The oracle track is a rigid demand for the development of the entire DEFI market and even Web3 Finance (RWA). In earlier articles, we have introduced the technical characteristics and development advantages of @API3DAO in detail. API3 is positioned as a challenger to Chainlink and is called the "Chainlink killer". API3 has always adhered to the first principles to build Web3 oracles: data source transparency + on-chain data verifiability + decentralization, etc.

In addition to first-party oracle technology to bring verifiable decentralized data directly to the chain from the data provider itself, the recent official launch of the OEV Network mainnet can be described as the "Netflix moment" of API3, which will rewrite the landscape and future development of the oracle track!

OEV Network Introduction:

OEV Network is a Layer2 solution powered by Arbitrum Orbit, where oracle service providers and searchers come together to combat the negative impact of oracle extractable value (OEV) through specialized transaction-based oracle update auctions. OEV Network creates an efficient market around oracle updates, allowing searchers to bid for valuable oracle updates, such as in the case of liquidation. The proceeds from these auctions are then programmatically returned to the DAPPs that generate value, bringing more value rebates and returns to the DEFI protocol.

Popular science about OEV and EVM:

In DeFi protocols, MEV is inevitable and can be understood as an implicit tax on protocols and users, as it increases transaction costs, reduces profitability of liquidity providers, and negatively affects user experience. In lending protocols, MEV is generated when informed participants (such as searchers or robots) discover liquidation opportunities after price updates. MEV generated in this way is called oracle extractable value, or OEV.

Unlike MEV, which captures value through transaction sorting, OEV extracts value by exploiting price differences caused by time delays in on-chain and off-chain data feeds, such as key market data or triggering major on-chain events (such as LUNA liquidation).

Causes of OEV:

Due to the cost of uploading data to the chain, the oracle currently basically adopts a mechanism of regularly uploading data, and the time interval is set within a relatively small range. At the same time, in order to avoid the huge price fluctuations in the short term affecting the market, the oracle generally sets a threshold. When the price fluctuation range reaches the threshold in a short period of time, it will actively trigger an update.

Although many optimization solutions have been made for the delay of Web3 data on-chain and off-chain, the delay problem of data upload cannot be fundamentally solved. The DeFi market is usually highly volatile, and asset prices may change significantly in a short period of time. The uncertainty brought by the oracle's price feeding function to the DeFi market cannot be underestimated.

In this case, third-party profit-seekers are like having a God's perspective. By taking advantage of the delay in data updates, any DAPP or DEFI product that uses oracles can capture huge profits through updates or omissions in data feeds, such as front-running, arbitrage, liquidation, etc., and OEV is thus generated.

OEV causes millions of dollars in losses to lending protocols every year:

In lending protocols, price updates can trigger liquidation bonuses to be paid to searchers to reduce bad debt and credit loss risk. This means that some oracle updates are more valuable than others. In the past three years, Aave alone has cleared over $2 billion across all chains, of which over $100 million was spent on liquidation rewards.

Aave V3 has paid out $23.4 million to all searchers so far. Similarly, Venus has paid out $5.8 million so far this year.

Every year, lending protocols such as Aave, Venus, and Compound pay liquidation bonuses to ensure the health of their protocols. For dApps with large total locked value (TVL) on many chains, this amounts to tens of millions of dollars flowing out of the protocol to searchers and block builders, without bringing any potential benefits and returns to the DEFI protocol.

API3's solution: OEV Network

API3 built the OEV Network as a vertically integrated MEV solution that operates seamlessly with all data feeds on the API3 market. The core goal is to recapture oracle extractable value (OEV) through a dedicated transaction-based auction system, especially during the liquidation process. This system sells the right to auction data updates to the highest bidder, which effectively eliminates the "leakage pipeline" associated with oracle infrastructure and ensures that the value associated with price updates does not leak out of the protocol. By integrating directly with these data feeds, the OEV Network can not only recapture the value leaked from the lending protocol, but also improve the transparency and timeliness of data updates, reducing the current waste of resources in the competition for block space. And use this method to return the bid amount to the corresponding DAPP and protocol, reducing the loss of millions of dollars for the relevant lending protocols each year.

