In the fragmented ecosystem that is Web3 today, interoperability is a key goal for progress. Blockchain oracles are a fundamental part of the so-called Web3 ecosystem, as they can help achieve this goal. Their role is to mediate between the different blockchains and the data sources beyond them.
As Cointelegraph notes, oracle projects are seeing bullish momentum as crypto startups intensify their focus on interoperability in 2022. In this column, we’ve tracked Chainlink, which is the oracle market leader by market capitalization, as reported by Cointelegraph.
Today, API3, one of the top 5 blockchain oracle projects according to Cointelegraph, is releasing Beacons, which it calls “a transparent, scalable, and cost-effective solution for data providers to publish data feeds.” We reached out to Heikki Vänttinen, co-founder of API3, to discuss API3’s approach to oracles and what this release means.
API3: building on lessons learned from running an oracle service for API providers
API3 is a relatively young project. It was launched in 2020 by Vänttinen and a group of co-founders, some of whom were previously involved in the Honeycomb API Marketplace. Honeycomb was online between 2019 and 2021, and its main thesis was that the oracle problem is not technical in nature. On the contrary, the main difficulty is to bring a wide variety of independent and competing actors to cooperate in a decentralized way and achieve commercial results.
However, as noted by Burak Benligiray, one of the co-founders of API3, “technical solutions can be designed in such a way as to design an ecosystem where this can happen in a feasible way”. This is what API3 aims to achieve. API3 currently has around 50 contributors and received an initial investment of $3 million, led by Placeholder, along with Pantera Capital, Accomplice, CoinFund, Digital Currency Group, and Hashed.
Benligiray wrote that Honeycomb served as a laboratory and incubator for API3. It confirmed the team’s view that API providers should be considered a core component of an oracle and paved the way for API3 to become the API-centric solution it is today. today. But what exactly do we mean by that?
Honeycomb basically functioned as a layer running on top of Chainlink’s open source oracle software. Eventually, however, this approach reached its limits and the team felt it was time to move on. Benligiray cites some key issues with Honeycomb, which led to the development of API3.
The existing oracle ecosystem model only considers oracles and dApps (decentralized Web3 applications running on a blockchain, usually Ethereum). API3 added API providers as a third group to better represent the situation. API3 thinks this model is more accurate, but it also turned out to be very complex because it has to make sure that three different parties are playing the game.
The solution offered by API3 is to eliminate the group of oracle node operators as middlemen and have API providers operate their own oracle nodes, which greatly simplifies the ecosystem model (API and dApps).
Honeycomb acted as an intermediary between the APIs and the oracle nodes to facilitate the integration. The plan was to use this initial model to start the platform and then transition to a solution with a trustless integration path. However, their research showed that the only acceptable option was for the API provider to leverage the full oracle node, and none of the alternatives were so trust-minimised.
In other words, most blockchain oracles act as intermediaries. This means that they are single points of failure and must be trusted by their users and API providers. As Chainlink did, the single point of failure vulnerability can be addressed by introducing decentralization internally at the oracle level. However, oracles still function as de facto focal points.
The API3 white paper lists issues with this approach, including vulnerability, middleman tax, inefficient redundancy, and lack of transparency. There is a paradox here. The fact that Web3 is theoretically supposed to be all about decentralization, while in practice de facto centralization points are being introduced, has been at the epicenter of widely cited criticism from the likes of Silicon Valley veteran Tim O ‘Reilly and Signal founder Moxie Marlinspike.
Blockchain Proprietary Oracles: Eliminate the Intermediaries
API3’s answer to this paradox is to move towards a decentralized version of oracles, called “a proprietary blockchain oracle”, by allowing API providers to run their own oracle. This is made possible through open source software called Airnode, which API3 implements and makes available to API providers to run on their own.
As stated in the API3 whitepaper, the promise is that Airnodes are fully serverless oracle nodes explicitly designed for API vendors to leverage their own oracles and resolve any oracle node issues identified by API3. That is to say, it does not require any specific know-how to operate or any daily maintenance.
Airnode is built on pay-as-you-go services, meaning the node operator is only charged for how much their node is used. It does not require the node operator to manage the cryptocurrency at all, and its protocol is designed in such a way that the requestor covers all gas costs, claims the API3 white paper.
One way to think of Airnode, the API3 white paper says, is as a lightweight wrapper around a web API that allows it to communicate with smart contract platforms without overhead or payment token friction. In terms of the level of involvement required from the API provider, using Airnode can be likened to using an API gateway that makes an API accessible over the web, rather than operating a node blockchain as a side business.
It seems like an attractive proposition for API providers, and a few of them have already jumped on board. API3 has created the API3 Alliance, a group of API providers who use Airnodes to make their APIs directly available to Web3 applications, eliminating the oracle middleman. Web3 applications can directly call oracles managed by the API provider, helped to discover them by the API3 service.
That’s great for Web3 application developers and API providers, but what about API3? Do they get anything out of it? Our understanding after talking with Vänttinen is “not really”, which sounds like a very unsustainable business model at first glance. But this is where API3’s business model deviates from the norm. Instead of taking a share of transactions, API3 aims to operate as an insurance service provider.
