API3 is a decentralized API (dAPI) network founded by Heikki Vanttinen. It is a service that provides DeFi data feeds to blockchain-based smart contracts without relying on a third party. ^[1][2][3]

Overview

API3 is a network created to build, manage, and monetize decentralized APIs (dAPIs) at scale. dAPIs are blockchain-native, decentralized API services built by combining multiple provider-operated oracle nodes into aggregated data feeds, without the use of third parties. Furthermore, to achieve an end-to-end decentralized system, both dAPIs and the API3 project as a whole have a completely open and direct governance model, powered by the API3 token and the API3 DAO. ^[5][6]

API3 allows first-party data providers like stock exchanges and credit reporting agencies to run airnodes, and applications on the same cloud hosting platform hosting their API services. Airnodes are open-source software that transmit data from first-party providers. Airnode code is built and maintained by a decentralized autonomous organization (DAO), where stakeholders share responsibility for governance and maintenance of the API3 framework. ^[3]

It is a collaborative project designed to deliver traditional API services to smart contract platforms in a decentralized and trust-minimized way. It is governed by a decentralized autonomous organization (DAO), namely the API3 DAO.

On May 22, 2024, API3 DAO announced it had surpassed the $1 billion mark in Total Value Secured (TVS). TVS measures the total value of assets protected by a platform or protocol, typically in the crypto or decentralized finance (defi) sectors, indicating the security and adoption of blockchain networks and DeFi platforms. ^[18]

API3 QRNG​

API3 QRNG is a public utility API3 provides on behalf of well-established, prestigious organizations who have invested a significant amount of resources to be able to provide this kind of service. These are the properties that qualify API providers to be the ideal first-party oracle service providers. ^[15]

Funding

In November 2020, API3 closed a $3 Million seed funding round led by Placeholder VC and accompanied by Pantera Capital, Accomplice, CoinFund, Digital Currency Group, and Hashed. ^[8]

In May 2024, API3 raised $4 million in a funding round led by DWF Labs. DWF Labs contributed $2 million while the other funding came from Spartan Group which contributed $1 million. Laser Digital, a digital asset business backed by Nomura, and Caladan, formerly AlphaLab, contributed $500,000 each. ^[13]

"The strategic funding round will provide API3 with additional liquid capital to support ongoing development, marketing efforts, and business development initiatives. Specifically, the funds are intended to be heavily utilized for the OEV Network’s mainnet launch, further integration of decentralized applications (dApps) and blockchain networks, and the continued development and promotion of API3 services." - the team wrote^[14]

OEV Network

On January 29, 2024, API3 introduced the OEV Network, a specialized order flow auction platform designed to capture Oracle Extractable Value (OEV) from decentralized applications (dApps) that use API3 data feeds across various blockchains. ^[19]

By selling the rights to execute specific data feed updates to the highest bidder, the OEV Network ensures that dApps immediately receive the proceeds on their native chain. This platform aims to return value extracted by third parties back to DeFi protocols, providing a significant revenue source and incentivizing API providers to claim ownership of their data. The OEV Network operates as a complementary feature to API3's regular data feeds, enabling dApps to easily activate it and start earning.

OEV Network is powered by Polygon CDK, a framework for creating custom ZK-rollups.

“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,” - Sandeep Nailwal, Co-Founder of Polygon. ^[19]

API3 Token

API3 is the native token of the API3 project. It gives its holders the right to take part in the governance of the API3 ecosystem through the API3 DAO. To generate shares in the API3 DAO, token holders have to stake the API3 tokens into the insurance pool, giving them access to weekly staking rewards. ^[3][8]

In October 2020, the API3 team announced that they would be increasing the token allocation for the public sale from 15% of the total supply (15M API3) to 20% of the total supply (20M API3). The additional 5 million API3 tokens will come from the initially planned Governance Partner Distribution. This means that the only unvested tokens available will be distributed through the public token distribution on the Mesa DEX.

Token Utilities​

Decentralized governance requires 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​

The staking utility incentivizes participation in the DAO and alignment of incentives. By staking API3 tokens into the DAO pool, users receive governance voting rights and take part in providing API3 users with quantifiable security in the form of service coverage. The DAO pool also grants users inflationary rewards and exposes them to the risk of service coverage claims. ^[17]

Collateral​

The collateral utility has the participants share the DAO's operational risk and incentivizes them to minimize it. If staking tokens only yielded inflationary rewards, the sole governance incentive would be to maximize the revenue. This would be done by increasing the number of dAPI users aggressively, and the amount that is secured by the dAPIs with it. Doing so puts excessive pressure on a dAPI which is more likely to malfunction due to an attack. Therefore, this is not a sustainable governance strategy for decentralized data feeds.

Exposing the governing parties to the risk would align their incentives with the DAO. The governing parties need to be penalized when a dAPI malfunction occurs using an onchain service coverage that provides dAPI users with quantifiable and trustless security guarantees. The Service Coverage uses staked tokens of the DAO pool as collateral, which means that when a dAPI malfunction is confirmed through the dispute resolution protocol, user damages will be covered by the pool's staked tokens. ^[17]

Governance​

The governance utility gives the participants the ability to enact and manage staking and collateral.
The only way to gain representation in the DAO is to stake API3 tokens in the pool. Staked tokens give their holders the right to take part in the governance of the API3 ecosystem through the DAO. To vote token holders must stake their API3 tokens in the pool, which also gives them access to weekly inflationary rewards but also share in the risk of service coverage. ^[17]

API3 DAO

API3 delegates much of its governance to the vote of a Decentralized Autonomous Organization (DAO). API3 is a collaborative effort to build, manage, and monetize dAPIs at scale. To achieve delegated governance and apportion grants in a fully decentralized way, the incentives and processes of the participants are reconciled through the governance, security, and value capture utilities of the API3 token and its powers in the API3 DAO. ^[16]

The API3 project has a completely open, decentralized, and direct governance model. Any API3 token holder can stake in the DAO pool and obtain direct voting abilities in the DAO smart contract and thus participate in many aspects of the governance of the project directly. In addition, stakers receive immutably-coded inflationary rewards and any additional benefits that the DAO may decide on in the future. The staked API3 tokens will back an on-chain Service Coverage as collateral to provide dAPI users with quantifiable and trustless security guarantees. ^[16]

The DAO votes on high-level matters such as staking incentives and collateralization (parameters of the DAO smart contract itself), as well as grant proposals that directly transfer DAO treasury assets to teams working in support of API3. ^[16]

The DAO Pool

The API3 DAO has a single staking pool called the DAO pool. Staking API3 tokens in the pool will grant representation and inflationary rewards. Staked tokens will be used as collateral to pay out service coverage claims as needed. To do this, the pool focuses on three token utilities and implements service coverage which, by design, balances rewards and risks through responsible governance. ^[17]

Partners

API3 partners include QiDAO, Kinetix, Mantis, AirPuff, mean finance, TraderMade, Nodary, twelvedata, NCFX, Minterest, PAC, CoinGecko, Shrike, Sigma Prime, Coinpaprika, Quickperps, Metavault, Finage, WeFi, Trail of Bits, Finnhub, Gravita, Orbit, Init Capital, iex cloud, Aurelius, ZeroLend, Juice, Quantstamp, Lendle, Myso Finance, Granary, etc. ^[2]