The Intelligent Insurer #37 — Data provider suffers second glitch in a month
Synthetify, a new crypto-based platform that bridges synthetic assets and real-world assets was forced into an involuntary shutdown thanks to issues with the Pyth Network. The shutdown garnered significant attention in the cryptocurrency marketplace despite funds’ security being assured.
In the latest Intelligence Insurer, we highlight the issue that caused the network shutdown and how investors were affected by the outage. Before diving into this topic, we present our weekly development progress update.
Insured Finance development update
We continue to make steady progress towards our Alpha release. This past week, we continued work on setting up 25 test accounts for our initial users and completed analytics integration. As a reminder, users can tour our frontend by clicking on this link.
- We finished setting up error reporting and performance monitoring modules along with completing the full product tour feature for our users.
- We continued auditing our smart contract functionality for bugs and improved code documentation.
- We deployed the token faucet’s smart contract and finished unit testing the functionality.
Over the coming week, we aim to define product metrics and continue work on our data dashboard. We’ll also simplify our payout process with ChainLink to ensure our users experience the safest environment. We remain committed to building a next generation digital assets insurance platform and are firmly on track to achieve this goal.
Pyth Network faces second data-related glitch in a month
Synthetify, a decentralized synthetic assets exchange built on the Solana blockchain, allows users to trade both cryptocurrencies and synthetic stocks on its platform. It is backed by leading venture capitalists like DeFi Alliance, Alameda Research, CMS, and Divergence Ventures. Pyth Network provides high-fidelity (hi-fi), time-sensitive, real-world data to decentralized finance (DeFi) platforms, that powers their smart contract functionality.
Synthetify relies on Pyth Network for the price feeds on its platform. On October 5th, 2021, a data error on the Pyth Network caused Synthetify to halt operations just hours after launching on Solana. The reason for the shutdown, as announced by the platform, was as a result of incorrect Time-Weighted Average Price (TWAP) provided by Pyth Network.
This isn’t the first glitch that has affected the quant-backed Pyth Network. On September 21st, 2021, the network recorded a $5,402 price for Bitcoin, while the actual price was nowhere near that. This was an absurd 90% divergence from real-time prices. The issue was resolved and the network claimed that the error was a result of two of its data supply firms encountering a decimal error.
There was predictable outrage in the crypto community following this announcement. The majority of it was directed towards Pyth’s protocols. In addition, users questioned Synthetify’s decision to not partner with ChainLink, the industry standard for decentralized oracles.
Instead, Synthetify appeared to have placed greater weight on the Pyth Network’s backers’ pedigree instead of adhering to industry-standard protocols. Pyth eventually detailed the reasons for the error in a series of tweets. Alarmingly, these tweets only raised more issues than resolving them.
For instance, the tweets disclosed that the network does not have a mechanism to handle price data overflow, a standard protocol with any data provider. Users were also quick to highlight that this was the second bug that afflicted the network within a month, something that is far from the norm.
Staying safe from developmental risks
This incident shows how vulnerable DeFi investors’ funds are. Given the highly technical nature of the industry, it’s impossible for regular investors to protect themselves from every risk. On the surface, Synthetify appears to have suffered unjustly thanks to the Pyth Network’s glitches. However, the former consciously decided to partner with an unproven network instead of choosing a battle-tested data provider. This is a risk that no investor would have seen coming.
To protect against such issues, DeFi users are adopting insurance solutions like Insured Finance. Investors can rest assured that their assets are safe and secure, no matter what troubles afflict the networks they invest in. Synthetify has since returned to full speed, with the data feed now properly calibrated. Thankfully, no investor money has been lost. It remains to be seen whether this will be the case with the next glitch.
About Insured Finance
Insured Finance is a decentralized, peer-to-peer insurance marketplace. Insured Finance users can request customized insurance on a wide variety of digital assets. Those that fulfill requests earn premiums and can earn a competitive return on their capital. Claims are fully collateralized and settled instantly.