API3

What is API3 (API3)?

API3 is a project focusing on the Web3 API economy, allowing developers to create trustless applications. It leads the movement from legacy third-party oracle networks to first-party oracle solutions that deliver more security, efficiency, and data-source transparency.

The project also introduces OEV, or Oracle Extractable Value, which changes the expectations of Web3 oracles by positioning dApps to gain from the MEV (Maximal Extractable Value) they generate.

API3 is driving the adoption of what are often referred to as “decentralized APIs,” or dAPIs. These are composed of first-party oracles operated by API providers and therefore are more secure and cost-efficient than alternatives dependent on intermediaries.

At the core of this initiative is the API3 token, which is used for governance of the protocol and security via staking and value capture.

Who are the Founders of API3?

API3 was founded by Burak Benligiray, Sasa Milić, and Heikki Vanttinen. Vanttinen is also the founder and former CEO of a blockchain lab called CLC Group and was the CMO of Zippie.

Benligiray was previously the CTO of Venttinen’s CLC Group, and Milić is a sessional lecturer at the University of Toronto and a former software engineer at Facebook.

How Does API3 Work?

Many businesses offer a range of services using Web APIs, from providing asset price data to executing transactions. Decentralized applications need access to the same kind of services that Web APIs offer to interact with the “real world,” but these APIs aren’t natively compatible with dApps.

Existing interface solutions are reliant on intermediaries, centralized, insecure, and expensive. API3 has been created to fill this niche, meeting the decentralization requirements of Web3 without employing any third-party middlemen.

API3’s dAPIs are composed of a decentralized governing entity, a decentralized network of first-party oracles, and multiple APIs where API refers not just to a technical interface but a service provided by a business.

To achieve this collaborative effort of building, managing, and monetizing dAPIs at scale in a decentralized way, participants have to be incentivized. This is where the API3 token comes in, providing value capture and a means for the project to achieve open, direct governance via a DAO (decentralized autonomous organization).

This infrastructure is powered by a fully serverless oracle node called Airnode, which requires no blockchain know-how, maintenance, or upkeep from the API provider.

Airnodes are designed to be stateless, making them extremely resilient against any problem that can cause downtime and operator intervention. They are also built on services priced on-demand, which means that the node operator is charged only as much as their node is used. Therefore, any API provider can run an oracle for free and start paying once they begin generating revenue.

An Airnode can be viewed as a lightweight wrapper around a Web API that allows it to communicate with smart contract platforms with no overhead or payment token friction. API3’s vision for Airnode technology is for it to become as ubiquitous for APIs as using an API gateway, making a wide variety of first-party oracles available to API3.

Airnode is even designed so that the requester assumes all gas costs, including the request fulfillment transactions. This is achieved by each Airnode having a separate wallet for each requester, and the requester funds this wallet with native cryptocurrency like ETH. These funds are then used to fulfill all the following requests made by the requester.

What makes API3 Unique?

The API3 scheme and Airnode protocol have a significant number of advantages over legacy API implementations. For instance, API providers don’t have to concern themselves with gas costs due to constant price recalculation, allowing them to use simpler pricing models such as monthly subscription fees.

Eliminating wallets for API providers makes things easy for them and averts the risk of attackers spamming requests to drain node operator wallets. This was an attack vector used against Chainlink, but API3 isn’t susceptible to anything like it since a requester’s wallet is only used to fulfill their own requests and not those of others.

How is the API3 Network Secured?

API3 provides quantifiable security by drawing from the trustworthiness of API providers, which is assessed using off-chain information. To achieve this, API3 provides service coverage that assures a dAPI user with properly evidenced damages due to a qualifying malfunction will be covered up to a predetermined amount.

In partnership with Kleros, API3 has developed an on-chain service coverage product similar to insurance. It is collateralized by funds staked by the governing parties of the API3 DAO, thereby providing security not just to dAPI users but also incentivizing governance that prioritizes security.

What is the Use of API3?

To decentralize the governance of both dAPIs and the API3 project as a whole, API3 is governed by a DAO called API3 DAO. Its governance is decentralized and open, with all API3 token holders being able to participate thanks to the token granting voting power.

The API3 token is also used in staking, granting stakers inflationary rewards that are nonetheless balanced by deflationary mechanisms such as burning or time-locking tokens in exchange for services.

Finally, API3 also supports service coverage that protects users from qualifying damages caused by dAPI malfunctions, essentially collateralizing them.

How Much API3 is In Circulation?

The API3 token is inflationary in nature, so it doesn’t have a maximum supply cap. However, it can also be reduced in supply by burning and time-locks. Currently, the circulating supply of API3 is just over 71 million.

How Do You Buy API3?

API3 is an ERC-20 token on the Ethereum blockchain, which means it is very easy to get a hold of. Decentralized exchanges like Uniswap can be used to buy API3, although it has already achieved wide listing on centralized exchanges as well.

How Do You Store API3?

You can store API3 tokens using any Ethereum-compatible wallet. Hot wallets like Metamask are often quite popular regarding Ethereum tokens with staking and governance since they can connect to staking and voting interfaces very easily.

Is API3 a Good Investment?

The infrastructure underlying many Web3 products and services has been used to criticize Web3 as a whole since it is often relatively centralized. API3 is a project with a very clear niche in that regard and provides a valuable decentralized alternative to the existing market.