API3 has recently launched the OEV (Oracle Extractable Value) Network on its mainnet, a significant addition to the API3 Oracle Stack. This network is designed to assist lending protocols in reclaiming lost OEV during liquidations, ultimately improving the efficiency and profitability of these protocols.
Exciting news for the blockchain community! 🎉
🚀 The @OEVNetwork is now live and fully integrated with the API3 Oracle Stack.
Every lending protocol, on every API3 supported chain, now has a solution to recover protocol MEV.
Upgrade your oracle today and start benefiting. 🪙 pic.twitter.com/I0rSpTUb6l
— API3 (@API3DAO) July 9, 2024
Several protocols, including Orbit Protocol, INIT Capital, and Lendle, have already been seamlessly integrated with the OEV Network across various blockchain platforms at launch. This integration marks a significant milestone as the first Layer 2 solution where Oracle service providers and searchers collaborate to address the adverse effects of Oracle extractable value.
The OEV Network introduces a specialized transaction-based auction system for Oracle updates, allowing searchers to bid for the rights to conduct crucial price updates, especially during liquidations. The proceeds from these auctions are then returned to the dApp that generated the value, potentially saving millions in lost revenue annually.
Resolving Inefficiencies
Existing oracle solutions often treat all price updates equally, resulting in inefficiencies and value loss. The OEV Network establishes a competitive market for price updates, ensuring that the highest bidder gains the rights to perform these updates, thus recovering value for the involved protocols.
Lending protocols such as Aave and Venus have already paid substantial amounts in liquidation bonuses this year, with Aave V3 distributing $23.4 million and Venus $5.8 million. These bonuses are crucial for the protocols’ sustainability but also represent a significant loss of value to searchers and block builders. The OEV Network offers a solution to recapture some of this lost value.
API3’s Strategy Lead, Ugur Mersinlioglu, emphasized the issue of overpayment for liquidation services, highlighting that searchers forfeit 99% of the available incentive to block builders due to intense competition. The OEV Network shifts this competition from block space to Oracle updates, ensuring that the proceeds benefit the dApps generating the value.
The OEV Network addresses transparency and accountability concerns in off-chain order-flow auctions. By providing an on-chain execution environment on Arbitrum Orbit, the network guarantees a cost-effective, rapid, and secure bidding process for Oracle updates, marking a significant advancement towards more transparent and reliable auctions.
API3’s collaboration with Arbitrum and Caldera ensures a secure, permissionless, and scalable environment for the OEV Network. Arbitrum Orbit supports the backend infrastructure, ensuring execution, uptime, and scalability. The OEV Network seamlessly operates on all data feeds within the API3 Market, leveraging Layer 2 network security to establish an efficient market for Oracle updates. This integration not only enhances data feed granularity when necessary but also has the potential to reclaim millions of dollars annually for lending protocols.