Switching oracle fees ($13m opportunity per year) and reinvesting in growth

[arguer]

Context

• Multiple DeFi protocols and infrastructure produce significant programmatic revenue for their associated DAOs, and these DAOs either use that revenue to further grow the protocol ecosystem and/or to compensate ecosystem participants. It may be time for the Pyth DAO to start considering this more actively.

• As it stands, Pyth is already in a dominant position with the largest market share (by Total Transacted Value), the most diversified portfolio of feeds and the widest distribution on-chain.

• Trading cost analysis in DeFi shows that any oracle update cost lower than $0.5 will remain <5% of the average trading cost on DeFi (such cost is defined by the DeFi app fees + L2 fees where applicable + L1 DA fees, including base and priority fees).

• At the time of writing, the Pyth DAO has generated <$50k from price feeds on all the chains where it operates, as it has focused on driving adoption by enabling builders to consume high-quality data at negligible cost.

• While fostering adoption remains key, Pyth must also carefully and continuously weigh the counterpoint: As macro conditions stabilize, its valuation will increasingly hinge on fundamentals, notably its capacity to generate and grow sustainable economic value.

Fee Mechanism & Opportunity

Building on operational PIPs that implemented fees (OP-PIP-15 for fees on opBNB and OP-PIP-50), I propose to implement $0.1 per feed update, fixed in USD on all chains where Pyth operates, but paid in the native token of the target chain. The suggested fee excludes sponsored pushers (see Carve-out section).

A total cost analysis for trading on DeFi was conducted. Such cost includes the DeFi protocol fees (usually x bps of the notional traded + L2 fees where applicable + base fee + priority fee). $0.1 per oracle feed update is:

• less than 110bps of the cost of trading on Arbitrum, Optimism and Base.
• less than 160bps of the cost of trading on Solana.

Given the level of usage seen over the last 365 days, it is estimated that the Pyth DAO could generate circa $13m per year from this modest increase in fees, assuming the same levels of usage are maintained, and discounting any growth in usage.

In order to maintain the $ price target per feed update, I suggest that the Pythian Council reviews the target USD price on each chain on a monthly basis by applying a 7-day TWAP price (using Pyth’s newly available service) to adjust the amount of the native token that is required.

If adopted by the Pyth DAO, all new deployments of the Pyth Oracle should adopt ~$0.1 per feed update.

Possible Areas for Value Distribution

The overall goal should be to reinvest in the growth of the Pyth Ecosystem, which can take different forms, such as:

• Buybacks to reward ecosystem participants. Raydium, Jupiter and Hyperliquid have all executed buybacks at scale. Such ideas have previously been discussed in the Pyth Forum (see 1, 2).

• Distribution to Pyth OIS stakers to increase the rate of return participants receive from securing the data quality on the Pyth network.

• Remunerate data publishers for their continuous production of price data and delivery to the Pyth Network.

• “Barter” with other protocols to give the Pyth community favourable terms when using their services, allowing for cross-pollination of communities.

• Finance community initiatives, fund grants to Pyth users and fund hackathons to increase the reach of Pyth.

• Reinvestment into research, development and innovation, to ensure Pyth continues to provide cutting-edge solutions and remain a leader in the oracle space.

Carve-out

The first step of the implementation should exclude chains where most consumption is the result of updates driven by high frequency pushers (e.g. Sui, Aptos, Injective) that either run by centralized teams and/or funded by the target chains to help bootstrap usage on their platforms.

I imagine that applications on such chains could migrate to the on-demand oracle already available on each of those chains, while the pushers are gradually sunsetted.

Note: This proposal was written in consultation with @zenyas and @Pepito.

[bats4]

reading this makes me remember your post about update fee research mission last year. thank you for another well thought proposal!

having a uniform fee across every chain, in my personal opinion, is a good approach on implementing fees. it was also mentioned by one of our members from previous proposal

@kenxyz

Wouldn’t it make more sense to introduce a standard pricing for all dapps / all chains uniformly, potentially at a lower level in order to test market reaction, and then increase the pricing if needed ?

although i would like to have more details about the increase to $0.1 as it is around x10 or more from the recent passed proposal (OP-PIP-50)

@arguer

A total cost analysis for trading on DeFi was conducted.

Is it possible for you to share the mentioned analysis?
Maybe this will also answer my concern about the $0.1 increase

[arguer]

You are right. $0.1 is a significant acceleration compared to the fees proposed previously.

