API3: Democratizing Information with Decentralized APIs
API3 is a portal that connects APIs and real-world data feeds to Web 3.0.
Updated February 8, 2022 • 4 min read
Providing accurate external data to on-chain environments is essential for creating powerful decentralized apps, platforms, and marketplaces. API3’s dAPIs — decentralized APIs — make real-world data from existing oracle API providers natively compatible with smart contracts, dApps, and blockchain-based applications. Decentralized APIs can be bridged to support practically any blockchain, and exist as a multi-layer, cross-platform oracle solution for supplying data to any decentralized ecosystem that needs it.
Introduction to API3 and Web 3.0
Launched in December 2020, API3 is a platform that enables blockchain-based decentralized applications (dApps) to access blockchain-external, real-world data and services via application programming interfaces (APIs). APIs represent a highly established standard in software and app development. API3 provides a way for the world’s data to be fed into blockchain applications with the ease and standardization provided by API connectivity.
When building programs or applications, developers often rely on existing APIs to port particular datasets or services into a new project without having to reinvent the wheel and code everything from scratch. For example, a weather app on your phone might gather recent data about real-time weather conditions via an API. APIs are the building blocks of many modern applications and software that we use everyday.
A problem that has arisen — one that API3 seeks to solve — is that most APIs are built for the legacy ecosystem of centralized applications, data, and financial services, and are not natively compatible with the world of blockchain and dApps. API3’s mission is to make existing APIs compatible with the decentralization standards of Web 3.0 — and to do so without overly burdening API providers or dApp developers.
Decentralized APIs: Connecting Decentralized Networks
In an effort to decentralize the process of porting off-chain data to the on-chain environment, API3 has designed its own decentralized APIs (dAPIs). These are fully decentralized APIs that are inherently compatible with blockchain technology and do not require the use of proprietary technology or access from a rent-seeking gatekeeper organization.
Decentralized APIs can be bridged to support any blockchain and exist as a multi-layer, cross-platform oracle solution for supplying data to any decentralized ecosystem that needs it. Many platforms stand to benefit from reliable data oracles, so API3’s decision to remain blockchain-agnostic allows it to accommodate practically any decentralized network with smart contract capabilities.
API3 dAPIs aggregate data directly from first-party data providers, a specification that bolsters transparency, decreases the risk of third-party data tampering, and eliminates the need for rent-seeking middlemen — ultimately putting more revenue directly in the hands of API providers. With this unique structure, API3 differentiates itself from other blockchain data oracle projects — such as Chainlink — which commonly use their own nodes as intermediaries to deliver data from external APIs to the requesting smart contracts.
Airnode and First-Party Oracles
Whereas most other oracle projects feature third-party oracle nodes hosted by an intermediary, API3 uses first-party oracle nodes, which are operated directly by data providers. To achieve this, API3 utilizes a technology called Airnode that allows API providers to turn their APIs into dAPIs. Airnode decentralizes data feeds at their respective sources, which eliminates the need for intermediary nodes and allows dApps to access data directly. Airnode is a serverless oracle node that an API provider can deploy with relative ease and without regular maintenance. Airnode thus makes it easy for oracle API providers to augment their data feeds for monetization in the decentralized landscape.
API3’s design philosophy behind Airnode is to make the process of becoming a first-party oracle node simple and frictionless for API providers. Airnode is designed to be a set-and-forget deployment that doesn’t require any overly technical knowledge to deploy. Airnode also does not require API providers to accept cryptocurrency as a form of payment and uses on-demand pricing so oracle API providers don’t have to pay for hosting when their API is not in use.
Decentralized Governance and the API3 Token
The API3 decentralized autonomous organization (DAO) is responsible for managing API3 dAPIs, and provides the project with decentralized governance down to its core structure. With decentralized governance, dAPIs can be operated with more transparency and fewer risks of centralized points of failure.
Individual dAPIs on the platform and the overarching API3 project itself are both governed by the API3 DAO. In addition to being responsible for the creation, setup, management, and monetization of dAPIs, the API3 DAO also covers the operational costs of dAPIs including gas fees and compensation of oracle API providers. In order for the API3 DAO to function effectively, nuanced incentive mechanisms involving governance, staking, and insurance have been put in place.
The API3 token is the native utility token of API3 and is the central mechanism for payments and community governance in the API3 DAO. The dApps that use the dAPI network will pay a subscription fee denominated in API3 to do so, although API providers using Airnode can opt to receive payment in fiat via an API3 DAO grant should they not wish to handle cryptocurrency.
The API3 token also enables all community stakeholders to participate directly in community governance by staking API3 tokens in the API3 insurance staking contract. By doing so, stakeholders receive staking rewards and inflationary rewards — and are thus financially incentivized to participate in the decentralized network and to increase its overall value.
The Future of API3’s Oracle API Gateway
The need for providing accurate external data to on-chain environments is an essential element for creating powerful decentralized apps, platforms, and marketplaces. API3’s oracle API gateway is meant to provide a frictionless framework to help API providers to do that. By reducing the role of middlemen and making it easy for data providers to operate their own nodes, API3 stands to put more revenue in the hands of data providers — a prospect that may incentivize even more providers to adopt and participate in the decentralized landscape. With decentralized governance and a sophisticated DAO, API3’s approach to becoming a competitive data oracle solution is democratizing access to information in the blockchain ecosystem.
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