The first part of the research will offer a basic review of Oracle before digging into API3: For example, a smart contract requires off-chain data to enforce its agreement but neither the blockchain nor the smart contract can access it. So now we need a third-party service that acts as a bridge between the blockchain and the outside world. This is the essence of the oracle.
Source: Chainlink
API3 Provides a solution called dAPI. DAPI is a decentralized approach for providing a conventional API service to smart contracts that is both safe and cost-effective. It is made up of the following components:
Multiple APIs, where the term API not only refers to a technical interface, but a service that a real-world business provides.
A decentralized network of first-party oracles, i.e., oracles operated by the API providers themselves.
A decentralized governing entity to oversee the oracle network. API3 is a collaborative effort to build, manage and monetize dAPIs at scale. To achieve this in a fully decentralized way, the incentives of the participants are reconciled through the governance, security, and value capture utilities of the API3 token.
Any API3 token holder can stake to get direct voting powers in the API3 DAO and the project offers a totally open and transparent governance style. In addition, stakers will benefit from dAPI usage through inflationary staking rewards.
Outstanding Features
What is the project trying to achieve?
API3 will connect decentralized applications with the abundant data and services offered by traditional Web APIs, thereby expanding the applicability of the blockchain without sacrificing decentralization. This will be achieved by dAPI—fully decentralized and blockchain-native APIs—which will be set up, managed, and monetized at scale by the API3 DAO.
Without third-party node operators, API3 data feeds are never exposed to data tampering and denial of service attacks by middlemen. This enables them to reach higher cost-efficiency while having fewer attack surfaces. Source-level decentralization of dAPIs is enabled by Airnode, a fully serverless oracle node that can be deployed by any API provider for free, and requires minimal day-to-day management.
The most important one among these is security. dAPIs do not depend on third-party oracles, which are a constant and significant risk factor in the alternative solutions. In addition, the dAPI insurance service provides quantifiable and trustless security guarantees to its users, further cementing API3’s place as the most secure solution to receiving API services as a decentralized application.
What is the unique selling point?
Decentralized APIs (dAPI)
Decentralized APIs or dAPIs for short, are networks of API provider-operated first-party oracles that are governed in a decentralized way. In contrast, decentralized interoperability solutions consist of an oracle network of third-party middlemen governed by a centralized entity, which is necessitated by their under-specified problem definition.
Enhance transparency, lower the danger of third-party data manipulation, eliminate the need for middlemen, and increase income for API providers by aggregating data directly from first-party suppliers.
Airnode – Designed for First-Party Oracles
At its core, Airnode brings the ability for API providers to easily run their own oracle nodes. This allows them to provide their data on-chain, without an intermediary, to any decentralized app (dApp) interested in their services.
At the heart of this mechanism sits Airnode, an open-source oracle node. It’s designed to be easily deployed by any API provider with almost no maintenance. Because of Airnode, dApp developers can write smart contracts to interact with the on-chain data of API providers.
First-party oracles are integral to the API3 solution. This means each API is served by an oracle that is operated by the entity that owns the API, rather than a third party.
API3 DAO
To decentralize the governance of both dAPIs and the project as a whole, API3 is governed by a DAO. The governance is entirely decentralized and open, meaning that all stakeholders are able to participate in the governance of the project directly. Decentralized governance necessitates well-balanced incentive mechanisms that accurately model both positive and negative outcomes. In other words, the governing entities should be rewarded for good results and penalized for bad ones. The API3 token is designed to facilitate this through three main utilities:
Staking: Grants dAPI revenue and inflationary rewards.
Collateral: Backs insurance services that protect users from damages caused by dAPI malfunctions.
Governance: Grants direct representation in the API3 DAO.
Note that it is critical for these three utilities to coincide. All governing entities must receive staking rewards for them to govern in a way that maximizes usage. All governing entities must have their funds used as collateral for them to govern in a way that minimizes security risks. To this end, API3 will have a single staking pool. Staking API3 tokens in this pool will grant presentation and staking rewards, but at the same time, the staked tokens will be used as collateral to pay out insurance claims as needed.
