OEV Network now fully integrated with API3's Oracle Stack
API3 launches OEV Network to recapture oracle extractable value for all lending protocols across all supported chains
We are excited to announce OEV Network mainnet is officially live!
As an integral part of the API3 Oracle Stack, the OEV Network enables any lending protocol using API3’s data feeds to recapture oracle extractable value (OEV) that is lost from liquidations.
As of launch, several protocols are fully integrated with OEV Network across multiple chains, including Orbit Protocol, INIT Capital, and Lendle.
The OEV Network is the first Layer 2 solution where oracle service providers and searchers come together to combat the negative impact of oracle extractable value through specialized transaction-based auctions for oracle updates.
The OEV Network creates an efficient market around oracle updates, allowing searchers to bid for valuable updates, like in the case of liquidations. The proceeds from these auctions are then programmatically returned back to the dApp that generated the value, saving them millions of dollars a year in lost revenue.
Capturing A $100 Million Opportunity
So far this year, Aave V3 has already paid out $23.4 million to searchers across all chains. Similarly, Venus has paid out $5.8 million so far this year.
Every year, lending protocols like Aave and Venus pay millions of dollars in liquidation bonuses to ensure the health of their protocol. For dApps which have a significant total value locked (TVL) across many chains, this amounts to tens of millions of dollars leaking out of the protocol to searchers and block builders.
With liquidation incentives ranging between 5–20% of the total liquidation, the OEV Network creates a multi-million dollar opportunity for all lending protocols on all API3 supported chains.
Building An Efficient Market for Oracle Updates
Oracle updates are valuable, but not every oracle update is equal in value. Current oracle solutions treat all price updates equally, being completely unaware of the value they’re creating and losing to other parties. They either update onchain values according to preset parameters like deviation and heartbeat, or allow anyone to update without limitations and forfeit all potential value.
OEV Network solves this problem by creating an efficient market for price updates at the oracle level.
Instead of updating blindly like push-oracle solutions, or allowing anyone to update without limitations like pull-oracle solutions, the OEV Network creates a competitive market around oracle updates where the rights to perform price updates are sold to the highest bidder through specialized transaction-based auctions. The proceeds from these auctions are then programmatically transferred back to the protocol that generated the value.
“Lending protocols manage the risk of their loans by incentivizing searchers with liquidation bonuses for timely liquidations. Data shows that they are severely overpaying for this service, especially for the larger positions that are being liquidated,” said Ugur Mersinlioglu, API3 Strategy Lead. “Interestingly enough, the searchers performing the liquidations aren’t the main benefactors of these incentives. Liquidations are an easy strategy to perform and as such the competition for them is quite aggressive. Currently, this competition takes place on the blockspace level, where searchers outbid each other to get their transaction included first, resulting in them giving up 99% of the available incentive to block builders. With OEV Network, we are changing where this competition takes place. Instead of competing in blockspace auctions to get your transaction included first, searchers will compete for the right to perform oracle updates that allow for liquidations, with the proceeds of these auctions being returned to dApps.”
Order-flow auctions have proven to be one of the solutions to minimizing the negative impacts of MEV. Currently, order flow auctions rely on off-chain solutions, which despite their sophistication in handling complex computations, often introduce centralization vectors. This necessitates reliance on trusted off-chain parties or intermediaries, like relays, which raises concerns about transparency and accountability in the auction process.
OEV Network addresses some of these design challenges by providing an onchain execution environment to streamline the operational aspects of the auction, like searcher bidding and payments. By building OEV Network as a Layer 2 solution on Arbitrum Orbit, API3 is able to control the auction execution environment to offer searchers a cheap, fast, and secure bidding process for oracle updates. This shift to using an onchain framework marks a significant step towards conducting order-flow auctions in a more transparent and accountable way, safeguarding the integrity of the auction process.
Arbitrum Orbit enables the permissionless launch of Layer 2 or Layer 3 chains, utilizing the Arbitrum Nitro Tech Stack. Arbitrum Orbit serves as the backend infrastructure to guarantee execution, uptime, and scalability of the OEV Network.
“We’re excited to welcome API3 to the Arbitrum ecosystem. Their groundbreaking solution, the OEV Network, addresses a critical issue affecting the Web3 ecosystem,” said Laura Woods, a spokesperson for Arbitrum Foundation. “The OEV Network has the potential to unlock new opportunities for builders across the ecosystem as well as allow dApps to recapture value.”
API3 partnered with Caldera to build and operate OEV Network using Arbitrum Orbit, providing a secure, permissionless, and scalable environment for onchain order-flow auctions. This partnership ensures a streamlined and efficient build-launch-scale cycle tailored to the specific needs of the OEV Network.
Start Earning with OEV Network
API3 built the OEV Network as an integrated MEV solution within the API3 Oracle Stack, operating seamlessly on all data feeds on the API3 Market. By leveraging the security of a Layer 2 network to create an efficient market for oracle updates, it not only improves the granularity of the data feeds when it matters most, but can potentially recapture millions of dollars each year for lending protocols.
dApps can simply read any data feed on the API3 Market and start generating revenue.
Learn more about API3 and OEV Network, visit the API3 technical documentation, or join our Discord to get started.
