A Spotify Streaming Model for Crypto and Financial Data

In the late 1990s, a revolution was taking place, and it brought free music to everyone. Napster upended the music industry by creating a platform where listeners freely shared digital music files—without regard for intellectual property rights. Suddenly, anyone could download any song ever recorded, for free.

This peer-to-peer (P2P) file sharing model for music couldn't last forever. Eventually, Napster was replaced by Spotify, which transformed the music landscape and benefitted both music consumers and intellectual property owners.

Today, the Web3 world is undergoing a similar transition led by the Pyth Network. In this blog post, we will delve into why the Pyth Network is poised to become the ‘Spotify of crypto and DeFi’.

The Dawn of Digital Music

In the early days of the internet, the concept of digital music was a new and exciting idea. When you purchased a CD, it was widely accepted that you had the freedom to do whatever you pleased with the digital files. In this context, anyone who bought a CD and shared it online essentially became a ‘Napster node’, providing free music for all!

However, this unrestricted freedom posed a significant challenge. The intellectual property owners, primarily the artists, weren’t getting paid. If artists couldn't profit from their creations because of these ‘Napster nodes’, why would they continue to produce music? The consequence was foreseeable: Napster faced a barrage of lawsuits and even spam attacks from record companies seeking to ‘poison the well’. The service was eventually forced to shut down.

Enter Spotify. Instead of acting as a middleman for music delivery, such as record stores and Napster users, Spotify introduced a direct streaming service. Users gained access to almost every song ever made for a nominal fee. This model not only significantly reduced distribution costs but also resulted in a surge in the amount of music being produced. The main difference is that Spotify acknowledged and rewarded the owners of the intellectual property.

A Parallel in the Crypto World

Drawing parallels to the crypto industry, legacy oracles operate in a similar manner to Napster. They operate under the belief that all data across the internet is freely accessible. The main task for legacy oracles is to motivate node-runners to bring that data onto the blockchain. However, there is a fundamental issue with this approach: not all data is actually free.

Consider financial market data as an example. In 2023, the value of this data exceeded $6 billion. Traditional financial markets typically require expensive subscriptions to access price feeds for assets like equities, foreign exchange, and commodities.

Cryptocurrency markets are unique because CEX order book data is usually freely available and easily accessible. However, this dynamic will not last forever. Coinbase, for example, started charging for market data last year. When we look back at history, traditional exchanges did not charge for market data until about 15 years ago when they realized it was a profitable source of revenue. Nowadays, it constitutes a significant portion of their earnings as it is tailored and packaged to meet customer needs. It is inevitable that the same will happen to crypto data.

However, we are still witnessing legacy oracles scraping financial market data from the internet ‘for free’. This raises concerns that the data is either illegally scraped or outdated, rendering it untimely. In either case, the business model comes under scrutiny when considering the economics of market data.

Pyth Network: Taking a Cue from Spotify

Here's where Pyth Network comes into play, adopting a strategy similar to Spotify's. Instead of navigating through a web of intermediaries to source financial data, Pyth Network introduces a streamlined model. The network eliminates unnecessary intermediaries while ensuring that the actual content creators, or in this case, the data providers, are fairly compensated. This approach not only ensures data integrity but also provides traders—creators and owners of unique, valuable financial data—with a new opportunity to participate in the economics of data distribution.

Our data providers share the same vision as the greater Pyth Network community and the wider DeFi ecosystem: in order for Web3 and DeFi to grow, it is imperative to solve the oracle problem in a comprehensive and scalable manner. These data providers recognize that solutions before Pyth Network were incomplete and unlikely to scale to support multiple asset. Moreover, the Pyth oracle solution enables these data providers—trading venues and market participants in digital and traditional asset classes—to explore Web3 use cases at their own pace and direction.

Since its inception, the Pyth Network has witnessed consistent growth. On average, three new data providers have joined the network each month. To date, there are over 85 data providers, including some of the industry's most prominent player: Binance, Bybit, Wintermute, Cboe Global Markets, Optiver, and LMAX are just some of the household names. On the other side of the network, more than 200 applications are using the network’s price data to secure billions in smart contract value and trading volume.

They say history doesn't repeat itself, but it often rhymes. The shift from Napster to Spotify in the music industry provides a framework for addressing the current challenges in the crypto and DeFi sector. Pyth Network, with its innovative first-party data model, is making significant strides in revolutionizing how high throughput DeFi protocols access and utilize financial data. For both data creators and consumer applications, this is music to their ears.

We can’t wait to hear what you think! Feel free to join the Pyth Discord and Telegram, and follow Pyth on X. You can also learn more about Pyth here.