The Innovative Journey of the Newcomer Oracle Machine API3

Although Oracles and DeFi are no longer emerging fields and the competitive landscape is basically formed, API3 is still creating new opportunities in these two highly competitive markets.

Data growth is significant

The collateral value of the API3 Oracle Machine ( TVS ) is expected to experience explosive growth in 2024. In terms of market share, API3 accounted for only 0.02% of the entire Oracle Machine market in May 2023, while the latest data shows its market share has reached 0.22%, a tenfold increase. Although this percentage still seems small, considering that its newly launched OEV network is still in the testing phase, the future growth potential is worth looking forward to.

Advantages of First-Party Oracle Machines

API3 adopts a first-party Oracle Machine model, enabling data source providers to more easily establish nodes through the development of the lightweight node program Airnode, without the need for in-depth knowledge of blockchain technology, and with lower hardware requirements. Compared to traditional third-party Oracle Machines, API3 eliminates the intermediate steps of data aggregation and filtering, potentially improving the security and efficiency of data transmission. Logically inferred, this model may bring lower usage costs to users.

OEV Network: Innovative Value Capture Mechanism

OEV( Oracle Extractable Value) is an innovative concept proposed by API3, aiming to convert part of MEV( Miner Extractable Value) into value that can be captured by Oracle Machines. By obtaining and updating key data in advance, the OEV network can execute transactions more efficiently under specific conditions (such as asset liquidation), reducing the cost losses of intermediaries.

OEV Network is a ZK-rollups Layer2 network developed based on Polygon CDK, with its core functionality being a decentralized auction mechanism. Participants search for captureable value in the data published by API3 through automated bots and participate in auctions. The winning bidders obtain the right to execute related transactions, thereby generating profits.

Beneficiaries and Market Outlook of OEV

The main beneficiaries of the OEV mechanism include:

1. DeFi applications (such as lending platforms) can obtain most of the auction proceeds and benefit from more timely and accurate data updates.
2. Data providers (first-party Oracle Machine) receive a portion of the auction revenue.

Observing the historical data of major DeFi platforms, the market space for OEV is quite substantial:

• The cumulative value of collateral auctioned assets by MakerDAO exceeds 600 million USD.
• AAVE has had approximately $2 billion in assets liquidated over the past 3 years.
• Approximately $76 million in collateral was seized by Compound in the past year.

Although the application of OEV is not limited to lending protocols, the liquidation market is undoubtedly one of its primary targets.

Conclusion

API3 has found a breakthrough in the relatively mature markets of Oracle Machine and DeFi through the innovative combination of "first-party Oracle Machine + ZK-rollup Layer2 + OEV". The OEV network leverages the data advantages of first-party Oracle Machines, changing the way Oracle Machine data is updated, while optimizing the value distribution mechanism, and is expected to gain support from data sources and DeFi applications.

This innovative strategy not only enhances the efficiency and fairness of the DeFi ecosystem but also opens up a unique development path for API3 in a competitive market. With the official launch and further improvement of the OEV network, API3 is expected to occupy a more significant position in the Oracle Machine and DeFi fields.