API3 Review

What is API3?

Launched in Q4 2020, API3 is a collaborative project to build, manage and monetize decentralized APIs (dAPIs). The company aims to deliver traditional API services to smart contract platforms in a decentralized way, thus tackling the next evolutionary step to meet the inevitably strict decentralization requirements of Web 3.0.

API3 aims to solve the inability of smart contracts to access data not presently found on the blockchain or The Oracle Problem. Using a decentralized network of nodes as the application platform, the smart contracts powering these applications cannot directly call APIs from the blockchain that the contract resides in, due to security guarantees. Invalid data going to dApps’ smart contracts may lead to disastrous downstream consequences, especially in financial services where corrupted data imports could raise a significant threat to users’ assets, thus the need for a trustable way to import data arises. 

How does API3 work?

Thanks to API3’s unique oracle nodes, hosted by the API providers themselves, the platform allows a greater autonomy of data sources. The process of creating first-party nodes is called Airnode technology and uses smart contracts on the Ethereum blockchain to turn APIs into dAPIs.

Airnode is an open-source oracle node designed to be easily deployed by any API provider with almost no maintenance. Thanks to it, dApp developers can write smart contracts to interact with on-chain data from API providers. It consists of two parts, an off-chain Airnode deployed as self-hosted or cloud provider functions and the on-chain protocol contract.

API3’s focus on the API connectivity problem, specifically concerned with interfacing Web APIs to smart contract platforms allows the project to reach a more optimal solution to the oracle problem, as opposed to the traditional oracle projects approach consisting of achieving a generic decentralized interface between two arbitrary systems.

Developers don’t have to pay a gatekeeper company in order to use proprietary technology to have their applications’ data compatible with blockchains. First-party oracles can be trusted to provide data accurately as well as protect API providers from being taken advantage of by third parties. This makes dAPIs more secure and cost-efficient than other solutions which use middlemen.

How to use API3?

Users can interact with the API3 app by integrating their dAPI solutions into blockchain-related projects. The company also encourages individuals willing to participate in its development to do so and join its community discord server. 

As a first-party oracle solution, the API3 Airnode provides its users with advantages over oracles using the middleman to deliver API services, such as larger resistance towards Sybil attacks and no middleman tax. Other advantages of the product are said to be its simple design and statelessness - treating the blockchain as the ultimate source of truth, as well as its free services available to AWS lambda free tier users.

API3 staking

Staking API3 tokens grants inflationary rewards balanced by deflationary mechanics such as burning or time-locking tokens in exchange for API3 services. This provides a financial incentive for participating in API3 and contribution to the increase in service usage. Collateral backs insurance services that protect users from damages caused by dAPI malfunctions. The utility also has the participants share API3’s operational risk and incentivizes them to minimize it. Governance provides direct representation in the DAO and can be considered the ultimate instrument to enact these incentives.

The API3 token

The API3 token’s total supply is capped at 100,000,000 with 35% of it allocated to the ecosystem builders, 30% reserved for the founders of the project, 20% intended for the public, and 15% given to strategic investors. The initial auctioning of API3 was in the form of a Bonding Curve with a starting price of $0.3 and a final price of $2.

The API3 token grants access to participation in the governance of the project and allows its holders to increase the value of their decentralized network. The currency can be used for subscription fees on dAPPs and also grants access to Airnodes. Staking the token in the insurance contract on the platform allows for staking rewards and inflationary rewards.

API3 believes that the governing entities in a DAO should be rewarded for good results and penalized for bad ones, which is why the token is designed to facilitate this through three main utilities. 

Is API3 safe?

The API3 team was established by three individuals. The company is led by Heikki Vanttinen – a veteran in the segment of machine languages, he manages a development team of about 20 members. Co-founder Burak Benligiray is a former Google scholar, as well as the former CTO at CLC Group and Honeycomb. The other co-founder of the project is Saša Milić who brings her experience in software engineering gained from being part both of small startups and large tech companies including Facebook. Experience in data science in venture capital, research, and teaching in both academia and industry stands out among the numerous subjects of her expertise. Currently, API3 is being governed by a DAO. API3 audits can be found in the protocol dashboard on this webpage.

Partners 

The list of investors in the platform consists of EMURGO, Block0, Accomplice, CoinFund, Digital Currency Group, HASHED, Pantera Capital, and Placeholder VC.

Among API3’s main partners can be found Polygon (Matic) – a developer-first hybrid sidechain on top of Ethereum, which enables Ethereum developers to utilize their dApps for large-scale use. Another main partner is Harmony, whose collaboration with API3 has the goal of natively integrating Airnode enabled APIs and the platforms dAPIs, providing Harmony and projects built on top of it with highly reliable, transparent, and decentralized data. 

API3 is also currently providing services to other major companies from the API economy such as FTX, Ex Machina, Coinranking, and others.

What's next?

Recently, the project released Airnode v0.2 which was the main focus of their efforts since the DAO launch. The company describes the development of Airnode as the most critical aspect of API3’s operations since the platform depends on the existence of this oracle node that enables first-party oracles at scale. This was a silent release, meaning despite it being public it isn’t necessarily publicized, except for this report. In November 2021, they released Airnode v0.3 – mostly an improvement of the 0.2 version by its support for Google Cloud Platform for the serverless configuration and the allowing for requesters to specify an arbitrary single-level object to be returned instead of a single point of data. Airnode 1.0 is expected to come with an official full product launch somewhere in the future but isn’t officially announced. 

With the establishment of API3 Alliance – an association of API providers with a goal to integrate real-world data with blockchain applications, more than 120 API providers have implemented Airnodes such as Finage and Open Bank Project. API3 aims to explore more opportunities such as developing integration tools and materials for Airnode deployment thanks to this alliance and the increasing partnerships it brings.

Links

https://docs.api3.org/

https://forum.api3.org/