This table illustrates how a $0.1 price update fee still constitutes a small percentage of the total trading costs on major perpetuals trading protocols.

(Credit to @zenyas for helping with the data and analysis)

One key difference from OP-PIP-50 is the proposal to fix the price in USD value - thus the need to review it on a regular basis.

[N0name_trader]

Taking into consideration the extensive research done by Arguer (+zenyas+Pepito) I guess it’s an excellent proposal to generate more fees overall and to boost the incentives for the DAO!
Reviewing the expansion of Pyth network it’s time to raise the bar for the fees as well!

[architehc]

Thank you for this compelling proposal, @arguer. I’d love more details on the data analysis sources used to estimate daily updates and projected costs. Are these numbers pulled from chain explorers, user analytics, or third-party metrics? @zenyas

Additionally, what methods could we use to probe each blockchain and confirm real-world adoption or friction (e.g., pilot programs, on-chain analytics, surveys from integrators)? More clarity on this would help everyone evaluate the fee structure’s impact. Thanks again for all your work here!

[Cryptokelly]

Fee standards and more incentives to grow the community can help grow the support of Pyth amongst the long term investors who don’t want to actively trade the tokens back and forth. Bartering with protocols for favorable terms with community members will get more onboard as Pyth grows. So many still don’t understand what blockchain oracles do, but if there is a way to passively earn while supporting Pyth they will value being a long for the journey. I’m a fan of this proposal as it stands.

[dov]

Great research! I think this is exactly what Pyth needs. Pyth built a high-quality and strong product, so I believe they have every right to increase the fees.
First, you build the product and then you raise the fees.
OP-PIP-15 and OP-PIP-50 are great examples.

[dancube]

Hello Pyth Network community,

I’m reaching out on behalf of Amped Finance (https://amped.finance), a perpetual swaps DEX that proudly leverages Pyth’s oracle services to power our platform. We’ve reviewed the proposal to switch oracle fees and reinvest the proceeds into growth, and while we applaud the ambition to enhance the network, we have serious concerns about how these changes could affect our operations and the value we deliver to our users and liquidity providers.

Our Reliance on Frequent Updates

At Amped Finance, a cornerstone of our business model is the ability to push updates to each price feed multiple times per minute. This high-frequency updating enables us to execute swaps at rates that are often more competitive than those offered by traditional automated market makers (AMMs). By keeping our on-chain prices as close to real-time as possible, we minimize slippage, tighten spreads, and provide an exceptional trading experience. These swaps generate significant fees, which we currently return to our liquidity providers and plan to distribute to AMP token holders in the future. Simply put, frequent price feed updates are not just a technical detail—they’re integral to our platform’s success and our ability to reward our community.

Concerns About the Proposed Fee Changes

The proposal suggests restructuring oracle fees, potentially tying costs to the frequency of updates or increasing the overall expense of accessing price feeds. For a platform like Amped Finance, which depends on pushing updates multiple times per minute, this could introduce substantial overhead costs. Such a change would directly threaten the financial viability of our current model. If enacted, we might be forced to explore alternative oracle solutions that better accommodate our need for high-frequency, cost-effective price feeds—a step we’d prefer to avoid given our positive experience with Pyth thus far.

Future Opportunities and Partnership

Looking ahead, we’re excited about the emergence of high-throughput, low-cost networks like Monad and MegaETH. We had hoped to deepen our collaboration with Pyth to bring near real-time on-chain prices to our users on these platforms, enhancing the trading experience even further. We assumed Pyth would support its feeds being used in this way, as it aligns with the goal of delivering cutting-edge financial infrastructure to the blockchain ecosystem. However, if the proposed fee structure makes it cost-prohibitive to maintain our current level of service, we may need to reconsider our plans, which would be a loss for both our users and the Pyth ecosystem.

A Call for Collaboration

We fully support Pyth’s mission to grow and innovate, but we urge the community to consider the diverse needs of the protocols that rely on its services. For high-frequency users like Amped Finance, a fee model that penalizes frequent updates could undermine our ability to operate effectively. We believe there’s a way to balance Pyth’s growth objectives with the needs of its partners. For example, could there be tiered pricing for protocols requiring frequent updates? We’re open to exploring solutions that ensure Pyth thrives while allowing us to continue delivering competitive, real-time pricing to our users.

