API3 has officially launched the OEV Network on its mainnet, marking a significant addition to the API3 Oracle Stack. The network aims to help lending protocols recover lost Oracle Extractable Value (OEV) during liquidations, ultimately enhancing the efficiency and profitability of these protocols.
The OEV Network, now live and integrated with the API3 Oracle Stack, provides a built-in solution for every lending protocol on each API3 supported chain to recapture protocol Miner Extractable Value (MEV). This solution offers a way to upgrade oracles and recapture lost value.
At its launch, the OEV Network was fully integrated with several protocols, including Orbit Protocol, INIT Capital, and Lendle, across multiple blockchain platforms. This integration represents the first Layer 2 solution where 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 decentralized applications (dApps) that generated the value, potentially saving millions in lost revenue annually.
The current oracle solutions treat all price updates equally, leading to inefficiencies and lost value. However, the OEV Network creates a competitive market for price updates, ensuring that the rights to perform these updates go to the highest bidder. This approach recaptures value for the protocols involved.
Lending protocols such as Aave and Venus have already paid significant amounts in liquidation bonuses this year, with Aave V3 disbursing $23.4 million and Venus $5.8 million. These bonuses, while important for the protocols’ health, result in significant value leakage to searchers and block builders. The OEV Network provides a solution to recapture some of this lost value.
Ugur Mersinlioglu, API3 Strategy Lead, 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 that the proceeds benefit the dApps generating the value.
The OEV Network also 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. This marks a significant step 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, guaranteeing 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 improves data feed granularity when needed most but also has the potential to recapture millions of dollars each year for lending protocols.