Oracle Machine Innovation: API3's Breakthrough Strategy in the Stock Market

Oracle Machine and DeFi, as mature sectors, have essentially stabilized in their competitive landscape. However, API3 has carved out new development space in these two red ocean markets through innovative strategies.

Data Growth is Impressive

The collateral value of the API3 Oracle Machine ( TVS ) is expected to show significant growth in 2024. In terms of market share, API3's TVS has increased from 0.02% in May 2023 to the latest 0.22%, a tenfold increase. Although this percentage still appears small, considering that the upcoming OEV network is still in the testing phase, the potential for future growth is promising.

Advantages of First-Party Oracle Machines

First-party Oracles and third-party Oracles may seem similar in terms of data flow, but their implementation methods differ. API3's first-party Oracle leverages the development of a lightweight node program called Airnode, allowing data source providers to establish nodes more conveniently without needing in-depth blockchain knowledge and with lower hardware requirements.

Compared to third-party Oracle Machines, first-party Oracle Machines eliminate the intermediate data aggregation and filtering steps, potentially reducing security risks. From an economic perspective, first-party Oracle Machines may offer users lower fees, although a specific comparison is difficult to quantify.

OEV Network: Innovative Value Capture Mechanism

OEV (Oracle Extractable Value) is a new concept proposed by API3, aimed at capturing a portion of the value traditionally belonging to MEV (Miner Extractable Value). By obtaining and updating price information in advance, the OEV network can perform operations such as liquidation without competition, thereby generating more revenue.

OEV Network is developed based on Polygon CDK and is a decentralized ZK-rollups Layer2 network. Its core function is to allow participants to bid for the rights to execute updates to dAPI and related transactions through an automated auction mechanism.

Beneficiary of OEV

The revenue distribution model of OEV mainly benefits two parties:

1. DeFi applications (such as lending platforms): obtain most of the auction profits while reducing risks.
2. Data Provider (First Party Oracle Machine): Receive a portion of the revenue.

This allocation mechanism is expected to attract more data sources and DeFi applications to actively participate in the OEV network.

The market potential is huge

Taking the lending protocol as an example, the market space for OEV is quite considerable:

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

Although the application of OEV is not limited to lending protocols, the liquidation market is undoubtedly one of its main targets.

Innovation and Prospects

The innovation of API3 lies in the combination of "first-party Oracle Machine + ZK-rollup Layer2 + OEV" three major elements, where the first-party Oracle Machine and OEV are conceptual innovations, while ZK-rollup Layer2 closely follows popular technology trends.

From a theoretical perspective, API3 utilizes the data advantages of first-party Oracle Machines to change the way Oracle Machine data is updated, and through the decentralized auction mechanism of the OEV network, converts part of the MEV into OEV. This not only improves the rationality and fairness of value distribution but also helps enhance the stability of DeFi applications.

In the context of a relatively stable competition landscape between Oracle Machines and DeFi, API3 has identified an innovation point by converting a portion of MEV into OEV and reasonably allocating it to relevant participants, showcasing a unique strategic vision for their product. This innovation is expected to gain support from data sources and major DeFi applications, paving the way for API3 to open up new territories in future markets.