(Bloomberg) -- Some of the world’s most sophisticated traders are giving everyday investors unprecedented access to their turbocharged data feeds via the blockchain, hoping to get in on the ground floor of a decentralized-finance push that crypto-enthusiasts say will upend conventional banking and markets.
Virtu Financial Inc. said Thursday that it’s joining Pyth, a network that blasts out up-to-the-millisecond price updates on stocks, fiat currencies and cryptocurrencies. The decision to join the platform -- announced in April by Jump Trading Group -- follows a similar move by fellow high-frequency trading firm GTS earlier this month.
Even as cryptocurrency prices crater, DeFi continues to attract a huge amount of attention. The premise is that tiny bits of code, or smart contracts, that live on blockchains hosted by computers around the world can serve as the backbone for a whole new way of doing finance, automatically self-executing when specific parameters are met.
But they need access to timely, verifiable real-world data to work. That’s where “data oracles” like Pyth come in. They collect and supply the relevant information so smart contracts can function.
“For something like this to succeed, the data needs to be something people can rely on -- that’s where we see the opportunity to help,” said Joe Molluso, Virtu’s co-president and co-chief operating officer. “I’m not sure anyone has a crystal clear picture of what it’ll look like in the future,” but “the end game could be very exciting.”
What Virtu, Jump and GTS are revealing through Pyth are the prices at which their trades are executed. That’s no small thing. Virtu and GTS are two of the biggest traders in the U.S. stock market, while Jump is also major player in derivatives, meaning Pyth users will get about as good a peek into markets as possible.
What users will ultimately to do with the data, the firms don’t really know. Proponents argue decentralized finance could eliminate the need for conventional brokers and exchanges for transactions as simple as a currency limit order.
Of course, that’s far from a sure bet, and detractors say there’s little value in an initiative that largely reinvents the wheel.
Virtu, Jump and GTS don’t see it that way. They’re looking to be involved from the get go with the infrastructure that they say could help shape the future of finance.
“We’re just donating the trading that we’re doing to this facility so that content can be more efficiently propagated to the investment community,” GTS Chief Executive Officer Ari Rubenstein said in an interview. “We think if you lower barriers to entry, you’ll get more trading and demand for risk transfer services.”
400 Milliseconds
The Pyth network updates prices every 400 milliseconds or so -- about how long a major league fastball takes to reach home plate -- not minutes as with other oracles. It works with smart contracts running on the Solana blockchain, which can handle 50,000 transactions per second. That’s far faster than the dozen or so that Ethereum -- which pioneered the use of smart contracts on a blockchain -- can process, and in line with the pulse of markets that high-frequency trading firms dominate.
It’s not just HFT firms getting in on the action, either. LMAX Group, a digital and fiat currency exchange, announced earlier this week that it’s also joining Pyth.
“This is one of the most exciting things I’ve ever worked on,” Dave Olsen, the president and chief investment officer of Jump who worked at JPMorgan Chase & Co. for almost 25 years, said in an interview. He sees parallels to when Apple Inc. first started letting developers make apps for the iPhone. While no one could have predicted the likes of Uber Technologies Inc. emerging from that decision, the potential was clear, he said.
“It updates fast, it’s accessible by anyone and the users will now have a window into the insider market for prices of financial assets,” Olsen said. “It feels like an inflection point in the way market structure is configured and which participants are playing which role.”
©2021 Bloomberg L.P.
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