API3: Innovation Breakthroughs in the Oracle Machine Field

In the context of a stable competitive landscape in the Oracle Machine and DeFi markets, API3 has opened up new development opportunities in these two mature fields through innovative strategies.

Data Growth Significant

The collateral value of API3 Oracle Machine ( TVS ) achieved significant growth in 2024. In terms of market share, the TVS of API3 increased from 0.02% in May 2023 to the current 0.22% of the entire Oracle Machine market, a tenfold increase. Although the 0.22% share may still seem small, considering that the newly launched OEV network of API3 is still in the testing phase, there is enormous growth potential in the future.

Advantages of First-Party Oracle Machines

The first-party Oracle Machine model adopted by API3 differs from traditional third-party Oracle Machines. First-party Oracle Machines allow data source providers to establish nodes more conveniently through the Airnode light node program, without needing an in-depth understanding of blockchain technology, and with lower hardware requirements.

Compared to third-party Oracle Machines, first-party Oracle Machines eliminate the step of data aggregation and filtering by a third party, thereby reducing potential security risks. In addition, since there is one less charging entity, first-party Oracle Machines may have cost advantages.

OEV Network: Innovative Value Capture Mechanism

OEV(Oracle Extractable Value) refers to the value that can be captured by the Oracle Machine, an innovative concept introduced by API3. The OEV network is developed based on Polygon CDK and utilizes ZK-rollups Layer2 technology, with its main function being decentralized auctions.

The working principle of the OEV network is as follows: auction participants search for captureable value in the data published by API3 through automated bots and participate in the auction. The highest bidder obtains the right to update the dAPI and simultaneously trigger the corresponding trading actions, thus gaining the corresponding profits.

Beneficiaries of OEV and Market Prospects

The main beneficiaries of OEV include data source providers and DeFi applications. Most of the proceeds from the auction will be returned to the DeFi applications, with a small portion going to the OEV network, mainly as revenue for the first-party Oracle Machine. This mechanism is expected to receive positive support from data providers and DeFi applications.

From the market space perspective, taking the liquidation of lending protocols as an example:

• The total value of the collateral auction assets of MakerDAO has exceeded 600 million USD.
• Approximately $2 billion in assets have been liquidated from AAVE over the past 3 years.
• In the past year, Compound has had $76 million in collateral seized.

These data indicate that OEV has broad application prospects in areas such as lending protocol liquidation.

Summary

API3 has found a breakthrough in the mature markets of Oracle Machines and DeFi through the innovative combination of "first-party Oracle Machine + ZK-rollup Layer2 + OEV". The OEV network utilizes the data advantages of the first-party Oracle Machine, changing the way Oracle Machine data is updated, converting part of the MEV into OEV, and reasonably allocating value through a decentralized auction mechanism.

This strategy not only improves the fairness of value distribution but also helps enhance the stability of DeFi applications. With this innovative design, API3 is expected to gain support from data sources and major DeFi applications in the future, thus carving out a unique development space in a highly competitive market.