API3 has launched the OEV (Oracle Extractable Value) Network on its mainnet, a significant addition to the API3 Oracle Stack. This network aims to help lending protocols recover lost OEV during liquidations, enhancing the efficiency and profitability of these protocols.
Announcing the solution to oracle extractable value! @OEVNetwork is now live and integrated with the API3 Oracle Stack. Every lending protocol, on every API3 supported chain, now has a built-in solution to recapture protocol MEV. Upgrading your oracle pays off. pic.twitter.com/I0rSpTUb6l — API3 (@API3DAO) July 9, 2024
At launch, several protocols, including Orbit Protocol, INIT Capital, and Lendle, were already fully integrated with the OEV Network across multiple blockchain platforms. This integration marks the first Layer 2 solution in which Oracle service providers and searchers collaborate to combat the negative impacts of Oracle extractable value.
The OEV Network introduces a specialized transaction-based auction system for Oracle updates. This system allows searchers to bid for the rights to perform valuable price updates, particularly during liquidations. The proceeds from these auctions are returned to the dApp that generated the value, potentially saving millions in lost revenue annually.
Addressing Inefficiencies
Current oracle solutions treat all price updates equally, resulting in inefficiencies and lost value. The OEV Network creates a competitive market for price updates, ensuring that the rights to perform these updates go to the highest bidder, thereby recapturing value for the protocols involved.
Lending protocols like Aave and Venus have already paid substantial amounts in liquidation bonuses this year, with Aave V3 disbursing $23.4 million and Venus $5.8 million. These bonuses ensure the protocols’ health and represent significant value leakage to searchers and block builders. The OEV Network offers a solution to recapture some of this lost value.
API3 Strategy Lead Ugur Mersinlioglu highlighted the issue of overpayment for liquidation services, noting that searchers give up 99% of the available incentive to block builders due to aggressive competition. The OEV Network shifts this competition from block space to Oracle updates, ensuring the proceeds benefit the dApps generating the value.
The OEV Network addresses transparency and accountability issues in off-chain order-flow auctions. By providing an on-chain execution environment on Arbitrum Orbit, the network ensures a cheap, fast, and secure bidding process for Oracle updates, marking a significant step towards more transparent and accountable auctions.
API3’s partnership with Arbitrum and Caldera ensures a secure, permissionless, and scalable environment for the OEV Network. Arbitrum Orbit supports the backend infrastructure, guaranteeing execution, uptime, and scalability. The OEV Network operates seamlessly on all data feeds within the API3 Market, leveraging Layer 2 network security to create an efficient market for Oracle updates. This integration not only improves data feed granularity when needed most but also has the potential to recapture millions of dollars each year for lending protocols.