Intro to API3

Oracles are an essential part of the crypto industry. That’s because blockchains can’t communicate with the real-world. For example, a blockchain can’t check a sporting result outcome on its own. Or who is the favorite in a specific country’s political voting race? For this kind of information, it relies on oracles. API3 is such an oracle.

So, we take a closer look at what API3 is and how it works.

What Is API3?

API3 dates back to 2019. But that was under a different name with a different concept. The name was CLG, and it launched an API marketplace for oracles, Honeycomb. An API is an application programming interface. Or in other words, it allows computer programs, or its components, to talk with each other. 

However, the team wasn’t charmed by the third-party oracle model. That’s because it involves middlemen. Now, one of the main ideas behind blockchains is to get rid of middlemen. Oracle nodes, like Chainlink runs them, are in essence middlemen. Plus, there’s also the single point of failure risk at play with this setup.

So, this resulted in launching API3. This is an API-centric solution. In other words, an API can now connect directly to a blockchain. It eliminates the need for middlemen. The governance is in the hands of a DAO (Decentralized Autonomous Organization).

The API3 team came up with the Airnode concept. This allows API providers to set up their own oracle nodes. So, this makes API3 a first-party oracle. Currently, there are already hundreds of Airnodes in use. The Honeycomb tech is at the roots of the current API3 oracle setup.

Source: API3 Docs

How Does API3 Work?

API3 has a couple of main features that are essential in how it works. So, let’s take a closer look at these features.

dAPIs or decentralized APIs

A dAPI is an on-chain data feed. This comes from an off-chain first-party oracle. The API provider owns and operates them. These data feeds receive non-stop updates from the first-party oracles. As a result, Dapp owners can now read on-chain any information provided by the dAPIs. This also allows data providers to stay in control over their data feeds. Furthermore, it increases transparency in the data sources used by the oracles.

Direct Integration

There’s no need for middlemen with dAPIs. This offers lower costs and higher efficiency. For example, with a third-party oracle, there’s less transparency. Hence, evaluating data quality is not easy. Third-party oracles also serve as middlemen. As a result, their data feeds have a single point of failure risk.

DAO Governance

Holders of the $API3 token can take part in governance. Being run by a DAO makes API3 very decentralized. For instance, in theory, anyone can apply to run a Chainlink node. However, Chainlink’s core team must approve this. That’s a very centralized set-up. 

Data Feed Security

It’s important for an oracle to provide accurate information. One way API3 provides this is through its decentralized control. The lack of middlemen also makes their data feeds more transparent. Developers can work in a trust-minimization environment. The following video explains dAPI price feds.

The API3 Team

The API3 team is a well experienced team. It consists of three co-founders and various other team members. Here are the three co-founders.

• Burak Benligiray — Current core technical team lead at API3. Former CTO of the CLG Group and Honeycomb. Has various degrees in electrical and electronics engineering. 
• Heikki Vänttinen — DAO member at API3 and former founder and CEO at CLG Group. Since 2018 in the blockchain industry. 
• Saša Milić  — Researcher at API3.
• Their LinkedIn company profile lists up to 40 team members.

The $API3 Token

The native $API3 token is a utility and governance token. It’s an inflationary token. It started with a total supply of 100 million tokens. However, it’s now at 136 million. There’s an unlimited supply of these tokens. It uses a floating inflation rate. 

This means that it targets a 50% staking rate for the DAO. Now, its APR can fluctuate by 1%, up or down, depending on the staked number of tokens. So, if the staked tokens are less than 50%, the APR goes up by 1% for the next reward mint. It works in reverse if the staked amount is above 50%. Their blog has a more in-depth explanation of this. The protocol burns tokens from revenue service coverage fees.

The current token price is $1.90 with a $214 million market cap. Over the last year, the token price is up by 82%. Its ATH was $10.30. It reached this in April 2021.  

Conclusion

We see the important role that oracles play in blockchain technology. API3 offers a more decentralized oracle option. It achieves this with its Airnode and dAPIs. In essence, it allows first-party oracle services. This eliminates the need for middlemen. 

We also looked at how the protocol works. Its DAO plays an essential factor in the governance of API3. Token holders can take part in governance by voting on proposals. We also looked at their tokenomics and token. 

API3 is an interesting oracle project. So, in the long term, it could take a market share of the bigger oracle players.

Disclaimer

The information discussed by Altcoin Buzz is not financial advice. This is for educational, entertainment and informational purposes only. Any information or strategies are thoughts and opinions relevant to accepted levels of risk tolerance of the writer/reviewers, and their risk tolerance may be different from yours.

We are not responsible for any losses that you may incur as a result of any investments directly or indirectly related to the information provided. Bitcoin and other cryptocurrencies are high-risk investments, so please do your due diligence. This article has been sponsored by API3.

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