Satoshi Club & API3 Space Review: API3, More Than Just an Oracle

Source: X Space

Guests Present

Satoshi Club: Co-founder of the Satoshi Club, Space host.

Ugur Mersin: Strategic lead at API3.

Question 1

Satoshi Club: Can you tell us a bit about yourself and your first experience in the crypto world? How did you join the API3 team and what’s the story behind this project?

Ugur Mersin: Actually, I joined the cryptocurrency space relatively late, in 2022. It was during my studies when I was bored, and a friend shared the Bitcoin whitepaper with me, which led me into the crypto world. As for API3, we have been an oracle project since 2020, and I think we will delve into the different things we are doing in API3.

Satoshi Club: I remember there was some hype around oracle projects in 2021. In this bull market starting in 2024, have you seen anything different?

Ugur Mersin: From my perspective, there hasn't been much innovation; what they mainly do is provide prices, and at least 20 projects are doing the same thing. Some are decentralized, some are centralized, some are more efficient than others, and some focus on Solana. But the overall idea is that almost all oracle projects are just providing prices, and that’s the current reality.

Question 2

Satoshi Club: The limitation of only providing prices is a problem you've seen in the oracle space. How are you addressing this?

Ugur Mersin: One very interesting aspect of oracles is the so-called extractable value (MEV). It’s a subset of MEV, and I’m sure many of you have likely heard of MEV. When you create a transaction, your transaction can be sandwiched, and value can be extracted from you. There are many tools to prevent MEV from affecting your transactions, such as MEV blockers or Flashbots. Therefore, you can change your RPC to these applications that promise not to extract value from you. They won’t extract value from your transaction; they essentially perform MEV on your transaction and return 90% of it to you, taking a 10% commission for themselves.

Over the past year and a half, we have essentially built something equivalent to an MEV interceptor for DeFi, allowing dApps to regain value that was leaked due to MEV.

Question 3

Grilled ICE: I’m curious about what kind of system you’re using to achieve this. Is it already launched, or is it still in testing? I heard you mention oracles; I’m familiar with oracles, so how are you integrating this into what you’re building? What unique value does this bring to users?

Ugur Mersin: We are essentially building something called the OEV network, which is a form of auction platform for valuable oracle updates, used for any lending protocol or any DeFi protocol that utilizes oracles. What we are doing is not blindly updating our oracles; we are essentially building a market on top of that.

People can compete for more valuable oracle updates than others. For a very simple example, let’s say we update the price of Bitcoin to $70,000. Now, this update leads to a liquidation on a lending platform. Essentially, if you look at traditional oracles, they just update; they don’t care if there’s a liquidation. Typically, lending protocols pay a large portion of user collateral as an incentive to get someone to liquidate them. Sometimes, this fee is so high that people in lending protocols are essentially charging users excessive fees, and users lose a lot of money that they theoretically shouldn’t have to. If you look at AVAE, they have paid over $150 million to liquidators in the past four years, and Venus has also paid over $100 million to liquidators. Interestingly, liquidators typically only earn $50 or $100 from a liquidation.

So why does this happen? It’s due to the lack of a market for these people to compete for these oracle updates. That’s what we are doing. So we no longer blindly update. We allow anyone to compete for potentially valuable updates. Then they can push that update and potentially trigger any action they want, such as a liquidation.

Grilled ICE: So you’re essentially saying this is a safety net for users to protect them from complete liquidation?

Ugur Mersin: I wouldn’t say it fundamentally protects them from liquidation; they will still be liquidated. But what’s happening in lending protocols now is that in addition to being liquidated, they also have to pay an extra 10% penalty. We’ve essentially eliminated that 10%. So they retain more capital and don’t have to face penalties beyond being liquidated.

Question 4

Satoshi Club: Does API3 have competitors? Is API3 currently unique?

Ugur Mersin: It depends on how you define competitors. There are others building solutions on top of other oracles, but they are essentially solutions that rely heavily on third parties. The difference with our solution is that it is built into the oracle, providing a comprehensive solution from API3. So far, no one else has that capability. I can’t see their progress, but we are far ahead in this regard, and we’ve been live on the testnet for a month and a half, with the mainnet coming soon.

Satoshi Club: Recently, API3's TVS reached around $500 million. That’s a great growth. What numbers do you plan to achieve during this bull market this year?

