API3 Redefines Blockchain Oracle Landscape with Data on Demand and OEV Network

API3, a provider of decentralized oracle solutions, has established itself as a formidable challenger to Chainlink. Since its inception in 2020, API3 has revolutionized the oracle landscape, prioritizing data source transparency and on-chain data decentralization. Through the API3 Market, developers can seamlessly access over 160 data feeds across 17 blockchains, with a Total Value Secured (TVS) exceeding $600M. API3's unwavering commitment to innovation continues with the introduction of a Data on Demand marketplace, streamlining data acquisition for developers, and the OEV Network, an oracle architecture solution designed to reclaim oracle extractable value (OEV) and enhance the efficiency of lending protocols. These advancements reinforce API3's determination to reshape the oracle landscape, much like Netflix transformed home entertainment in the early 2000s.

API3: Redefining the Blockchain Oracle Landscape with Data on Demand and OEV Network

Introduction

Since its inception in 2020, API3 has emerged as a formidable challenger to the established oracle provider, Chainlink, earning the moniker "Chainlink killer." API3 has embarked on a mission to revolutionize the blockchain oracle landscape by introducing innovative solutions centered on data source transparency and verifiable on-chain data decentralization. In addition to developing mechanisms to deliver verifiable, decentralized data directly from data providers, API3 unveiled a solution in its 2022 litepaper to reclaim oracle extractable value (OEV), demonstrating how lending protocols such as Aave lose millions of dollars annually due to maximal extractable value (MEV) inherent in oracle architecture.

API3's Remarkable Growth and Developer-Centric Approach

Over the past year, API3 has experienced remarkable growth. The launch of the API3 Market, a developer-centric marketplace for on-chain data, was a significant milestone. Spanning over 17 blockchain networks and offering more than 160 data feeds, API3's Total Value Secured (TVS) has grown exponentially to exceed $600 million. This phenomenal progress underscores the success of API3's developer-centric approach and the importance of oracle solutions in the world of on-chain finance.

Central to API3's developer-centric approach is the upcoming launch of a Data on Demand marketplace, complemented by an integrated solution, the OEV Network, designed to safeguard all its data feeds against MEV. These groundbreaking solutions empower API3 not only to challenge the status quo but also to fundamentally redefine the oracle landscape. Just as Netflix revolutionized home entertainment in the early 2000s, API3's innovations may herald a transformative shift in the blockchain oracle landscape.

Evolution to Data on Demand

The API3 Market was conceived as an open, self-service marketplace for utilizing decentralized data feeds, also known as dAPIs. Developers seeking to power their protocols with verifiable, decentralized data directly from first-party oracle nodes can access the API3 Market, where they can seamlessly explore, access, and manage a diverse range of data feeds, encompassing crypto, forex, equities, and commodities.

As part of a significant upgrade to the API3 Market, API3 is introducing a Data on Demand marketplace for data feeds, replicating the ease of a web2 experience familiar to many developers. This next phase in the evolution of the API3 Market automates the procurement and configuration of data feeds through a straightforward Pay-and-Go process. This eliminates the need for developers working on blockchain networks and decentralized applications (dApps) to engage with intermediaries or human agents to access API3's vast data feed repository, simplifying the process of acquiring off-chain data.

The API3 Market empowers developers requiring oracle services to acquire the data they need when they need it. Instead of managing their own infrastructure, developers can simply retrieve data that is meticulously maintained and stored on-chain.

API3 Market: Data on Demand

Envision this transition as analogous to the shift from renting DVDs at Blockbuster to the convenience of Netflix's on-demand streaming service, but tailored specifically for blockchain developers.

API3's data-on-demand model not only democratizes access to the data essential for powering numerous DeFi protocols but also facilitates the rapid scaling and adoption of these data feeds across multiple chains. With the API3 Market upgrade, API3 embarks on its ambitious goal of expanding its oracle stack to over 40 blockchains this year, emphasizing Layer 2s.

The ability to scale horizontally to new chains stems from API3's EVM-compatible first-party oracle architecture and standardized dAPIs. This design enables API3 to integrate seamlessly with new networks, alleviating the bottlenecks encountered with third-party oracle models. API3 employs a vertical scaling strategy alongside the rapid deployment of on-chain data to new chains, enhancing data accessibility on each network. Designed with a focus on cost-effectiveness, dAPIs allow developers to acquire on-chain data directly without incurring additional fees, lowering the entry barriers for new projects on the network.

The network effects of the API3 Market amplify its utility. As the go-to destination for on-chain data, it minimizes the complexity and effort typically associated with designing a technology stack. API3 allows developers to concentrate on their core competencies, developing their applications, without the distractions of managing unnecessary infrastructure or coordinating with intermediaries.

Data on demand on the API3 Market is poised to revolutionize the developer experience, akin to how Netflix transformed content consumption by making a vast library of content available at the click of a button.

Improving Lending Protocol Performance with the OEV Network

Concurrent with the API3 Market upgrade to enhance the developer experience, API3 will soon launch the OEV Network to optimize lending protocol efficiency.

Blockchain applications utilize oracles to retrieve off-chain data, such as price feeds, and bring them on-chain. Most protocols that depend on oracles become targets for value extraction, or MEV, through frontrunning, arbitrage, and liquidations. Lending protocols are now recognizing the substantial value siphoned from their ecosystem, with losses amounting to millions of dollars annually.

In the past three years, Aave alone has witnessed liquidations exceeding $2 billion across all chains, with more than $100 million disbursed as liquidation incentives. While these liquidation bonuses are crucial for maintaining protocol health, they result in significant value leakage to searchers and block builders, leading to a suboptimal user experience.

The OEV Network is introduced to reclaim this value by creating an efficient marketplace where oracle service providers and searchers converge to mitigate the negative impact of MEV through specialized order-flow auctions. With the OEV Network, searchers are no longer obligated to wait for price updates on-chain; they can trigger the price update when its value is maximized. As an application-specific solution, it captures up to 90% of the MEV generated at the protocol level due to oracle updates and returns it to the dApp that generated the value.

The OEV Network provides every lending protocol an intrinsic MEV solution by addressing fundamental inefficiencies in the current oracle design space. By establishing an efficient marketplace for oracle updates, it not only enhances the efficiency of lending protocols but also enables them to capitalize on a multi-million dollar opportunity.

Lending Protocols Will Never Be the Same

The OEV Network introduces a fundamental shift in market dynamics that will revolutionize the liquidation game for lending protocols, improving their overall health and minimizing the negative externalities of value loss due to liquidations. The design upholds the data feed's security guarantees while permitting the auctioning and recovery of the value generated by oracle updates.

The OEV Network embodies an evolution in oracle architecture, enhancing the performance, efficiency, and sustainability of lending protocols. By recapturing up to 90% of the MEV currently lost by lending protocols, the OEV Network unlocks new avenues for innovation, transforming the on-chain lending experience by empowering protocols to offer enhanced yields, reduced fees, or novel features.

Lending protocols will be irrevocably altered.

Netflix did not set out to vanquish Blockbuster; they were engaged in distinct competitive arenas. Blockbuster rested on its laurels as the prevailing market force. Netflix, however, prioritized innovation. Ultimately, one platform was user-friendly, efficient, provided what users desired when they desired it, and saved them money.

In retrospect, the choice was self-evident.