API3's Innovative Breakthrough: First-Party Oracle Machines and OEV Network

Although Oracle Machine and DeFi are already mature fields, API3 has still found new opportunities in these two competitive markets.

Data growth is significant

The collateral value of the API3 Oracle Machine ( TVS ) is expected to see significant growth in 2024. In terms of market share, API3's TVS accounted for only 0.02% of the entire Oracle Machine market in May 2023, while the latest data shows that its market share has reached 0.22%, a tenfold increase. Although its current share is still relatively small, considering that the OEV network is still in the testing phase, there is considerable room for growth in the future.

Advantages of First-Party Oracle Machines

First-party Oracle Machines and third-party Oracle Machines appear similar in terms of data flow, both involving data providers submitting data to the demand side (, primarily for DeFi smart contracts ). However, the implementation methods differ:

• The third-party Oracle Machine provides data to the demander after aggregating and filtering it.
• The first-party Oracle Machine of API3 has developed the Airnode lightweight node program, allowing data source providers to more easily establish nodes without needing in-depth knowledge of blockchain, and with lower hardware requirements.

First-party Oracle Machines reduce a data transmission link, which may be logically more secure. Meanwhile, since one billing entity has been removed, costs may be lower for users.

OEV Network Principle

OEV( Oracle Machine can capture the value ), which is relative to the MEV( miner's captureable value ) concept. The OEV network leverages the data advantages of first-party Oracle Machines, changing the way Oracle Machine data is updated, converting part of the MEV into OEV.

OEV Network is a ZK-rollups Layer2 network developed based on Polygon CDK, with its main function being decentralized auctions. Auction 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 update the dAPI and trigger the corresponding transactions, thereby earning profits.

OEV Revenue Distribution

Most of the proceeds from the auction are returned to DeFi applications ( such as AAVE ), while a small portion is obtained by the OEV network as revenue for API providers. This distribution method incentivizes both data sources and DeFi applications to participate in the OEV network.

Market Space Analysis

Taking the lending agreement settlement as an example:

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

The application of OEV is not limited to lending protocols, but lending liquidation may be the main market.

Summary

API3 innovatively combines the concepts of "first-party Oracle Machine + ZK-rollup Layer2 + OEV" and achieves a partial transformation of MEV to OEV by improving the data update method of the Oracle Machine and the decentralized auction mechanism. This not only enhances the rationality and fairness of value distribution but also helps improve the stability of DeFi applications.

In the context where the competition landscape of Oracle Machine and DeFi is basically stable, API3 has identified an innovative point to convert the MEV portion into OEV and allocate it to relevant participants. This product strategy design is quite forward-looking. In the future, the OEV network and API3 are expected to receive support from data sources and major DeFi applications, having considerable development potential.