their price updates.
- Operationalizing OEV Capture: The report suggests that a better route to capturing emergent MEV is to outsource the auction via a global orderflow auction (GOFA). Pyth is structurally positioned to run OFAs directly in aggregate for all the applications it powers.
New Revenue Streams
- Pro-Application OEV: OEV represents a novel approach toward value capture for oracles and applications. Oracle-run OFAs directly deliver the emergent value from OEV to applications, allowing them to receive the benefits of owning their own OFA without any of the overhead.
Actionable Insights
- Consider the Benefits of First-Party Data: Pyth Network’s approach highlights the potential advantages of using first-party data for financial applications. This could lead to more accurate and timely data, which could improve the performance of financial applications.
- Explore the Potential of Pull-Based Price Publishing: Pyth’s pull-based model could offer a more efficient and cost-effective way of accessing data for smart contracts. This could be particularly beneficial for applications that require up-to-date financial data.
- Understand the Implications of OEV: The concept of OEV could have significant implications for how value is captured and redistributed in the crypto space. Understanding these dynamics could be crucial for developers and investors in the sector.
