1.1Benefits of disintermediation

First-party oracles; that is, oracles operated by the API providers themselves. API providers operating their own oracles means they would be signing their responses with their private keys at the smart contract platform protocol-level, which is the best proof that the data is not tampered with. Moreover, first-party oracles are private by default, as a third party cannot observe the raw data from the API being processed, which allows them to be used in a wider variety of use cases natively.

A data feed composed of first-party oracles would be more cost-efficient compared to one employing middlemen, as one needs to pay middlemen both for their services and to incentivize them against attacking the data feed (referred to as the middleman tax in Section 1.2). In addition, a data feed composed of first-party oracles will need fewer oracles, as it would not need over-redundant decentralization at the oracle level to protect against attacks from third-parties. Assuming that each API is typically served by at least two third-party oracles, data feeds powered by first-party oracles would be at least 50% more efficient in terms of gas costs, by a conservative estimate.

First-party oracles also provide much needed transparency in terms of the data source and the degree of decentralization. Since each API provider will operate an oracle—which will be visible on-chain—the number of oracles serving a data feed will accurately represent how decentralized it is, as there is a one-to-one mapping between oracle and data source. Furthermore, the API providers would publish their on-chain identities through off-chain channels, which would allow the users to verify whose data they are consuming at a given time.

Finally, having the API providers operate the oracles solves the legal issues men- tioned in Section 1.4, as the API services no longer need to be licensed to a third party and the API providers receive the entire revenue. Furthermore, this solves the rent-seeking third-party oracles problem, and allows the funds to be redirected to the group that is doing the heavy lifting, the API providers. Incentivizing API providers aligns their financial interests with the ones of the OracleMesh ecosystem, resulting in a strong mutual bond between the two.