Conclusion

In summary, while we appreciate the intent behind this proposal, we’re concerned about its potential to disrupt our operations and force us to seek alternatives. Amped Finance values its partnership with Pyth and wants to see it succeed—ideally with us as an active participant. We hope this proposal can evolve to accommodate the needs of platforms like ours, and we’re eager to engage in a dialogue to find a mutually beneficial path forward.

Thank you for considering our perspective. We look forward to discussing this further.

Best regards,
Dan Enright (Amped Finance Founder)

[eileen]

I think it’s better for the DAO to create a price auction mechanism where people compete against each other for prices and pricing, with the demand and supply based on appetite.

Otherwise, no number is adequate for all parties, no shenanigans shall exist for liaison.

And this forces Pyth to continuously innovate despite market share, may the best oracle win at any given point, that would be the best for blockchain technology.

[gnarleyquinn]

Looks like a really well thought-out proposal Arguer.

Certainly better then mine!)

It’s great to see actualy utility for the $PYTH token being proposed. I hope it passes.

[masterzorgon]

MarginFi’s Response To Switching Oracle Fees

I am reaching out on behalf of marginfi. I am Head of
Growth at marginfi. You can find me on X @masterzorgon.

At marginfi, we rely heavily on Pyth oracles to price assets across our borrow-lend platform. The accuracy, reliability, and low-latency updates provided by Pyth are critical to our risk management.

We are concerned that the higher costs for using Pyth feeds — should this proposal pass — could negatively impact the financial viability of our product. Our protocol depends on real-time pricing to provide a safe and efficient user experience. If the cost of accessing these feeds rises substantially, we would be forced to evaluate alternative oracle solutions.

We support Pyth’s long-term growth and want to see the network thrive, but it’s vital that any changes to the fee model reflect the operational needs of the protocols that power real usage.

marginfi is committed to the ecosystem, and we’re open to collaborating on solutions that ensure both Pyth and its users succeed.

[bats4]

@architehc

Thank you for this compelling proposal, @arguer. I’d love more details on the data analysis sources used to estimate daily updates and projected costs.

same as @architehc , i would also love to see a write up on the details of the analysis

Also,

@dancube

We hope this proposal can evolve to accommodate the needs of platforms like ours, and we’re eager to engage in a dialogue to find a mutually beneficial path forward.

@masterzorgon

marginfi is committed to the ecosystem, and we’re open to collaborating on solutions that ensure both Pyth and its users succeed.

reading concerns from a platform using Pyth i kinda remembered another proposal by @arguer

Implement a rank-based fee discount system for data consumers staking Pyth tokens ($PYTH)

@KemarTiti, thanks for taking the time to read and respond to my idea, and making me think more about the technical feasibility. If we’re still interested in exploring this further, I have an idea that could make implementation easier, while still achieving the overarching intent of my proposal. Instead of providing real-time fee discounts for each price update (which, as you mentioned, requires repeated cross-chain matching and additional processes to pull staking rank data and apply discount…

i think it could be an idea to explore as well in line with the increase of fees

[lowkeigh]

I really like where we are going with this proposal, it’s definitely a move we need to look at making at some point so I’m happy to see it being discussed.

I’m glad to see some feedback provided by users of Pyth to get a gauge of how this may be received by the wider market.

It does make me wonder if we need to create another mechanism to accommodate such concerns or even go with incremental increases with the goal of slowly working towards our $0.1 target.

[Derrp]

Agree with this point. Perhaps analysing “current”, “final”, and “incremental” changes can help illustrate the progression. Supporting the DAO as well as current Pyth price feeds customers.

Obviously the primary goal of a business is to maximise the income:expenditure to better serve their stakeholders and customers. So it stands to reason that some users of Pyth data will be responding to this proposal only, as it directly affects this ratio.

Perhaps comparing the step changes will better help Inorm the DAO voters as to the impact of the current proposal.

@dancube

we have serious concerns about how these changes could affect our operations and the value we deliver to our users and liquidity providers.

It would be great if dApps could provide tangible numbers for the DAO to better understand concerns. Without objective metrics it can be difficult to understand. Lots of dApps share their information with DefiLlama, for example: which makes this a much easier process.

The DAO needs to have challenging debates like this which require healthy conversation with all affected parties to help the combined success of the protocol, and ultimately success of the data consumers we support. A symbiosis in which we require to grow together, in a sustainable way.