OEV Network Technology Integration:

OEV Network relies on the technology stack of Arbitrum and Caldera to ensure that its operating environment is secure, permissionless and scalable. The backend infrastructure provided by Arbitrum guarantees the on-chain execution environment, uptime, and simplifies auction operations such as searcher bidding and payment. Leverage the security of the Layer 2 network to create an efficient market and ensure that more granular data updates are provided when needed.

Thanks to the support of Arbitrum Orbit, API3 is able to control the auction execution environment, providing searchers with a cheap, fast and secure oracle update bidding process. The use of an on-chain framework marks an important step towards creating a more transparent and accountable MEV solution, thereby ensuring the integrity of the auction process.

Economic benefits:

The launch of the OEV network can significantly reduce the high rewards paid by DeFi protocols during the liquidation process. For example, lending protocols like Venus have paid out more than $96.6 million in liquidation rewards since deployment, with average monthly losses of $2.35 million. Through the OEV network, these protocols are able to recapture up to 90% of losses. The regained value can be used to provide financial support for other business development, enhancing the competitiveness of the protocol, while also increasing user income or reducing fees.

Future value potential:

1. Improve the DeFi ecosystem

OEV Network has the potential to significantly improve the economic benefits of DeFi protocols, reduce clearing costs, and increase the overall revenue and user experience of the protocol. This will attract more protocols and developers to join the OEV Network, forming a virtuous cycle.

2. Increase transparency and accountability

By introducing a transparent auction mechanism, OEV Network solves the lack of transparency and accountability in the traditional oracle update process. This improvement will increase the trust and credibility of the entire ecosystem.

3. Broad application prospects

As more and more DAPPs and DeFi protocols adopt API3 data feeds, the scope of benefits for OEV Network will be further expanded. Its innovative value capture mechanism will become an industry standard and promote the development of decentralized oracle services.

4. Long-term economic benefits

By saving the protocol millions of dollars per year, the OEV network demonstrates its huge economic potential in the future. This savings will not only directly increase the protocol's profit margins, but also bring more investment and development opportunities to various participants in the ecosystem.

data analysis:

API3 has experienced significant growth over the past six months. API3 currently covers 37 blockchain networks and provides more than 160 data sources. The total TVS has grown to more than 1.4 billion US dollars, an increase of 32 times compared with 43.2 million US dollars at the beginning of 2024. This major progress highlights The success of API3’s developer-first strategy and the influence of oracle solutions in the on-chain financial field. As shown in Figure 3 below

Partner:

With the launch of the OEV Network mainnet, API3 has started in-depth cooperation with many lending protocols. For example (only part):
1. @blast’s native lending protocol @OrbitLending.
2. @0xMantle (Mantle) The leading lending protocol on the public chain @lendlexyz
3. @blast’s local lending market @seismicfinance
4. Support for Mantle & Blast’s liquidity-pegged currency lending market @InitCapital_
In the future, more and more projects will integrate with OEV Network to begin to recapture the MEV of the protocol, bringing high-quality data feeds to more lending protocols and generating revenue.

Market value comparison:

Comparing the data, API3 has the lowest valuation, the lowest FDV/TVS ratio, and the highest potential!

#LINK price: $13.09, MC market cap: $7.96 billion, FDV market cap: $13.09 billion, circulation rate: 60.8%, TVS: $37.8 billion, FDV/TVS ratio: 0.346

#PYTH price is $0.30, MC market value is $1.106 billion, FDV market value is $3.05 billion, circulation rate is 36.27%, TVS is $5.78 billion, FDV/TVS ratio: 0.527

#API3 price: $1.87, MC market cap: $216 million, FDV market cap: $255 million, circulation rate: 85%, TVS: $1.4 billion, FDV/TVS ratio: 0.182

Summary: API3's OEV Network has demonstrated its great potential both technically and economically, providing a revolutionary solution for DeFi protocols and dApps through L2's secure and efficient value recapture mechanism. It not only improves the granularity of data sources for DEFI projects, but also enables lending protocols to recover millions of dollars each year. This new revenue model will revolutionize lending protocols, and generous returns will more effectively promote innovation in lending projects and bring value to users.

I believe that with the integration and adoption of more protocols in the future, OEV Network will gradually become an indispensable part of the blockchain ecosystem by providing secure, efficient and fair oracle solutions, and is expected to become a "Chainlink killer."