API3 will co-develop an on-chain assurance service with Kleros, an on-chain dispute resolution protocol, to provide quantifiable, trust-free security guarantees to users. This insurance service will protect users against damage caused by certain malfunctions, known to have occurred in oracle services, up to a payment limit. It’s an interesting idea, which brings us to today’s announcement.
API3 Beacons: from data to data streams
Vänttinen said the operation of API3 as an on-chain insurance service is not yet fully in place. However, they are working in this direction and the release of Beacons is a major step. What Beacons do, essentially, is they create data streams by wrapping Airnodes. Airnodes operate on a request-response model. This means that users interested in receiving updates will constantly poll Airnodes.
However, in some types of Web3 applications, having access to the latest data updates is essential. Beacons allow this, although it comes at a cost – literally. Unlike Chainlink, for example, API3 Beacons store all of their data updates on-chain. This means that there is a cost in the native gas token (Ethereum) associated with both the API provider as well as Beacon users. That’s why, as Vänttinen acknowledged, beacons won’t make sense to everyone.
Still, he asserted, beacons will be the building blocks of API3 dAPIs, in addition to being offered as a standalone service. dAPI is the term used by API3 to refer to a “new generation of decentralized APIs”.
dAPIs are meant to be a secure and cost-effective solution to provide traditional API service to smart contracts in a decentralized manner, consisting of multiple APIs, a decentralized network of proprietary oracles, and a decentralized government entity to oversee the oracle network. .
The latter is the role API3 sees for the API3 Decentralized Autonomous Organization (DAO). API3 token holders can stake for direct voting privileges in the API3 DAO, which is how API3 governance works. The staked API3 tokens will support an on-chain assurance service as collateral to provide dAPI users with quantifiable, trust-free security guarantees.
The whole approach sounds ambitious, forward-looking, and complicated in equal measures. Either way, beacons are a key part of the process. API3 Partners with Amberdata, a Leading Provider of Digital Asset Data and Insights on Blockchain Networks, Crypto Markets and Decentralized Finance to Enable Immediate Beacon Traction, to Launch the Amberdata Beacons officials at ETHDenver.
Alongside the launch, API3 is the official DeFi Track sponsor of ETHDenver, dubbed the largest and oldest Ethereum event in the world. API3 aims to attract over 3,000 dApp developers and have a strong presence at the event by ensuring developers are equipped with the tools and knowledge to successfully leverage Amberdata Beacons during the event of nine days.
In the fragmented ecosystem that is Web3 today, interoperability is a key goal for progress. Blockchain oracles are a fundamental part of the so-called Web3 ecosystem, as they can help achieve this goal. Their role is to mediate between the different blockchains and the data sources beyond them.
As Cointelegraph notes, oracle projects are seeing bullish momentum as crypto startups intensify their focus on interoperability in 2022. In this column, we’ve tracked Chainlink, which is the oracle market leader by market capitalization, as reported by Cointelegraph.
Today, API3, one of the top 5 blockchain oracle projects according to Cointelegraph, is releasing Beacons, which it calls “a transparent, scalable, and cost-effective solution for data providers to publish data feeds.” We reached out to Heikki Vänttinen, co-founder of API3, to discuss API3’s approach to oracles and what this release means.
API3: building on lessons learned from running an oracle service for API providers
API3 is a relatively young project. It was launched in 2020 by Vänttinen and a group of co-founders, some of whom were previously involved in the Honeycomb API Marketplace. Honeycomb was online between 2019 and 2021, and its main thesis was that the oracle problem is not technical in nature. On the contrary, the main difficulty is to bring a wide variety of independent and competing actors to cooperate in a decentralized way and achieve commercial results.
However, as noted by Burak Benligiray, one of the co-founders of API3, “technical solutions can be designed in such a way as to design an ecosystem where this can happen in a feasible way”. This is what API3 aims to achieve. API3 currently has around 50 contributors and received an initial investment of $3 million, led by Placeholder, along with Pantera Capital, Accomplice, CoinFund, Digital Currency Group, and Hashed.
Benligiray wrote that Honeycomb served as a laboratory and incubator for API3. It confirmed the team’s view that API providers should be considered a core component of an oracle and paved the way for API3 to become the API-centric solution it is today. today. But what exactly do we mean by that?
Honeycomb basically functioned as a layer running on top of Chainlink’s open source oracle software. Eventually, however, this approach reached its limits and the team felt it was time to move on. Benligiray cites some key issues with Honeycomb, which led to the development of API3.
The existing oracle ecosystem model only considers oracles and dApps (decentralized Web3 applications running on a blockchain, usually Ethereum). API3 added API providers as a third group to better represent the situation. API3 thinks this model is more accurate, but it also turned out to be very complex because it has to make sure that three different parties are playing the game.
The solution offered by API3 is to eliminate the group of oracle node operators as middlemen and have API providers operate their own oracle nodes, which greatly simplifies the ecosystem model (API and dApps).
