API3's Stock Market Breakthrough Strategy: First-Party Oracle Machine and OEV Value Capture

Oracle Machine and DeFi, as mature sectors, have basically stabilized in their competitive landscape. However, API3 is still exploring new opportunities in these two fields.

Data Performance

In 2024, the collateral value of the API3 Oracle Machine ( TVS ) showed significant growth. In terms of market share, API3's TVS in the oracle market increased from 0.02% in May 2023 to the latest 0.22%, a tenfold increase. Although this ratio still seems small, considering that the upcoming OEV network is still in the testing phase, it may bring substantial growth in the future.

Advantages of First-Party Oracle Machines

There are differences in the implementation methods between first-party Oracle Machines and third-party Oracle Machines. API3's first-party Oracle Machine makes it easier for data source providers to establish nodes through the Airnode lightweight node program, without the need for in-depth knowledge of blockchain technology, and with lower hardware requirements.

Compared to third-party Oracle Machines, first-party Oracle Machines reduce the data transmission link, potentially lowering security risks. In addition, by eliminating one charging entity, first-party Oracle Machines may offer users lower costs.

OEV Network Overview

OEV( Oracle Extractable Value) refers to the value that an oracle can capture and is an extension of the concept of MEV( Miner Extractable Value). The OEV network utilizes the data advantages of first-party oracles to convert part of the MEV into OEV by updating price data earlier and executing related operations (such as liquidation) simultaneously.

How OEV Network Works

OEV Network is a ZK-rollups Layer2 network developed based on Polygon CDK. Its core feature is decentralized auctions. Participants search for captureable value in the data published by API3 through automated bots and participate in the auctions. The highest bidder gains the right to execute meta-transactions, including updating dAPI and triggering the corresponding trading actions.

OEV Revenue Distribution

Most of the proceeds from the auction are returned to DeFi applications (such as AAVE), with a small portion obtained by the OEV network, primarily as revenue for first-party Oracle Machine providers. This distribution method helps attract data sources and DeFi applications to actively participate in the OEV network.

Market Potential of OEV

Observe the data of major DeFi lending protocols:

• The total value of MakerDAO's collateral auction assets exceeds 600 million USD.
• AAVE has liquidated assets of approximately $2 billion over the past 3 years.
• The value of collateral liquidated by Compound in the past year was $76 million.

The lending agreement settlement is expected to become the main application market for OEV.

Conclusion

API3 has found a breakthrough in the relatively mature markets of Oracle Machines and DeFi through the innovative combination of "First-party Oracle Machine + ZK-rollup Layer2 + OEV". The OEV network changes the way Oracle Machine data is updated, converting some MEV into OEV and reasonably distributing value through a decentralized auction mechanism. This not only improves the fairness of value distribution but also helps enhance the stability of DeFi applications.

API3's product strategy design demonstrates its ability to seek innovation points in the existing market, with the potential to gain broad support from data sources and DeFi applications in the future, possessing considerable development space.