In-depth Analysis of How API3 Explores New Opportunities in Mature Markets

Although oracles and DeFi are already fiercely competitive fields, API3 has still found a breakthrough, opening up new development space in these two saturated markets.

Data shows strong growth of API3

The collateral value of the API3 oracle, ( TVS ), is expected to show significant growth in 2024. Even considering the overall rise in coin prices in 2024, API3's market share has still achieved considerable improvement. According to statistics from data platforms, API3's TVS share of the oracle market has increased from 0.02% in May 2023 to the current 0.22%, marking a tenfold growth. Although this percentage remains relatively small, considering that API3's OEV network is still in the testing phase, the potential for future growth is worth looking forward to.

Advantages of First-Party Oracles

First-party oracles and third-party oracles are similar in the direction of data flow, both involving data providers transmitting information to the demand side (mainly DeFi smart contracts). However, there are differences in implementation:

1. Third-party oracles aggregate and filter data from intermediaries and provide it to the demand side.
2. API3's first-party oracle allows data source providers to easily establish lightweight nodes through the Airnode program, without needing in-depth knowledge of blockchain technology, and with low hardware requirements.

First-party oracles eliminate intermediaries, which theoretically may reduce security risks and usage costs. Although it is difficult to directly compare specific fees, logically, first-party oracles may be more economical for users.

OEV Network: Innovative Value Capture Mechanism

MEV vs OEV

MEV (Miner Extractable Value) refers to the additional profits miners gain by prioritizing high-tipping transactions. OEV (Oracle Extractable Value), on the other hand, is the value that API3 captures by leveraging the data advantage of first-party oracles to execute operations such as liquidation in advance, converting some MEV into OEV.

OEV Network Operating Principles

OEV Network is a ZK-rollups Layer2 network developed based on Polygon CDK, with the main function of decentralized auctions. Participants use automated bots to search for captureable value in the data published by API3 and participate in the auctions. The highest bidder gains the rights to update the dAPI and trigger related transactions, thereby earning profits.

OEV beneficiary

1. DeFi applications (such as AAVE): earn most of the auction profits while reducing risk.
2. Data Provider (First Party Oracle): Receives a portion of the auction revenue.

Data sources and DeFi applications are motivated to actively participate in the OEV network.

Market Potential of OEV

The lending agreement clearing is one of the main application scenarios of OEV:

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

Summary

API3 opens up new development directions in mature markets through the innovative combination of "first-party oracles + ZK-rollup Layer2 + OEV". The OEV network leverages the data advantages of first-party oracles to change the way oracle data is updated, while also reasonably distributing the value of OEV to all participants through a decentralized auction mechanism. This strategy not only improves the fairness of value distribution but also helps enhance the stability of DeFi applications.

API3's innovation lies in transforming a portion of MEV into OEV and allocating it to relevant participants, which is a product strategy design that is quite insightful. As the OEV network develops, API3 is expected to gain considerable market share and growth potential in the two highly competitive fields of oracle and DeFi.