Honeycomb acted as an intermediary between the APIs and the oracle nodes to facilitate the integration. The plan was to use this initial model to start the platform and then transition to a solution with a trustless integration path. However, their research showed that the only acceptable option was for the API provider to leverage the full oracle node, and none of the alternatives were so trust-minimised.
In other words, most blockchain oracles act as intermediaries. This means that they are single points of failure and must be trusted by their users and API providers. As Chainlink did, the single point of failure vulnerability can be addressed by introducing decentralization internally at the oracle level. However, oracles still function as de facto focal points.
The API3 white paper lists issues with this approach, including vulnerability, middleman tax, inefficient redundancy, and lack of transparency. There is a paradox here. The fact that Web3 is theoretically supposed to be all about decentralization, while in practice de facto centralization points are being introduced, has been at the epicenter of widely cited criticism from the likes of Silicon Valley veteran Tim O ‘Reilly and Signal founder Moxie Marlinspike.
Blockchain Proprietary Oracles: Eliminate the Intermediaries
API3’s answer to this paradox is to move towards a decentralized version of oracles, called “a proprietary blockchain oracle”, by allowing API providers to run their own oracle. This is made possible through open source software called Airnode, which API3 implements and makes available to API providers to run on their own.
As stated in the API3 whitepaper, the promise is that Airnodes are fully serverless oracle nodes explicitly designed for API vendors to leverage their own oracles and resolve any oracle node issues identified by API3. That is to say, it does not require any specific know-how to operate or any daily maintenance.
Airnode is built on pay-as-you-go services, meaning the node operator is only charged for how much their node is used. It does not require the node operator to manage the cryptocurrency at all, and its protocol is designed in such a way that the requestor covers all gas costs, claims the API3 white paper.
One way to think of Airnode, the API3 white paper says, is as a lightweight wrapper around a web API that allows it to communicate with smart contract platforms without overhead or payment token friction. In terms of the level of involvement required from the API provider, using Airnode can be likened to using an API gateway that makes an API accessible over the web, rather than operating a node blockchain as a side business.
It seems like an attractive proposition for API providers, and a few of them have already jumped on board. API3 has created the API3 Alliance, a group of API providers who use Airnodes to make their APIs directly available to Web3 applications, eliminating the oracle middleman. Web3 applications can directly call oracles managed by the API provider, helped to discover them by the API3 service.
That’s great for Web3 application developers and API providers, but what about API3? Do they get anything out of it? Our understanding after talking with Vänttinen is “not really”, which sounds like a very unsustainable business model at first glance. But this is where API3’s business model deviates from the norm. Instead of taking a share of transactions, API3 aims to operate as an insurance service provider.
API3 will co-develop an on-chain assurance service with Kleros, an on-chain dispute resolution protocol, to provide quantifiable, trust-free security guarantees to users. This insurance service will protect users against damage caused by certain malfunctions, known to have occurred in oracle services, up to a payment limit. It’s an interesting idea, which brings us to today’s announcement.
API3 Beacons: from data to data streams
Vänttinen said the operation of API3 as an on-chain insurance service is not yet fully in place. However, they are working in this direction and the release of Beacons is a major step. What Beacons do, essentially, is they create data streams by wrapping Airnodes. Airnodes operate on a request-response model. This means that users interested in receiving updates will constantly poll Airnodes.
However, in some types of Web3 applications, having access to the latest data updates is essential. Beacons allow this, although it comes at a cost – literally. Unlike Chainlink, for example, API3 Beacons store all of their data updates on-chain. This means that there is a cost in the native gas token (Ethereum) associated with both the API provider as well as Beacon users. That’s why, as Vänttinen acknowledged, beacons won’t make sense to everyone.
Still, he asserted, beacons will be the building blocks of API3 dAPIs, in addition to being offered as a standalone service. dAPI is the term used by API3 to refer to a “new generation of decentralized APIs”.
dAPIs are meant to be a secure and cost-effective solution to provide traditional API service to smart contracts in a decentralized manner, consisting of multiple APIs, a decentralized network of proprietary oracles, and a decentralized government entity to oversee the oracle network. .
The latter is the role API3 sees for the API3 Decentralized Autonomous Organization (DAO). API3 token holders can stake for direct voting privileges in the API3 DAO, which is how API3 governance works. The staked API3 tokens will support an on-chain assurance service as collateral to provide dAPI users with quantifiable, trust-free security guarantees.
The whole approach sounds ambitious, forward-looking, and complicated in equal measures. Either way, beacons are a key part of the process. API3 Partners with Amberdata, a Leading Provider of Digital Asset Data and Insights on Blockchain Networks, Crypto Markets and Decentralized Finance to Enable Immediate Beacon Traction, to Launch the Amberdata Beacons officials at ETHDenver.
Alongside the launch, API3 is the official DeFi Track sponsor of ETHDenver, dubbed the largest and oldest Ethereum event in the world. API3 aims to attract over 3,000 dApp developers and have a strong presence at the event by ensuring developers are equipped with the tools and knowledge to successfully leverage Amberdata Beacons during the event of nine days.