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API3 Launches OEV Network to Recapture Millions for DeFi Projects

source-logo  blockster.com 08 July 2024 16:14, UTC

Cayman Islands — API3 has unveiled its groundbreaking OEV Network mainnet, a first-of-its-kind on-chain solution designed to recapture oracle extractable value (OEV) and return it to decentralized applications (dApps) and DeFi protocols. Leveraging Arbitrum’s tech stack, the OEV Network promises to save millions of dollars annually for these projects.

API3, known for its first-party oracle solutions ensuring verifiable data source transparency and true decentralization of real-world data on-chain, has taken a significant step forward with the OEV Network.

This Layer 2 solution addresses the issue of maximal extractable value (MEV), particularly concerning liquidations, which amount to tens of millions of dollars in losses each year. By creating an efficient market for searchers to bid for oracle updates, the value from these auctions is returned to the originating dApps.

Real-World Impact

The practical implications of the OEV Network are substantial. For example, lending protocols like Venus have paid out over $96.6 million in liquidation incentives since deployment, averaging a monthly loss of $2.35 million. With OEV Network, protocols can reclaim up to 90% of this lost value. This reclaimed value can then be redirected to fund other business focuses and strengthen opportunities, making these protocols more competitive.

“Lending protocols manage the risk of their loans by paying out liquidation bonuses to prevent bad debt. The problem is that these bonuses are often set higher than necessary, which means lending protocols are overpaying to maintain the health of their protocol,” explained Ugur Mersinlioglu, API3 Product Owner.
“Right now, all this value is being lost to searchers and block builders. With OEV Network, that value will be returned to the dApp where it originated, allowing them to generate sustainable revenue for their treasury, increase yield for their users, or lower fees.”

Ugur Mersinlioglu, API3 Product Owner
Mechanics of OEV

OEV represents the value that can be extracted from dApps due to oracle updates or their absence, such as in liquidations on lending protocols. Annual losses through MEV and OEV surpass those of the largest DeFi hacks in history. OEV Network offers a secure, transparent, and verifiable on-chain solution by providing tools to host auctions. Integrated with all data feeds on the API3 Market, any protocol using API3’s data feeds can automatically recapture value across supported chains.

The OEV Network functions as an on-chain execution environment for order flow auctions, where the right to execute specific data feed updates for designated dApps is sold to the highest bidder. The winning bidder can update the data feed only by transferring the bid amount to the respective dApp on the chain where the update is performed.

The launch of the OEV Network aligns with API3's recent surge in total secured value, now exceeding $1.06 billion. This milestone underscores API3's success in creating developer-centric solutions and addressing significant value loss within protocols.
“We're excited to welcome API3 to the Arbitrum ecosystem. Their groundbreaking solution, the OEV Network, addresses a critical issue affecting the Web3 ecosystem. The OEV Network has the potential to unlock new opportunities for builders across the ecosystem as well as allow dApps to recapture value."

Laura Woods, Arbitrum Foundation
With the OEV Network, API3 is poised to revolutionize the DeFi landscape, offering innovative solutions to retain and optimize value within blockchain protocols.