Ugur Mersin: In January, it was $20 million, in February it reached $100 million, and now it’s $500 million, and this number is still growing. Because we will bring an oracle that can effectively return a lot of money to those who use it. This is something very unique and unprecedented. I think our initial goal set last year was $1 billion. I must admit that the first quarter is almost over, and we’ve already achieved 50%, so I may have underestimated its growth rate.

I don’t want to commit to a number here, but our basic goal is to ensure as much value as possible because the more potential MEV we can recapture, the more we can earn.

Question 5

Satoshi Club: So what benefits do participants get?

Ugur Mersin: We can provide you with almost any asset you might need, but most importantly, we’re not just giving you prices, which is quite ordinary. We also provide built-in MEV solutions. So if your project has any significant value and uses a regular oracle, it means you are likely losing a lot of money as well. With us, the money flows back to you. People have accepted the fact that it’s leaking, and now you’re getting the money; this is an additional source of income.

It can fund the entire team without tapping into tokens or protocol treasuries. Since new funds will effectively flow in every month, this is a brand new source of income that didn’t exist before. It largely depends on how the project integrates net income flows into their economic or business model.

Question 6

Satoshi Club: How many data providers does API3 currently collaborate with?

Ugur Mersin: Currently, it’s about 15. We basically just choose those we think are the most reputable and secure. We have a strict testing process where we test their data and then decide whether to integrate them.

Satoshi Club: I’ve heard in the market that you will launch some products in April. Can you give me more behind-the-scenes details?

Ugur Mersin: We will launch the OEV network. I think another revolutionary thing coming up is that we have a price feedback market. Let’s just call it that. It’s called the API free market. When projects need specific data sources, they just go to that market and pay a subscription fee, and it will be live immediately. This is essentially a groundbreaking moment for the network because currently, if you want to provide data with any other oracle project, it’s quite a cumbersome process; for example, you have to contact them, you have to establish a call, and then you have to say it. Sometimes, this can take many days, or it might even take weeks. We’ve built a system that can be fully automated. You don’t have to talk to API3, and you don’t have to wait. You will get fully decentralized and completely outsourced oracle services that you can use directly.

Live Questions

J_KELLY: I want to ask about the role of the API3 token in governance.

Ugur Mersin: API3 is a governance token, and its core intrinsic value is one of the driving factors; any profits generated from the services we provide will be reinjected into the API3 tokens through a buyback and burn mechanism.

JR: I want to know about the biggest challenges and setbacks the API3 team has faced.

Ugur Mersin: As an oracle project, coming up with a way to make real money is quite difficult. Most oracles primarily earn money by selling their tokens, and we didn’t want to do that. Therefore, our approach is to fundamentally build the OEV network to earn money sustainably, and it took me a long time to figure this out. API3 has been around for three and a half years, which is essentially thirty years in the cryptocurrency space, and finding a good product-market fit, I think that’s the most daunting challenge we’ve been able to overcome.

Angel: What are the privileges and benefits of staking? Are there any restrictions on the tokens earned from staking, and is there any penalty for unstaking?

Ugur Mersin: Staking API3 tokens allows you to create proposals. If those proposals are approved, you can receive funding to do certain things. For staking, you essentially earn staking rewards. These are locked for a year, and then you receive rewards weekly. If you want to unstake and withdraw your funds, there’s no penalty. The only thing is that there’s a one-week unlocking period for unstaking. So if you unstake today, you need to wait 7 days before you can withdraw your tokens again.

Grilled ICE: Since API3 data comes from first-party providers, how do you ensure the reliability and transparency of its data sources?

Ugur Mersin: Every API provider we collaborate with undergoes rigorous testing. First, they must pass through weeks of testing before we integrate them. We assess how smoothly the data flows, the method of data delivery, which exchanges they query, and so on. Once we choose them as our providers, they self-host, which automatically makes it transparent.

Zac: Why use Polygon CDK to create an OEV network?

Ugur Mersin: The OEV network is essentially an aggregation network that utilizes the ZK-Rollup framework of Polygon CDK. This chain is essentially just for auctioning these oracle updates. For example, you can see which users participated in the auction, who won the auction, and everyone can verify end-to-end what happened. A lot of MEV runs on centralized servers, and you can only trust their auctions. But this involves a lot of money, so we don’t want to do that; we want everything to be verifiable and transparent.