From messari by Micah Casella

Key Insights

Primer

Pyth (PYTH) is an oracle network that aims to offer accurate prices for cryptocurrencies, equities, foreign exchange pairs, ETFs, and commodities. Oracle networks aggregate external data and make it available for onchain application use. Pyth fosters a network of first-party (primary source and aggregator) data providers and coordinates a “pull” oracle model. This model scales price feeds across many chains and lowers network costs by offloading update fees to data consumers (applications and developers). Pyth offers three core products:

The integrity of Pyth’s data is dependent on its contributing publisher network, which comprises over 100 data providers from global exchanges, trading firms, market makers, institutions, and DeFi. A few notable providers include Jane Street, Chicago Trading Company (CTC), Binance, Raydium, Osmosis, Galaxy, and 0x. Pyth is focused on making financial market data available to developers on an expanding list of blockchain networks (50+ blockchains as of writing). For a full primer on Pyth, refer to our Initiation of Coverage report.

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Key Metrics

Performance Analysis

Total Value Secured

Total value secured (TVS) represents the cumulative value of assets covered by an oracle network. When an oracle provides the necessary data for operating a DeFi platform, such as prices for assets being used as collateral, TVS would include the value of the assets in contracts reliant on the oracle's data.

Pyth’s TVS rose 218% QoQ, growing from $1.7 billion to $5.4 billion. The above graphic only uses DefiLlama data, which has yet to cover Ethena. Including Ethena, Pyth secured $7.2 billion to end Q2 (+322%). This growth was spurred by Pyth expanding its product to include blockchains, price feeds, and applications. In Q1, Pyth added support for 9 new blockchains, connected to 41 new price feeds, and integrated into 35 new applications.

The top five protocols that Pyth secures are all Solana-based applications: Kamino, marginfi, Jupiter, Drift, and Solend. Collectively, these five protocols accounted for 42% of Pyth’s TVS by the end of Q1. The other protocols in the top 10 operate on other chains. These include ZeroLend, Orbit Protocol, Avalon Finance, Aries Markets, and Synthetix. Collectively, these protocols accounted for 21% of Pyth’s TVS. As such, 63% of Pyth’s TVS is concentrated in the top 10 applications across 13 blockchains. In the future, Pyth’s TVS may become more distributed as it onboards more applications and expands to emerging chains.

Price Updates

As a pull oracle, Pyth demand is measured in the number of price updates it publishes. DeFi users of Pyth-secured applications make smart contract calls that trigger Pyth price updates in the same transaction.

Demand for Pyth oracles grew 97% QoQ as Pyth published 48 billion price updates in Q1. Over 98% of this activity occurred on Sui (67%) and Aptos (31%). This distribution is largely a consequence of Pyth’s prevalence, where it had 94% of Sui TVS and 98% of Aptos TVS by the end of Q1. Additionally, the low-cost nature of Move-based chains likely made Sui and Aptos more appealing for high-volume activities.

Optimism and Cronos Chain accounted for over 58% of Pyth price updates on EVM chains. Regardless, updates on all chains (except Avalanche) grew QoQ, with the sum of all EVM chain updates growing 36% QoQ. The increase in updates indicates that these chains saw increased activity, a sign that users are becoming more bullish on interacting with DeFi across various chains.

Before Q2, Pyth used a push oracle on Solana, publishing updates in set intervals to the blockchain. In Q2, Pyth integrated pull oracles on the network, which should result in even more price updates in the coming quarters. It should also give a sense of Solana usage as more protocols transition to Pyth’s Solana-based pull oracles.

Revenue

Revenue is a function of price updates. Pyth charges an oracle fee for each update. To incentivize adoption, the oracle fee is currently the lowest denomination of the native gas token on the chain where the oracle update is published. As adoption increases, Pyth plans to increase the oracle fee, which will also increase revenue for the protocol. This revenue will be paid to data providers as an incentive for them to continue publishing data to Pyth.

Because Pyth revenue is based on price updates, it often moves in a similar direction. In Q1, revenue jumped 166%. The additional increase can be attributed to the spike in upward price volatility of the two primary native assets on Pyth’s most active supported chains: Sui and Aptos. Despite accounting for 31% of price updates, protocol revenue from Aptos (97%) was much larger than revenue from Sui (3%). For one, APT was roughly 7.5x more expensive on average than SUI in Q1. Another reason for the discrepancy is that Aptos’ lowest denomination (Octa) is only 10-8 of APT, while Sui’s lowest denomination (MIST) is 10-9 of SUI.

Revenue from EVM chains was negligible (essentially $0) in Q1 due to lower relative activity (compared to the top chains). Another factor was that the lowest denomination of most chains (whether they use ETH or another asset for gas) is in Wei, which is 1018 of ETH or the native gas token. Given the low denominations, Pyth can significantly increase the oracle fee without the end user noticing. Because the protocol already serves billions of updates, with demand trending upward, even a small fee adjustment would greatly increase protocol revenue.

User Costs

Although the cost of pulling a Pyth update is negligible, users must still pay the gas associated with their DeFi transactions. These gas costs are exclusive to users; Pyth does not bear any cost from this.

