API3 has made the official launch of the OEV (Oracle Extractable Value) Network on its mainnet, which is a significant addition to the API3 Oracle Stack. The purpose of this network is to assist lending protocols in recapturing OEV that is lost during liquidations, thereby enhancing the efficiency and profitability of these protocols.
The solution to oracle extractable value has arrived! The OEV Network, integrated with the API3 Oracle Stack, is now officially live. This means that every lending protocol on any API3 supported chain now has an in-built solution for recapturing protocol MEV. Upgrading your oracle is a worthwhile investment. pic.twitter.com/I0rSpTUb6l — API3 (@API3DAO) July 9, 2024
Upon its launch, the OEV Network was already fully integrated with several protocols such as Orbit Protocol, INIT Capital, and Lendle across multiple blockchain platforms. This integration represents 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 auction system based on transactions for Oracle updates. This system allows searchers to bid for the rights to carry out valuable price updates, particularly during liquidations. The proceeds from these auctions are then returned to the dApp that generated the value, potentially saving millions in lost revenue each year.
By addressing inefficiencies, the OEV Network creates a competitive market for price updates, ensuring that the highest bidder obtains the rights to perform these updates and recaptures value for the protocols involved. Current oracle solutions treat all price updates equally, resulting in inefficiencies and lost value.
Lending protocols like Aave and Venus have already paid significant amounts in liquidation bonuses this year. Aave V3 disbursed $23.4 million, while Venus disbursed $5.8 million. These bonuses are crucial for the health of the protocols but also represent a significant loss of value to searchers and block builders. The OEV Network provides a solution to recapture some of this lost value.
Ugur Mersinlioglu, API3 Strategy Lead, emphasized the issue of overpayment for liquidation services and pointed out that searchers relinquish 99% of the available incentive to block builders due to fierce competition. The OEV Network shifts this competition from block space to Oracle updates, ensuring that the proceeds benefit the dApps that generate the value.
The OEV Network tackles transparency and accountability issues in off-chain order-flow auctions. By offering an on-chain execution environment on Arbitrum Orbit, the network guarantees a cost-effective, rapid, and secure bidding process for Oracle updates, representing a significant stride towards more transparent and accountable auctions.
API3’s partnership with Arbitrum and Caldera guarantees 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 create an efficient market for Oracle updates. This integration not only enhances data feed granularity when it is most needed but also has the potential to recapture millions of dollars annually for lending protocols.
