But what if there is another oracle just as good? Maybe in some ways better? And 25x cheaper? That’s the topic of today’s article. Meet of of our favorite altcoins: API3, a strong Chainlink competitor.
What is API3?
To understand what does, it’s important to know what APIs do. API stands for Application Programming Interface. Now what that means for you and me is that 2 software programs can talk directly with each other.
Think about the automation programs you know like Zapier or Make. Like when you create a Zap to connect something from Google Sheets to Mailchimp for newsletter email addresses. Or connecting Slack with Trello. Companies do that because Slack is great for communication while Trello is better for managing workflow.
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What are those zaps doing? The 2 programs are talking to each other. You add a name in a row in Google Sheets and it automatically adds it to your Mailchimp email list. Because the 2 programs are talking to each other. And they make those calls to talk to each other through APIs.
What does API have to do with Blockchain and Web3?
Good question. Oracles are the answer. The biggest and most popular oracle is Chainlink. And what does Chainlink do? It sends price feed data like for stocks or crypto projects to the blockchain so a trading dApp has that information for its customers.
It gives chains access to off-chain data. So using APIs, a tokenized trading dApp of US stocks, like Soma Finance, gets their stock data from somewhere if they are bridging TradFi and DeFi. API3’s decentralized data feeds work differently. They are more direct than Chainlink. More on this difference coming up in a minute. API3 also uses random number generators. This is both for privacy and security. And another bonus is that it helps make games that use it provably fair. Or fair distribution of a collection of NFTs. Or fair distribution for contest winners.
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The version API3 uses is Quantum Random Number Generators. The quantum computing aspect makes them harder to break. That means it’s safer for projects and users. And that’s included with every data feed from API3 for all clients.
More About API3
With Chainlink as the big dog in Oracles, let’s see how API3 compares to other Oracle competitors:
- UMA is an optimistic oracle. Its specialty is synthetic and financial assets. So it’s great for those but less good for general use outside of finance. Plus, it’s Ethereum and EVM only.
- Band Protocol: Band is built on Cosmos. We like that. They use a blend of API and other data sources so the data could be direct or third party. So the data might not be direct from a source like API3. Again, I will show you the importance of this difference coming up.
- Pyth Network: Pyth is an excellent oracle. It has many direct (not third-party) sources of data. It’s really good. So what does it have that API3 doesn’t?
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Bad tokenomics. Only ? of all tokens are circulating. It’s 36% to be exact. Honestly, we see this a lot:
- A project we like.
- A project with customers.
- A project with great positioning in the market.
And we don’t recommend it or buy it due to tokenomicsPyth oracles are excellent. But with the Pyth token, you can do better, including with API3. We love oracles, especially as part of the larger infrastructure sector. But we still have to be selective in what we buy. Do you hold any oracles or other Web3 infrastructure in your portfolio? Let us know in the comments below.
Differences Between API3 and Chainlink
We know Chainlink is the leader here. They use a third-party Oracle system. Chainlink’s nodes connect to many different providers to get a consensus on a piece of data. That’s different than how API3 does it.
Back to Soma Finance for tokenized US stocks as our example. Chainlink will get prices for Apple stock from many places like Google Finance, Yahoo Finance, Marketwatch, or even TradingView or Bloomberg Terminal if you are an active trader. But is it better to get AAPL’s price from them or directly from the NASDAQ where it trades? That’s the difference between third-party and direct sourcing. Chainlink uses third-party. API3 goes direct.
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Chainlink uses this consensus model for price feeds because they don’t use APIs. So they can’t go directly to the NASDAQ even if they wanted to. But API3 does. This makes API3 more direct and more decentralized than Chainlink. After all, your dApp can directly call the NASDAQ in a completely permissionless way.
I should remind you that we like Chainlink. We like it a lot. Oracles will grow fast from their current $14.5 billion market cap as a sector. $10 billion of that is Chainlink. API3 only has a market value of $393 million. In other words, Chainlink is 25x larger. $LINK trades more daily volume at $420 million than the entire API3 market value.
has something unique to offer to the Oracle marketplace. Both have a ton of room to run from here. But you’d get a 25x on API3 just to get where $LINK’s market value is now. The risk/return ratio here and explosive potential favor API3. Both will grow. But API3 can grow faster from here. Check out what API3 offers on their website today.
