DeFi protocols are clients of various Web3 service providers, which range from keepers that trigger liquidations, to block producers that include the related transactions in the blocks. Such services are the lifeblood of DeFi, and they don’t come cheap. Third parties take advantage of every loophole in the design of such services to extract as much value from the DeFi protocols as possible. In the absence of a solution, this daylight robbery surpasses the largest smart contract exploits in history every year, with all but silent acceptance.
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Overview of OEV Network’s order flow auction showing how the oracle updates and recaptures value for the dApp. (Graphic: Business Wire)
API3 has brought oracle extractable value (OEV) into the spotlight as the cure-all for all such griefs of its users. Oracles have first right of refusal to capture all such leakage, and API3 has proposed to capture and return this value back to the respective DeFi protocols, practically providing them with a very sizable source of revenue in addition to their current standing.
OEV also complements first-party oracles, a seminal concept that was coined in the API3 whitepaper. First-party oracles are maximally secure and cost-efficient due to being powered by API providers directly. However, the participation of API providers requires a viable business model, and the absence of such a model has enabled third-party oracles to hijack the market by reselling API provider data. A portion of the captured OEV being distributed to the API providers is well-positioned to disrupt this current status, and give API providers a strong incentive to claim ownership of their data on Web3. This model is also very palatable for DeFi protocols, as the compensation for the service that they receive comes at the expense of external parties. As the party that builds the platform that facilitates this mutually beneficial arrangement, API3 will be incentivized by a portion of the captured OEV as a protocol fee, which will be used to buy back and burn API3 tokens.
Today, API3 is excited to announce that platform, OEV Network, the ZK-rollup to capture the OEV from all dApps that use API3 data feeds across all chains. OEV Network is a specialized order flow auction platform that sells the rights to execute specific data feed updates for specific dApps to the highest bidder. The winner pays while executing the data feed update, allowing the dApp to immediately receive the proceeds on their native chain. This all runs as a sidecar to API3 regular data feeds, meaning that a dApp that uses API3 data feeds will be able to simply enable OEV Network and start earning.
Building a system that can credibly scale to capture all OEV is a difficult task, not only technically, but also because of the trust implications. OEV Network provides the missing piece here, as conducting the auctions on-chain is the gold standard in terms of security, accessibility, transparency, and accountability. Doing so creates an immutable record of past auctions, allowing any third-party to audit the entire process end-to-end.
OEV Network will be powered by Polygon CDK, a framework for creating custom ZK-rollups. API3 chose Polygon CDK because of their confidence in the technical solution, and the excitement of projects and service providers for Polygon CDK, which is promising for the future of a robust ecosystem that OEV Network will be able to leverage.
Sandeep Nailwal, Co-Founder of Polygon says “The robust security and customizable nature of Polygon CDK encourages innovative use cases for teams that are hyper-focused on solving unique problems. API3 has always been at the forefront of unique problem solving, and the OEV Network is a massive value unlock for builders across the ecosystem. We are excited to have APl3 join the Polygon CDK ecosystem.”
The first iteration of OEV Network will be a single Validium on the Ethereum mainnet that uses ETH as the gas token, and this configuration will evolve over time to fit the emerging needs of the platform. API3 is working with Gateway FM in building and operating OEV Network, and the Sepolia testnet is already up and available for everyone to try:
> Network name: OEV Network Sepolia testnet
> RPC URL: https://oev-network-sepolia-testnet-rpc.eu-north-2.gateway.fm
> Chain ID: 736160594
> Currency symbol: testETH
> Block explorer URL: https://oev-network-sepolia-testnet-blockscout.eu-north-2.gateway.fm
> Bridge URL: https://oev-network-sepolia-testnet-bridge.eu-north-2.gateway.fm
Anyone interested in being among the first projects that use OEV Network with any of the feeds on https://market.api3.org can contact API3 directly at: contact@api3.org
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