Advertised as the next generation of oracle solution, API3 is a community-owned oracle protocol relying on a decentralised network of first-party oracles enabling a direct integration between off-chain API providers and on-chain smart-contract processes. Indeed, on the contrary of other more established protocols like Chainlink using the legacy third party oracle framework where incentivised anonymous third parties run oracle nodes, API3 is able to benefits from a transparent and streamline network architecture leveraging existing off-chain API providers to deliver off-chain data in a reliable and trust-minimised way.

Why using API3?

• No middle-man tax — Redirection of cryptoeconomic flow towards the API providers

• High level of transparency —  Cryptographically signed data by well-known API providers.

• Collaborative governance — Interesting leveraging of the DAO framework offering a large level of community power over the protocol development compared to other competitors such as Chainlink

API3 Architecture

API3’s network architecture is built-upon five core components:

• Airnode — Easy to set-up serverless oracle node enabling API providers to transmit proprietary data on-chain with little to no maintenance.

• Oracle Integration Specifications — Technical component enabling to define through a JSON object all the API specifications as well as the Airnode endpoints linked to API operations.

• Beacons — Continuously updated streams of off-chain data provided by known API providers.

• API3 market — Data feeds market place enabling to search, monitor and consume existing data feeds on a broad range of networks similar to the one developed by Chainlink.

• API3 staking pool — Staking pool acting as collateral for the payment of valid service coverage claim and enabling token holders to obtain representation in the API3 DAO and earn staking rewards for their support of the network.

Note: Interesting use of the staking pool as a protocol collateral enabling a cryptoeconomic incentivisation of active agents towards efficient protocol governance.

API3 Features

Despite being relatively new compared to other more established oracle protocols, API3 is already offering an interesting range of product bringing additional flexibility and features compared to what is currently available in the space:

• dAPIS —  Highly flexible data feed service enabling users to access general data-feeds or developed new ones with custom curation features (beacon numbers, …)

• ChainAPI — Intuitive off-the-shelf solution enabling API provider to seamlessly configure and deploy an Airnode integrated with  their API without the need of a dedicated in-house devOps team.

• QRNG — On-demand quantum random value generator offering a higher level of randomness than pseudo-randomness generation function such as Chainlink VRF.

API3 Governance

The API3 network is a community-owned protocol governed through a Decentralized Autonomous Organisation (DAO) enabling every API3 token holders to participate in the governance of the protocol proportionally to his token holdings.

The API3 DAO only votes on high-level parameters regarding core protocol mechanics and developments (roadmap, grants …) while more granular tasks are conducted through a custom hierarchical team structure in order to avoid unnecessary overlapping during the development process and  ensure that critical operations such as dAPI management are executed swiftly and based on expert opinion.

Governance flow

• Step 1 — Tasks get conducted through off-chain team of specialists appointed by the DAO through grants

• Step 2 — Once the task reach a scale that can no-longer be fulfilled by a unique team, a subDAO with its own set of affiliated off-chain teams is created in replacement.

API3 Cryptoeconomics

Main token metrics (10.21.22)

Source: coinmarketcap

Token Utility

The native API3's ERC20 token fullfill three core utility functions:

• Staking — Grants inflationary rewards for users staking token in the API3 pool

• Governance — Grants direct representation in the API3 DAO

• Collateral — Ensure financial service coverage backing against damages caused by dAPI malfunctions

Observation: It is critical for these three utilities to coincide as all governing entities must receive staking rewards for them to govern in a way that maximises usage and also have their funds used as collateral to ensure a responsible protocol governance minimising security risks.

Token Allocation

As of today the total supply of AP3 tokens is of  114,855,860 tokens. Out of this total supply, 100 million tokens were initially allocated in November 2020 during the initial token distribution on Mesa DEX and the remaining 14,855,860 API3 has been minted as staking rewards since then.

Initial token distribution breakdown:

• 30 million for API3 founders and team vested over three years with a six-month cliff

• 25 million for the API3 DAO to build the project's community and ecosystem vested over three years with a six month cliff

• 20 million for public investors unlocked after the initial Mesa DEX offering

• 10 million for API3 partners vested over three years with a six month cliff

• 10 million for seed investors over two years

• 5 million for pre-seed investors vested over two years

Token inflation

To secure the network through staking, API3 maintains an inflationary issuance of staking rewards. The staked tokens are primarily used as collateral in the on-chain service coverage fund. However, if the non-profit API3 DAO has excess revenue after subtracting all its costs, it use this excess revenue to buy API3 tokens that are afterwards burned. Similarly, any USDC left over from operations will be used to buy API3 from the open market and burn it.

Furthermore, the inflation rate is calculated using the staking pool size as a percentage of the total supply that is set by the API3 DAO. If the target is met, APR is decreased by 1% each week else APR is increased by 1% each week.

Note:  Staking rewards are paid out weekly, and are locked for one year after they have been paid.

API3 Ecosystem

API3 Team

Heikki Vanttinen: Co-founder, Strategy

Extensive prior experience in the blockchain space and more particularly in domain such as smart contract decentralised identity.

Burak Benligiray: Co-founder, Core technical team lead

Former Google scholar and CTO at CLC Group and Honeycomb with a prior experience in computer vision and artificial intelligence.

Saša Milić: Co-founder

Software Engineer, data scientist and cryptocurrency researcher with prior software development experience at Facebook.

Mason Burkhalter: Operations Lead

Extensive prior experience in Business consulting and Software development.

Ecosystem current state

• Airnode deployed on 13 chains and EVM compatible

• Multi-feeds data sources still in development.

• Over 150 data providers currently available

• Lack of traction on flagship products (more than 2/3 of QRNG requests still originates from Rinkeby testnet, ...)

• Little to no effort to attract new data providers to the ecosystem given the core team current focus on data curation quality

Key Partnerships

API3 X AmberData

Key partnership with Amberdata which enabled the development of a broad set of high-quality price data-feed on a small subset of EVM-compatible chains (Ethereum, Polygon, BNB, Avalanche and RSK). However, the sole focus on cryptocurrency prices still somewhat limits the potential use-cases of those API3 dAPIs.

API3 X Silta

Development of a new class of financial products leveraging API3’s oracle solution in order to develop credit score oracles as well as novel financial assets enabling physical infrastructure developers to use on-chain collateral.

API3 Roadmap

Disclaimer: All information/documents contained in this article rely solely  on my personal beliefs, and do not constitute professional investment advice.

Be careful in your investment and do not invest more than you can afford to loose.