Decentralized oracle provider API3 has introduced the OEV Network, a first-of-its-kind on-chain solution designed to recover oracle extractable value (OEV) for lending protocols. The platform, now live and fully integrated with API3 Oracle Stack, operates as a layer-2 system to facilitate an efficient market for oracle updates. Unlike Maximum Extractable Value (MEV) which extracts value during transaction security, OEV focuses on extracting value during oracle updates.
In lending markets, oracles play a crucial role in determining asset prices used as collateral in loans. Occasionally, price updates by oracles can trigger liquidations. With OEV Network, users can participate in auctions to bid on valuable upgrades like price updates that could result in liquidations within lending markets. The proceeds from these auctions are then returned to decentralized applications, potentially recovering millions of dollars annually and creating a new revenue stream for lending protocols and the API3 oracle stack.
In traditional credit markets, external parties called “investigators” assist in ensuring settlements are conducted efficiently. These investigators typically earn a fee ranging from 5-20% of the settled collateral. However, according to API3’s head of strategy Ugur Mersinlioglu, lending protocols often end up paying a significant amount for these services, especially for larger liquidated positions.
With the introduction of OEV Network, the dynamics of the settlement process are expected to change. Instead of competing for block space in auctions, seekers will now compete for the right to make oracle upgrades that facilitate settlements. This shift aims to ensure that more value from liquidations flows back to the decentralized applications rather than to block builders.
The OEV Network also redefines the typical business models of oracles by creating an efficient and competitive market for oracle upgrades. Previously, revenue for oracle providers remained constant regardless of the value obtained through the oracle services. Now, with the OEV Network, there is a direct correlation between the value obtained and the potential revenue generated by the oracle providers.
API3 reports that there is a significant opportunity to recover value for lending protocols across all chains, with Aave V3 and Venus already seeing substantial settlement incentives being granted. The API3 Oracle Stack, which operates across 37 networks and processed over $1 billion in transactions in May 2024, now offers a built-in solution through the OEV Network to recover substantial value, thereby opening up new revenue streams for funding operations and expansion.
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https://decrypt.co/239092/api3s-oev-network-to-recapture-oracle-extractable-value-for-lending-protocols