Disputes on the oracle circuit have resumed. Will API3 be a Chainlink killer?

Original Title: "Technical Analysis of API3: Oracle Dark Horse, Chainlink Killer?"

Original Author: Chain Observer

When it comes to the oracle track, people naturally think of @chainlink, but with the rise of new high-performance public chains and the emergence of various new lightweight module projects, the oracle track has also begun to become more competitive.

Recently, there have been voices in the market about @API3DAO killing Chainlink. What exactly does API3 do? Will OEV Network really retroactively trace the MEV oracle market? Next, based on a perspective of education and business competition, I will discuss my understanding.

-Understanding API3's First-party Oracle

Usually, oracle services like Chainlink are composed of data sources (exchanges), data collection nodes (API service providers), data processing centers (oracle chains), and end users (smart contract project parties).

is equivalent to building a bridge from the data source to the blockchain application. The oracle nodes collect data from multiple channels in parallel, and the oracle network coordinates, verifies, and aggregates this data to reduce errors. Finally, the data is fed to the terminal smart contract demand side.

Currently, there are two critical points in the workflow of a prediction machine:

1) The more API data collection nodes there are, the more abundant, accurate, and decentralized the collected data sources will be. However, the API nodes are doing the work of monks, and can only mechanically collect data for "mining".

2) The more smart contract projects that connect to the oracle network, the more centralized the oracle price processing will become, and the greater the intervention in data, the higher the trust cost for end customers.

Essentially, the oracle network acts as a third-party intermediary platform, so the role and space for API service nodes will be relatively limited. The more authoritative the oracle platform itself, the more it will be questioned for "centralization", which is almost an irreconcilable contradiction.

@API3DAO's first-party oracle is essentially a direct connection between the data source and the project party, without the intermediate step of "preprocessing" on the oracle platform.

For API nodes, the role of being the master has been upgraded, enabling operation and fine development on top of data collection, enhancing the service capabilities of API nodes, and being able to collect more customized data sources and serve project parties with special needs.

For terminal project parties, being able to cooperate directly with API nodes at a lower cost, and being more flexible in customizing and developing special data requirements, can provide necessary oracle support for their innovative application products.

-API3 has chosen a decentralized and flexible oracle long-tail market

It is not difficult to see that API3 is entering a more decentralized and flexible long-tail market for oracle services. The approach is to activate the comprehensive operation and maintenance service capabilities of API service nodes, and to build a bridge between the demand and supply sides of oracles in a more web3 Native (lightweight + modular) way. How is this achieved?

API3 mainly consists of two core components:

1) Airnode provides a set of basic infrastructure for API node service providers, from setting up oracle nodes to connecting with project parties, allowing API nodes to deploy oracle services in a low-cost and lightweight manner. Through simplified configuration and management processes, even API providers who are not familiar with blockchain technology can easily become oracle node operators.

2) dAPI is equivalent to a decentralized DAO organization. API nodes continuously collect and update data from data sources using signatures, while data demand-side smart contracts can securely and transparently call data and pay on demand. The management and operation of the entire dAPI is provided by a decentralized DAO organization, which uses Staking and Slash reward and punishment mechanisms to transparently govern security.

Overall, API3 attempts to build a decentralized oracle market without intermediaries using lightweight infrastructure services and DAO staking incentives. However, mature Chainlink has a large and loyal customer base, a stable price oracle mechanism, and is an unshakable presence in the industry.

API3 business strategy thinking and Celestia's DA War are constantly competing for the layer2 market of Ethereum, after all, Chainlink cannot serve all smart contract customers, and there are always some lightweight customers who are more concerned about cost-effectiveness. After all, there are always customers who need more timely and customized data source services, and there are always API nodes that want to explore more comprehensive and diverse business models, and so on.

Instead of saying that API3 is going to be a Chainlink killer, it is more accurate to see API3 as a strong complement to Chainlink, dividing the market together.

As for end customers, whether they prefer the stable and mature Chainlink service or the low-cost and flexible API3 service is entirely up to the market. In my opinion, it is difficult to threaten Chainlink in the short term, but in the long term, with the increasingly modularized blockchain application market, API3's choice is also worth considering.

-OEV Network is an upgraded and modified version of MEV?

Recently, API3 built a layer2 public chain called OEV Network based on Polygon CDK. How to understand the application scenarios of this public chain? Numerous API nodes have the authority to update data. In the DeFi scenario, if a smart contract triggers a certain price point, liquidators can choose to purchase the assets pledged by users, and then obtain arbitrage value after the price stabilizes.

Under normal circumstances, the clearing house is actually an API node service provider, after all, they have the authority to update the smart contract protocol price. Before the governance model of the OEV Network came out, this clearing behavior may be chaotic. API nodes may update data in advance in order to obtain the right to clear, and multiple API nodes may intensify the "fluctuation" of market prices in order to compete for the right to clear. The objective data supplier has become a possible disruptor of normal market order and an arbitrageur, which is obviously problematic.

But there is no way to curb this. Connecting API nodes directly to smart contract project parties is to reduce platform intervention and promote market-oriented operation. In response to the internal and chaotic arbitrage in the market, no third party can effectively intervene, and can only be constrained through governance mechanisms.

OEV Network is equivalent to a set of governance mechanisms that stipulate that when the position of a dApps user is close to liquidation, they can participate in the auction of the dAPI3 network. The highest bidder will obtain the update right of the next oracle data, thereby obtaining the MEV profit of liquidation.

Why do I say it's an upgrade and modification of MEV? The original version 1.0 of MEV actually existed naturally in the market. During the collaboration between API nodes and smart contracts, there will inevitably be some market fluctuations and liquidation situations. By default, the API node that detects the liquidation point will compete for the cake first.

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