The Sakya tradition is closely connected with the Khon ancestral lineage. This lineage is according to the tradition descendants of celestial beings. These beings descended from the Clear Light heavens in the Realm of Form, ten generations before Guru Padmasambhava, and took residence in Tibet for the benefit of beings. At this time they were called lha rig (the celestial race).
After eight generations, there was a dispute between the descendants and a Yaksha leader. Yakshas are a group of daemons. During the conflict, there was a love affair between one of the clear light gods, Yapang Kye, and a Yaksha daughter, Yatuk Silima. They bore a son named Khon Bar-kye, meaning 'the one that is born between love and strife.' Due to this dispute the family was known as Khon (khon - meaning dispute).
The Manjushri Tantra predicted that the Khon family descendants would be manifestations of bodhisattvas and mahasiddhas, and that the Buddhist teachings would flourish from their activities.
One of the first seven Tibetans who receive the complete Vinaya ordination of a Buddhist monk from the great Indian abbott Santarakshita was Khon Lu'i Wangpo of the Khon family.
Up until the 11th century, the Khon family members were great Nyingma lineage holders and students of Guru Padmasambhava in the providence of Tsang. They especially received the Vajrakila empowerment.