API3 — Decentralized APIs for the Decentralized Web

dAPIs are decentralized API's for the decentralized web.

To start, I would like to thank all of the API3 partners for their help in realizing API3, as well as our whole team for their effort in the past many months it took to get to this point. From the start, API3 has been, and continues to be, a distributed endeavor to create solutions that serve the entire Web 3.0 ecosystem and everyone who would like to build externally connected decentralized applications within it.

What is API3?

API3 is a collaborative effort to build, manage and monetize decentralized APIs (dAPIs) at scale. dAPIs are blockchain-native, decentralized API services built by combining multiple provider-operated oracle nodes into aggregated data feeds, without the use of third parties. Furthermore, to achieve a system that is end-to-end decentralized, both dAPIs and the API3 project as a whole will have a completely open and direct governance model from the beginning, powered by the API3 token and the API3 DAO.

What is an API?

To properly understand API3’s value proposal, one first needs to understand what APIs are, and how these standardized data and service interfaces have transformed the way applications are built today.

An Application Programming Interface, or an API for short, is a thoroughly defined and documented protocol used by Web and mobile applications alike, that enables them to interact with one-another by way of exchanging information and services. Using an API as the channel, online businesses today are able to offer their data and services as monetizable service modules, which developers can then integrate into their applications. This, in turn, substantially improves the efficiency of building software both in terms of cost and build-time. When contrasted with a past where developers would have to build every function of their application from start to finish, it is clear why the massive increase in efficiency enabled by APIs has made them the foremost building blocks of the digital world.

Why are APIs relevant to smart contracts?

As the use-cases for blockchain technology have evolved throughout the past decade from cryptocurrencies like Bitcoin, to smart contract platforms like Ethereum, to the recent boom in DeFi (Decentralized Finance), the evolutionary line plotted through these developments has provided a relatively clear path for the future use-cases of decentralized technologies. What this path has shown is not only a broadened capacity for blockchain-based applications to execute increasingly complicated tasks in a trust-minimized manner, but also a deepened connection between decentralized applications and the real world. This has occurred through an expansion of smart contracts into services that extend beyond simple ledgers for transferring value from one account to another, and more resemble democratized services and financial products that not long ago used to only be provided by multinational corporations and large financial houses.

Indeed, today we have arrived at a reality where smart contracts and decentralized applications can be used to increase efficiency, reduce middlemen and costs, and provide increased transparency in hundreds of real-world applications through dozens of legacy industries. What’s more, while the first step of this evolution towards real-world-connected decentralized applications has been in the realm of finance, we have only just gotten started. Moving beyond DeFi, smart contracts are poised to transform entire industries from insurance to supply chain management to gambling. What all of these industries have in common, besides their hospitality to blockchain-derived disruption, is their reliance on timely, reliable real-world data provided by APIs.

The API Connectivity Problem

The inability of smart contracts to access data not presently found in the blockchain is commonly known as The Oracle Problem. In practical terms, what this means is that due to the unique consensus-based security guarantees derived from using a decentralized network of nodes as the application platform, the smart contracts powering these applications cannot directly call APIs from the blockchain that the contract resides in. What is needed, then, is a solution that provides smart contracts with the ability to access API data in a way that maximally upholds the security guarantees of the underlying system, without introducing new attack surfaces to it. As this is ultimately at the core of the oracle problem as it has been defined today, we feel that it is useful to rename the problem as the API Connectivity Problem, as this demystified approach through a strategic reduction of scope significantly improves our ability to solve it in the most efficient and secure way. As a solution to the API connectivity problem, API3 proposes a new oracle paradigm, called a decentralized API.

How do dAPIs solve the API Connectivity Problem?

Decentralized APIs (dAPIs for short) are blockchain-native, fully decentralized API services composed of multiple data provider-operated nodes. The way in which dAPIs differ from existing decentralized oracle solutions, is that contrary to the current solutions, dAPIs include the APIs underlying the data feed in the scope of the solution. This enables them to provide superior data transparency all the way to the factual data source level, compared to existing decentralized oracles, which do not consider the data source API to be within the scope of their solution. In the context of dAPIs, this transparency is derived from having the API providers themselves run the middleware necessary to connect their API to the smart contract platform where its data and services are needed. We call this middleware the Airnode due to its light but robust serverless build, which can be deployed in minutes, does not require the API provider to manage and attend to the middleware on a day-to-day basis, and can have APIs integrated to it without the provider having to write any code.

Existing decentralized oracles are centrally governed and do not include the source API within their scope.

In addition to the added level of transparency provided by the use of first-party oracles, this approach also significantly reduces the transactional costs of delivering API data onto the blockchain, as it gets rid of middlemen node operators who in alternative schemes are needed to run the middleware as a compensated service to both the source data provider and the end user smart contract. As the over-redundant layer of middleman node operators is removed, transaction fees in the form of gas get lowered, and the node-specific fees flow to the factual source provider of the data.

dAPIs are decentrally governed data feeds, composed of first-party oracle nodes.

Furthermore, to improve upon the current standards of decentralization and trust-minimization employed in the governance of existing oracle solutions, dAPIs composed by API3 will be fully and transparently governed by a Decentralized Autonomous Organization (DAO) of dAPI consumers, service providers, industry experts and partners. We believe that this new level of transparency, cost efficiency, decentralization and alignment of data provider incentives with those of the solutions they will serve, will lead to a proliferation of new data feeds available to the growing community of smart contract developers the world over.

How to get involved

API3 is formed by people who spontaneously found each other through a common understanding: Despite being largely overlooked, the API Connectivity Problem is the most critical obstacle in front of meaningful decentralized applications being built at scale.

If existing oracle solutions do not fulfill the needs of the decentralized applications you want to build, give you a fair opportunity to monetize your API business, or feel like they are working against the ethos of decentralization, we invite you to be a part of API3 so that we can solve the API Connectivity Problem together. The API Connectivity Problem is in essence an ecosystem building problem, more so than a technical one. This means that API3 can use the skills of all kinds of experts and the decentralized nature of the project will allow you to shape it in a way that makes the best use of your skills.