Technical Analysis API3: Another batch of dark horses in the oracle track?

When it comes to the oracle machine track, everyone will naturally follow @chainlink's lead. However, with the rise of new performance public chains and the emergence of various new module lightweight projects, the oracle machine The track also started to roll inward.

Recently, the market has heard the voice of @API3DAO killing Chainlink. What does API3 do?  Will OEV Network really revisit the MEV oracle market? Next, let me talk about my understanding based on the perspective of popular science + business competition.

-How to understand the First-party Oracle of API3?

Usually oracle services such as Chainlink are composed of data sources (exchanges), data collection nodes (API service providers), and data processing centers (oracle chains) , end users (smart contract project parties) and other components.

It is equivalent to building a bridge from data sources to blockchain applications. Oracle nodes collect data from different channels concurrently through multiple channels, and the oracle network comes Coordinate the processing, verification and aggregation of these data to reduce errors, and finally feed the price to the terminal smart contract demander.

There are two key points in the current oracle workflow:

1) API The more data collection nodes there are, the richer, more accurate and decentralized the data sources collected, but the API nodes are doing the work of ascetics and can only collect data mechanically for "mining";

2) The more smart contract project parties connected to the oracle network, the price processing of the oracle machine will tend to be "centralized". The greater the intervention in the data, the greater the trust cost of the end customer. high.

Essentially, the oracle network acts as a third-party intermediary platform, so the role and space of the API service node will be relatively limited, and the oracle platform itself The more authoritative it is, the more it will fall into the vortex of doubts about "centralization". This is almost an irreconcilable contradiction.

The first-party oracle proposed by @API3DAO   actually removes the intermediate link of "preprocessing" of the oracle platform and directly connects data sources and projects square.

For API nodes, the role of the master has been upgraded, and operations and refined development can be carried out based on the collected data to enhance the services of API nodes. Ability to collect more customized data sources and serve project parties with special needs;

For terminal projects, it can be used at a lower cost Cooperate directly with API nodes to more flexibly customize and develop special data requirements, thereby providing necessary oracle support for its innovative application products.

-API3 chose the decentralized and flexible long-tail market of oracles

It is not difficult to see , API3 enters into a more decentralized and flexible Oracle long-tail market, starting from activating the comprehensive operation and maintenance service capabilities of API service nodes, and using a more web3 Native (lightweight + modular) way to build oracles bridge the demand side and the supply side. How to do it?

API3 mainly includes two core components:

1) Airnode is the API node service provider Provide a set of basic infra from building oracle nodes to connecting project parties, allowing API nodes to deploy oracle services in a low-cost and lightweight manner, simplifying the configuration and management process, allowing those who are not familiar with blockchain technology to API providers can also easily become oracle node operators;

2) dAPI is equivalent to a decentralized DAO organization. API nodes use signatures to continuously obtain data from The source collects and updates data, while the data demander smart contract can safely and transparently call data and pay on demand. The management and operation of the entire dAPI is provided by the decentralized DAO organization, and is transparent through the reward and punishment mechanisms of Staking and Slash. Security governance;

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In general, API3 attempts to use lightweight basic infra services and DAO Staking reward and punishment mechanisms to build an oracle market that removes the middle chain . The mature Chainlink has a super-fan customer base and a stable price pre-processing method, which is already an unshakable existence.

API3 business strategy thinking is the same as Celestia’s DA War to continuously seize Ethereum’s layer 2 market. After all, Chainlink cannot serve all smart contract customers. After all, there are always some Lightweight customers pay more attention to cost and performance-price ratio. After all, there are always customers who need more timely and customized data source services. After all, there are always API nodes who want to explore more comprehensive and rich business methods, etc.

Rather than saying that API3 is to be a Chainlink killer, it is better to think that API3 is to be a powerful supplement to Chainlink and jointly divide the market.

As for whether end customers prefer the stable and mature Chainlink service or the low-cost and flexible API3 service, the choice lies entirely with the market. In my opinion, it is difficult to threaten chainlink in the short term, but in the long term, combined with the increasingly modular blockchain application market, the choice of API3 is also promising.

-OEV Network is a dimension-enhancing magic modification of MEV?

Recently, API3 built a layer2 public chain OEV Network based on Polygon CDK. How to understand the application scenarios of this public chain? Many API nodes have the authority to update data. In the DeFi scenario, if the smart contract triggers a certain price point, the liquidator can choose to purchase the assets pledged by the user, thereby obtaining arbitrage value after the price stabilizes.

Under normal circumstances, the liquidator is actually the API node service provider. After all, they have the authority to update the smart contract agreement price. Before the governance model of OEV Network came out, this Liquidation behavior may be chaotic. API nodes may rush to update data in order to obtain liquidation rights. Multiple API nodes may intensify the "volatility" of market prices in order to obtain liquidation rights. The original supplier of objective data becomes a possibility. The arbitrageurs who disrupted the normal market order have obviously changed their minds.

But there is actually no way to stop it. Allowing API nodes to directly connect to smart contract project parties is to reduce platform intervention and enhance market-oriented operations, aiming at arbitrage in the market. The involution and chaos cannot be effectively intervened by any third party and can only be restrained through governance mechanisms.

OEV Network is equivalent to a regulatory governance mechanism, which stipulates that when dApps users’ positions are about to be liquidated, they can participate in the auction of the dAPI3 network, and the highest bidder will win the next prize. The right to update the oracle data once, thereby obtaining liquidated MEV profits.

Why do I say it is a dimension-enhancement magic modification of MEV? The original 1.0 version of MEV actually exists naturally due to marketization. In the process of collaboration between API nodes and smart contracts, there will inevitably be some market fluctuations and liquidations. By default, the API nodes that detect the liquidation point will be the first to compete for the cake.

In this case, the market will derive a MEV-Boost-like pipeline to specifically handle various MEV liquidation needs, which will cause some API nodes to arbitrage As the main appeal point, this obviously deviates from the original intention of dAPI’s open market to serve end customers well. How to do it?

The 2.0 version of MEV simply makes the existence of MEV transparent. Since MEV opportunities always exist, then simply make it known. With MEV arbitrage opportunities, API node services Fang will participate in the liquidation of the auction, and the auction revenue, OEV Network will distribute the profits to the users of the dApps protocol, which is equivalent to the value originally captured from the users, and now returned to the users.

This actually opens up the business landscape of the MEV market. The original MEV served niche arbitrageurs, but now MEV has become an opportunity for the general public. .

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In fact, not only API3 is trying to rectify the name of MEV in this way, but Flashbot 2.0 is also trying to tell a similar story. After all, the existence of MEV damages the chain. It can really open up a new world by protecting the fair rights and interests of users and transforming profits from serving niches into a business structure that benefits the public.

Note: The strategic card position of the oracle track is really important, #Link   #Pyth #API3 #Band, etc., although Chainlink has a monopoly on a large number of In some markets, there are always disputes in the oracle field, and there will definitely be dark horses that deserve long-term attention.