#api3 launched the#OEV(Oracle Extractable Value) network, an on-chain solution designed to recapture oracle extractable value for lending protocols. As a layer 2 platform, the OEV network creates a new revenue stream for lending protocols by establishing an efficient oracle update market. Unlike MEV (Maximal Extractable Value), OEV focuses on extracting value during the oracle update process.
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Oracle Extractable Value (OEV): Unlocking a New Chapter in DeFi
In the field of decentralized finance (DeFi), oracles play a vital role in providing external data, such as price information, to smart contracts. However, the value extracted in this process, namely Oracle Extractable Value (OEV), has long been underutilized, resulting in value loss. This article will explore the concept of OEV and how API3 can recapture this lost value through its OEV network and transform it into a benefit for DeFi protocols and users.
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OEV: The Hidden Treasure in Oracles
In DeFi protocols, the update timing of the oracle is crucial to the transaction results. For example, in a lending protocol, when the oracle updates the asset price, a liquidation event may be triggered. If the value extraction in this process is not managed, it may be manipulated by miners or validators, thereby harming the interests of users.
OEV, or Oracle Extractable Value, refers to the maximum extractable value that an oracle can control and extract when updating data. Through OEV, an oracle can sell the power of value extraction to a third party and make a profit without directly extracting value. This not only provides a new profit model for oracles, but also creates an additional source of income for DeFi protocols.
API3's OEV Network: Redistributing Value
API3, a decentralized oracle provider, recognized the value of OEV and launched its OEV Network, a second-layer platform designed to establish an efficient market for Oracle updates. Through the OEV Network, searchers can bid on valuable price updates, such as those that can trigger liquidations in lending markets. The proceeds from the auctions will be directly returned to DeFi applications, potentially generating millions of dollars in revenue for the protocol each year.
How the OEV Network Works
In the OEV network, the auction mechanism is designed to be reintroduced at the oracle level, with searchers competing to win the right to call oracle price update transactions. This shifts the dynamics of value capture from block builders to oracles. Only auction winners can use price update transactions to perform liquidations, thus ensuring the redistribution of value.
Key Components of the OEV Network
dAPI/Oracles: API3âs dAPI provides first-party data feeds from data providers.
Auctioneer Node: Responsible for selecting and announcing the winning bidders of an auction.
Guarantee Contract: Bidders must deposit a guarantee equal to 10% of their bid.
Meta Transaction: The winning bidder will receive a meta transaction that allows it to use oracle updates.
Through the OEV network, DeFi protocols can not only regain the value that was originally lost, but also improve their profitability through a fairer and more transparent mechanism.
Conclusion: The future of OEV
The launch of the OEV network marks an important milestone in the DeFi field, providing a new cooperation model for oracles and DeFi protocols. By recapture and redistribute the value in the oracle update process, the OEV network not only enhances the sustainability of the DeFi ecosystem, but also provides a fairer and more transparent value distribution mechanism for users and protocols. With the popularization of the OEV concept, the cooperation between oracles and DeFi protocols will become closer, jointly promoting innovation and development in the DeFi field.
