API3: Connecting the Blockchain to the Digital World
As the last post in the series, “Getting APIs on the Blockchain”, we will be combining all of what we’ve covered in detail to understand API3’s solution to the API Connectivity Problem.
Internal Aspects
dAPIs are managed first-party oracles for dApps that ensure transparency at the data source level.
We argue dAPIs are:
- More secure — Additional to the off-chain reputation of API providers alone, third-parties cannot create teams of oracle nodes which decreases vulnerability to Sybil attacks.
- Less expensive — No middle man tax, and no multiplication of it through unneccessary redundancies.
- Higher quality — Transparency at the data source level allows developers to check the caliber of data they’re working with, and true variety of sources decreases the chance of skewness.
First-Party vs Third-Party Oracles covers the above in detail.
The staking pool avoids impractical oracle-level staking and is instead used as both a tokenomic mechanism, and as collateral for the unique service coverage that API3 offers users of dAPIs.
Token holders who participate in staking (stakers) share in the associated risks of service coverage. They are incentivized to vet dAPI contributing service providers and minimize risk through inflationary rewards for staking, and profit sharing in the form of token burns.
Stakers can participate in the API3 DAO.
Part 5 of the series, Staking & Oracles as well as API3 Tokenomics, cover these topics in detail.
The API3 DAO governs both the staking pool and dAPIs. This structure moves the direction of the project and how funds are used into the hands of the token holders.
We discuss the benefits of decentralized governance to both the project and users of dAPIs in the previous article.
External Aspects
API Providers fuel the core service of API3. We see this relationship between the data source and dAPIs as a pillar of a sustainable Web3 ecosystem.
Rather than keeping API3 providers out of the blockchain environment (as with third-party oracles) API3 aligns API providers’ interests with the project and developers in the ecosystem through proper attribution and compensation.
Using Airnode, API providers pass their data to blockchain developers through API3 curated dAPIs, and are compensated at fixed rates that fit within their business models.
dApps, or decentralized applications, are the primary consumer of dAPIs and service coverage provided by API3.
Why decentralized application developers choose API3 over other options is outlined in part 5, Staking & Oracles and part 6, Quantifiable Security.
An elegant solution
Web2 APIs are already the source for much of the blockchain-external data in Web3, but with a caveat: third-party oracles do not add any security at the data source level — in fact, they can lead to data centralization and skewed results.
By facilitating the economy between Web3 developers and API Providers, API3 is expanding the capability of the blockchain to solve real world problems while protecting the core principle of decentralization.
API3 solutions for Web3 developers are:
- Safer— Without third-party oracles as a constant risk factor, dAPIs data source transparency allows developers to assess the quality of the data they are using. This transparency facilitates API3’s quantifiable and trustless service coverage that pays out in the event of a data malfunction. In combination, this makes API3 the most secure option for Web3 developers looking for API data services.
- Less costly— dAPIs have no middlemen tax to pay multiplied by over-redundancies.
- Sturdier— dAPIs, powered by Airnode’s serverless and stateless node design, are highly resistant to downtime. Governed by the API3 DAO, a robust risk-mitigation framework is outline in section 5.6 in the API3 white paper.
- Adaptable — API3’s solutions are constantly evolving to meet new use cases, challenges, and needs. By virtue of being a DAO governed by individuals with skin in the game, the project is not limited by the initial design.
In this series, we’ve laid out the ‘why’ behind API3. By introducing the theory behind its design, and bringing the ideas together in this final post, we have done our best to illustrate how API3 solves the API Connectivity Problem.
Please join the discussion on the API3 forum, or on Twitter and see how dAPIs can service your project by visiting the API3 marketplace.
Note: some of the substance of this piece may be attributed to “API3: The Glue Connecting the Blockchain to the Digital World” as initially written by Sasa Milic for the API3 DAO in the API3 Medium publication directory (see this link).