User costs fell 4% QoQ, largely driven by the decrease in gas usage from Optimism (–62%) and zkSync Era (–18%). Although both chains facilitated more price updates in Q1, indicating an increase in activity, these updates may have been triggered by less expensive computational tasks, like lending operations versus DEX trades. With Pyth’s migration to a pull oracle on Solana, a portion of the user costs will be attributed to Solana. Despite the addition of Solana, rollup transaction costs should decrease in Q2 due to the Dencun/EIP-4844 upgrade, which was implemented in mid-March.

Solana Transaction Share

Pyth is one of the most used protocols on Solana. In previous quarters, it accounted for up to 48% of Solana transactions. In Q1, it only accounted for 18% of Solana transactions. This is partly due to the 28% QoQ rise in total Solana transactions. Given the relative change, Pyth is likely onboarding applications and supporting new price feeds at a lower rate than Solana is growing its activity.

Because Pyth operated a push oracle on Solana, the protocol paid to publish updates to the blockchain. In Q1, Pyth data providers paid $738,000 to publish updates to Solana. As Solana’s DeFi ecosystem continues to expand, it will become increasingly expensive to publish updates to more protocols for more price feeds. However, with Pyth’s transition to a pull model on Solana, its cost of publishing updates and share of total Solana transactions should fall.

PYTH Staked and Market Cap

The amount of PYTH staked grew 92% QoQ. This growth, combined with the 206% increase in the price of PYTH, led the staked PYTH value to grow 489% in USD terms, from $215 million to $1.3 billion. At the end of Q1, 85% of circulating PYTH was staked. Additionally, Pyth’s market cap grew from $488 million to $1.5 billion by the end of Q1.

Token Unlocks

PYTH’s first token unlock occurred in the middle of Q2’24. On May 19, 2.13 billion PYTH was distributed to the following parties/for the following purposes:

PYTH unlocked to private sale participants and publishers will account for 22% of the updated circulating supply. The unlock of these allocations could put sell pressure on the asset as these parties may be interested in taking profits. Data providers (publishers) may be especially interested, given that publishing updates on Solana cost them $738,000 in Q1 alone.

Qualitative Analysis

Governance

Pyth DAO Constitution

The Pyth DAO Constitution was ratified in February 2024. The constitution defines the governance framework for PYTH holders and outlines the powers of the Pythian Council and the Price Feed Council. Both councils hold elections every six months to rotate members of the councils. Additionally, members who participate less than one-third of the time are excluded from reelection. Both councils are responsible for implementing certain Operational Pyth Improvement Proposals (PIPs). PIPs encompass changes to the constitution, the DAO’s governance structure, and the functioning of the oracle network.

Pythian Council

The Pythian Council was inaugurated in March 2024. It can be delegated the power to vote on Operational PIPs that involve updates to the oracle program and verification mechanism, adjustments of oracle update fees and denominations, and the management of PGAS (the gas token on Pythnet that is allocated/delegated to validators). Four members are replaced every election, which occurs every six months. Eight members and the Operations Wallet holder are signers of the Pythian 7-of-9 multi-sig wallet. The eight newly elected members include Afif Bandak (Synthetix), Marc Tillement (Pyth Data Association), Robinson Burkey (Wormhole Foundation), Guillermo Bescos (Douro Labs), Jayant Krishnamurthy (Douro Labs), Guilhem Chaumont (Flowdesk), Shu Tsu Wei (HMX), and Nope (Solend).

Price Feed Council

The Price Feed Council was inaugurated in March 2024. It can be delegated the power to vote on Operational PIPs that involve managing the set of offered price feeds, selecting publishers, and setting price feed requirements (i.e., minimum and maximum publishers per feed). Three members are replaced every election, which occurs every six months. Seven members and the Operations Wallet holder are signers of the Price Feed 5-of-8 multi-sig wallet. The seven newly elected members include Giulio Alessio (Pyth Data Association), Lawrence Samantha (NOBI), Nicholas Diakomihalis (Douro Labs), Antoine Bellanger (SwissBorg), Harnaik Kalirai (Douro Labs), Robert (ReactorFusion), and Matt Losquadro (Synthetix).

Operational PIPs

Following the inauguration of the Pythian Council, five Operational PIPs were approved in Q1. The relevant PIPs are listed below.

Partnerships and Integrations

Pyth Network announced a series of partnerships and integrations throughout Q1. It added support for 41 new price feeds, expanded to 9 new blockchains, onboarded 7 new data providers, and was integrated into 35 new applications. A few notable partnerships and integrations for each category are listed below.

Closing Summary

In Q1, Pyth Network experienced substantial growth, with its demand-side activity increasing by 97%, as the protocol published 48 billion pull oracle updates. Total value secured rose 322% to $7.2 billion, bolstered by the addition of 41 new price feeds, expansion across 9 new blockchains, and integration into 35 applications. Additionally, the network saw a significant 92% rise in PYTH staking, leading to a 489% increase in staked PYTH value in USD terms. The launch of the Pyth DAO further solidified the protocol’s progress in decentralizing a portion of its operations. Pyth is positioned to have a productive Q2 as it completes the transition of its oracle on Solana to a pull model by the end of the quarter.