Author:Haotian
Recently, the news that DWFlabs led an investment of $4 million in API3 has sparked market discussions about the growth potential of API3. Compared with oracle service providers such as Chainlink and Pyth, the "lightweight" integration method of the API3 protocol and DAO governance models such as API3 Market + OEV Network have shown it a broader business imagination space. Next, let me talk about my opinion:
1) Simply put, API3 is an Oracle connector that is driven by an open source protocol and incentivized by the DAO economy, directly connecting API data providers and DApp smart contract data demanders. Different from Chainlink's "middleware" node service third-party network, API3's first-party oracle eliminates the "trust" link of the third-party network.
Entering the Oracle market through open source protocol integration means: lighter and more customized. API3's Airnode allows "nodes" that meet basic operation and maintenance capabilities to deploy oracle services in a lightweight manner. In particular, some API providers that directly own data sources can directly supply raw data to DApp smart contract demanders through Airnode.
For example, the mainnet and even testnet of some emerging public chains can integrate some price data information. If you want to become a data source for Chainlink, API nodes can only wait passively, but through the API3 protocol, you can take the initiative and even customize your own Oracle price service. In theory, as long as the API3 node complies with the integration framework of the Airnode protocol and follows the pledge governance process of the API3 DAO, it can quickly, cost-effectively and efficiently join the Oracle service network.
If Chainlink and other oracles will gradually prefer to provide oracle services to mid- and top-tier DApp application projects as their brands strengthen, API3 targets a broader long-tail DApp application market.
Some people say that open source protocols should also be considered as "middleware" in order to collect, aggregate and adapt data. Yes, the problem is that this middleware protocol focuses on providing integration methods and governance standards and specifications for integration into Oracle services. These are open source and transparent standards that can be "actively" selected by API data providers.
Other third-party Oracle intermediary service networks have independent nodes and governance mechanisms. What data to filter, how to feed prices to contracts, how to handle potential liquidation arbitrage opportunities, etc. are all controlled by the third-party network. The "high efficiency" and "reliability" service tenets of this middleware network are fundamentally different from the "transparency" and "trustlessness" pursued by the middleware open source protocol.
2) API3 Market and OEV Network built on Polygon CDK are crucial to changing the Oracle oracle market landscape. They are equivalent to putting the potential "arbitrage" cake in the oracle business process on the table with more open, transparent and orderly governance rules.
API3 Market aims to provide developers with convenient and low-cost data integration services that can be quickly integrated with new networks, which is equivalent to an Oracle Stack service, providing developers with seamless and friendly tool services. This will lower the threshold for data sources to become API data suppliers and data demanders DApps, and further expand the scale effect of API3 in the long-tail Oracle market.
As a layer2 oracle public chain, OEV Network has not yet been officially launched, but its goal is to return the big cake of "arbitrage" opportunities that Oracle data suppliers originally obtained through data clearing rights to users through public auctions and profit distribution through a set of open and transparent governance mechanisms.
In my opinion, this is an inevitable trend in the evolution of the Oracle market and is also the key to changing the business landscape of the MEV market.
To deeply understand the significance of Oracle game changers such as OEV Network, you can carefully read Vitalik's latest words: "DAO" means project, and "Official" means scam. The significance of the existence of a decentralized governance mechanism is to distribute the hidden profits in a fairer mechanism, and not let it become a "motivation" for individual nodes to nourish corruption and disrupt the normal market order. Imagine that if the Oracle node feeds the price to the DApp, there will inevitably be liquidation opportunities. The node suppliers and liquidators with liquidation qualifications can conspire to jointly gain MEV profits, and there will be no fairness.
If the liquidation qualification is made public as an "auction" mechanism, the highest bidder will get the right to update the oracle data next time, which is MEV profit. Then OEV Network will distribute the profit obtained from it to DApp users, which is equivalent to returning the profit taken from users to users. In this way, it will not affect the motivation of API nodes to be liquidators, nor will it harm users, killing two birds with one stone.
3) From a purely commercial perspective, API3 will have a higher ceiling in the oracle track. Because it cuts in with a low threshold of open source protocol + seamless integration tools, as long as the "node operator" has basic node operation and maintenance capabilities, it can choose to join the Oracle decentralized governance network provided by API3 to participate in "mining". This means that the Ethereum ecosystem AVS (Active Verification Service) node service provider, this type of "enhanced" node, can be fully connected to the API3 oracle network, expanding new business growth directions for its AVS network, and thus consolidating its underlying Restaking economic model.
The logic is not difficult to understand. Choosing the lightweight integration method of the open source protocol will definitely have a broader business prospect. Moreover, major Oracle competitors such as Chainlink and Pyth have chosen to lean towards DeFi financial scenarios. For them, choosing DeFi customers who occupy the vast majority of liquidity also limits the ability to extend their business tentacles in broader application scenarios, and these are all areas where API3 can expand its associations. In addition to DeFi, it can play a role in RWA, foreign exchange, stocks, futures, smart transportation, smart medical care, smart home, and even real-time feeding and training of large model data.
In short, there is indeed more room for commercial imagination in open source technology protocols and DAO governance frameworks. Any field that urgently needs "trust-free" such as oracles, zkVM, ZK cross-chain bridges, etc. can seek breakthroughs in this way.
