The Case for Migrating DeFi Protocols from Push Oracles to Pull Oracles: A Study on Pyth Network and Other Oracle Providers

Abstract

Decentralized Finance (DeFi) protocols rely heavily on accurate and timely data to function effectively. Traditionally, most DeFi protocols have used push oracles to update on-chain data at regular intervals. However, pull oracles, such as those implemented by the Pyth Network, offer a compelling alternative. This paper explores the advantages of migrating from push to pull oracles, examining their operational mechanisms, benefits, and challenges. Through quantitative analysis and case studies, we provide evidence supporting the adoption of pull oracles for enhanced efficiency, security, and flexibility in DeFi ecosystems.

Introduction

Oracles serve as bridges between blockchains and the external world, providing necessary data for smart contract execution. Push oracles, which periodically push data to the blockchain, have been the standard. Conversely, pull oracles update data only upon request. This research delves into the distinction between these two models, focusing on the Pyth Network’s innovative approach and its potential impact on DeFi protocols.

Push Oracles: Mechanism and Limitations

Push oracles periodically update on-chain data based on predefined triggers. These triggers can be time-based (e.g., every 30 minutes) or event-based (e.g., price change exceeding 1%). While this model ensures regular updates, it has several limitations:

1. Inefficiency: Updates occur regardless of necessity, leading to unnecessary data transactions and increased gas fees.
2. Latency: There is an inherent delay between the external event and its reflection on-chain.
3. Scalability Issues: Frequent updates strain network resources, especially during high volatility.

Pull Oracles: Mechanism and Advantages

Pull oracles, such as those used by the Pyth Network, update on-chain data only when requested by users. This approach offers several benefits:

1. Efficiency: Data is updated only when needed, reducing unnecessary transactions and gas costs.
2. Real-time Accuracy: Users can request the latest data, ensuring up-to-date information for smart contract execution.
3. Scalability: Reduced frequency of updates alleviates network congestion, enhancing scalability.

The Pyth Network: A Case Study

Launched in April 2021, the Pyth Network is a leading provider of real-time financial data. It aggregates proprietary data from major exchanges and financial institutions, offering over 500 low-latency price feeds across various asset classes. The Pyth Network’s pull oracle model allows users to request the latest data off-chain and submit it on-chain, verified for authenticity before use.

Methodology

Our research employs a mixed-methods approach, combining quantitative analysis of on-chain data and qualitative case studies of DeFi protocols utilizing push and pull oracles. Data was sourced from blockchain explorers, DeFi analytics platforms, and Pyth Network’s documentation.

Quantitative Analysis

We analyzed transaction data from several DeFi protocols using push oracles and compared it with those using the Pyth Network’s pull oracles. Key metrics included transaction volume, gas fees, latency, and data accuracy.

1. Transaction Volume and Gas Fees: Protocols using push oracles exhibited higher transaction volumes and gas fees due to regular updates. In contrast, those using pull oracles showed reduced transaction volumes and gas fees, as updates occurred only upon request.
2. Latency: Pull oracles demonstrated lower latency, with data being updated in real-time upon request, compared to the periodic updates of push oracles.
3. Data Accuracy: Pull oracles provided more accurate data, as updates were based on the latest available information, reducing discrepancies due to outdated data.

Case Studies

1. Compound (Push Oracle): Compound, a leading DeFi lending platform, uses push oracles to update interest rates and collateral prices. During periods of high volatility, the protocol experienced significant delays and increased gas fees, impacting user experience.
2. Mango Markets (Pyth Network): Mango Markets, a decentralized exchange on Solana, employs the Pyth Network’s pull oracles for price feeds. The protocol benefitted from real-time data accuracy and reduced gas fees, enhancing overall efficiency and user satisfaction.

Discussion

The transition from push to pull oracles offers substantial benefits for DeFi protocols. The efficiency gains, reduced latency, and improved data accuracy can significantly enhance the performance and user experience of DeFi applications. However, challenges such as the need for reliable off-chain data sources and potential centralization risks must be addressed.

Conclusion

Our research indicates that pull oracles, exemplified by the Pyth Network, present a superior alternative to traditional push oracles for DeFi protocols. The adoption of pull oracles can lead to improved efficiency, scalability, and real-time data accuracy, which are critical for the growth and sustainability of DeFi ecosystems. Future work should focus on developing robust frameworks for integrating pull oracles and addressing associated challenges to realize their full potential.

References

1. Pyth Network Documentation. (2021). “Price Feeds and Pull Updates.” Retrieved from https://docs.pyth.network/price-feeds/pull-updates.
2. Compound Finance. (2023). “Compound Protocol Documentation.” Retrieved from https://compound.finance/docs.
3. Mango Markets. (2023). “Mango Markets Documentation.” Retrieved from https://docs.mango.markets.
4. DeFi Pulse. (2023). “DeFi Analytics and Metrics.” Retrieved from https://defipulse.com.

By focusing on the tangible benefits and providing concrete evidence, this article aims to make a compelling case for DeFi protocols to transition to pull oracles, thereby enhancing the overall efficiency and reliability of the DeFi ecosystem.