Introduction

We are witnessing the birth of decentralized applications that are able to interact with the real world, which is immediately reflected in the value they capture. The most prominent example of this phenomenon is the recent surge of value flowing into DeFi (decentralized finance) with more than $20B total value locked in various applications as of September 2023. A DeFi application typically requires asset prices to be delivered to its smart contract platform through a data feed. This data feed facilitates the application’s interaction with the real world, ultimately allowing it to provide meaningful services such as derivative exchanges and lending. What is unfolding right now is not only the rise of DeFi but the rise of decentralized applications that can meaningfully interact with the real world, and DeFi is only the tip of the iceberg.

Businesses offer a wide variety of services over Web APIs, ranging from providing asset price data to executing traditional financial transactions. It is critical for de- centralized applications to be able to access the kind of services that Web APIs offer in order to interact with the real world, yet these APIs are not natively compatible with decentralized applications. Existing middleman-based interfacing solutions are centralized, insecure, and expensive; and are only being used for lack of a better alternative. With OracleMesh, we aim for the concept of an API to take the next evolu- tionary step to meet the inevitably strict decentralization requirements of Web 3.0 without employing third-party intermediaries. We will be using the term dAPI to refer to this new generation of decentralized APIs.

A dAPI is a secure and cost-efficient solution to provide a traditional API service to smart contracts in a decentralized way. It is composed of the following elements:

• multiple APIs, where the term API not only refers to a technical interface, but a service that a real-world business provides;

• a decentralized network of first-party oracles, i.e., oracles operated by the API providers themselves;

• a decentralized governing entity to oversee the oracle network.

OracleMesh is a collaborative effort to build, manage and monetize dAPIs at scale. To achieve this in a fully decentralized way, the incentives of the participants will be reconciled through the governance, security, and value capture utilities of the OM3 token. The project will have a completely open and direct governance model, where any OM3 token holder will be able to stake to obtain direct voting privileges in the OracleMesh DAO. In addition, stakers will receive a portion of the dAPI revenue,

inflationary staking rewards and any additional benefits that the DAO may decide on in the future. The staked OM3 tokens will back an on-chain insurance service as collateral to provide dAPI users with quantifiable and trustless security guarantees.

One of the fundamental flaws of existing oracle solutions is attempting to establish and maintain a parasitic connection with the data sources, which cannot produce a sustainable ecosystem. In contrast, we start off with the recognition that the API providers are the engine of this project. Therefore, they will not be abstracted away, but rather be attributed and compensated so that their interests are fully aligned with the interests of the greater OracleMesh ecosystem. We have already witnessed API providers’ eagerness in incentivizing adoption of their services by decentralized applications through providing free testnet calls for their paid APIs and offering cash prizes for hackathons. Cultivating this cooperation further will be one of the main sources of strength of OracleMesh.

Decentralized oracle network solutions employ third-party oracles because it is often not feasible for the API providers to operate their own oracle nodes. This positions third-party oracles as expensive middlemen and forms an additional attack surface.

To eliminate these problems and have the API providers engage in the ecosystem further, OracleMesh data feeds will be composed of first-party oracles operated by the API providers. This will be made possible by Airnode, a fully-serverless oracle node that is designed to require no know-how, maintenance, or upkeep from the API provider. The resulting dAPIs will be cost-efficient and secure against attacks from an intermediate layer of third parties.

In the case of a malfunction, the dAPI user will be able to claim compensation up to a pre-negotiated amount from the staking pool. Kleros, an on-chain dispute resolution protocol, will be used to decide if the claim is to be paid out based on the presented evidence. This will incentivize stakers to actively participate in governance to ensure that dAPIs are being managed transparently and in a way that minimizes security risks. Successful governance—generating revenue from dAPIs while avoid- ing mistakes that will result in paying out insurance claims—will be rewarded in OM3 tokens, which will create a positive feedback loop that will continually improve governance.

Refer to Figure 1 again for an overview of our solution. dAPIs are networks of first- party oracles that provide traditional API services in a decentralized and blockchain- native way. The OracleMesh DAO builds, manages and monetizes dAPIs at scale. Decen- tralized applications pay a subscription fee to gain access to a dAPI. OM3token holders stake into a pool to receive rewards and voting rights at the DAO. This staking pool is used as collateral for an on-chain insurance service that provides dAPI users with a quantifiable level of security. OracleMesh improves upon the existing oracle solutions in terms of decentralization, cost-efficiency, security, transparency and ecosystem growth potential.