DeFi Protocols Need to Quantify Their Users’ Market Loss from Bad Oracle Latency

Within the ever-evolving realm of decentralized finance (DeFi), it is of extreme importance that the accuracy of any sensitive market data being provided to users is of extremely high quality. However, as things stand, a number of protocols operating in this space have had to grapple with the critical challenge of ‘oracle latency’ and the adverse impact it has had on their clients’ trade decisions.

Imagine a scenario where a trader has had to rely on a delayed price feed to execute a high-stakes trade, only for them to find out that by the time their order had been fulfilled, the actual market conditions had shifted dramatically. This isn’t just a hypothetical situation; but a perilous reality that many investors have had to deal with in years gone by. In fact, high latency in oracle pricing has led to many DeFi users losing their assets as well as their trust in this space. 

Trust in Data. The Responsibility of Financial Institutions

From the outside looking in, one can see that during 2023, the DeFi market exhibited a tremendous amount of growth, once again breaching the $58 billion mark in terms of total value locked (TVL) — with more than 30% of this capital coming in over the fourth quarter of the past year. 

This growth once again brought to the limelight the need for high-quality oracles, especially given that a lot of investors routinely rely on their data to facilitate their financial decisions and actions. One project at the helm of this ongoing oracle revolution is the Pyth Network.

Best described as a collaborative effort initiated by a consortium of trading firms and exchanges, Pyth provides clients with a robust real-time data feed for DeFi participants globally — free from the constraints and vulnerabilities of relying on the open internet. Pyth’s core operational structure involves an intricate dance between data providers, who submit their pricing information, and the Pyth Oracle Program, which synthesizes this data into a single, reliable price feed. 

Beyond this, the Pyth Network’s business model encourages owners of proprietary data to broadcast valuable information on a decentralized ledger, a novel approach that counters the trend of data moving from open to private access due to changes in web traffic patterns and ad revenue models. 

Moreover, for business-to-business (B2B) applications, Pyth offers a vast collection of live feeds — enriched with confidence intervals —  for both real-world assets as well as cryptocurrencies. On the consumer side (B2C), Pyth empowers native token holders to have a stake in the network’s future. Lastly, it bears mentioning that since its inception in April 2021, Pyth has rapidly ascended as a favored oracle solution across numerous DeFi applications, underpinning over 300 dApps on 50 different blockchains.

The Future of Oracle Services in DeFi 

As we transition toward an increasingly transparent digital economy, it is clear that the DeFi market is poised for substantial growth in the near to mid-term. In this regard, oracle services will continue to play a significant role within this space, as highlighted by the fact that the sector is projected to grow into a $35 billion opportunity (growing at a CAGR of 14.4%) by 2029. Additionally, the fact that more and more large-scale enterprises are continuing to adopt these systems — in order to process their financials — highlights their growing importance within the broader economic spectrum.

Thus, looking ahead, it will be interesting to see projects like the Pyth Network continue to play an integral role within the rapidly expanding Oracle market, providing users with low-latency, high-frequency price updates while enabling the creation of ‘instantly available’ data streams across multiple blockchains.