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Could Rising ETH Transaction Fees Point to New DeFi Season?

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The decentralized finance (DeFi) trend exploded this year as an unprecedented Uniswap token swapping boom took the crypto market by storm.

The short-lived DeFi season saw millions, and eventually billions, flow into the sector developed on Ethereum’s smart contracts. ERC20 tokens built on ETH powered apps that simulate traditional banking capabilities, such as lending and borrowing.

ETH, the world’s second-largest cryptocurrency, saw explosive growth as the total value locked (TVL) in DeFi protocols such as Yearn.Finance registered parabolic growth.

Since token swapping on decentralized exchanges requires Ether to pay gas fees, Ethereum’s price surged significantly. ETH has gained over 350% since the start of this year, outpacing even the ultra-bullish Bitcoin that has also rallied over 138% on the year.

Unfortunately, collapsing food tokens such as Yam and SushiSwap plagued with accusations of outright rag pulls began tarnishing the budding DeFi trend. As investors pulled funds away from DeFi and TVL dropped, the boom finally ran out of steam. 

Is Another Phase of DeFi Dominance Imminent?

Transaction fees on ETH have started to pick up once again after a period of inactivity, hinting at the possibility that another wave of interest in DeFi is brewing.

Ethereum transaction fees experienced a period of stagnancy as DeFi tokens tanked, and investor interest turned to BTC. The king coin then kick-started a multi-week rally that has seen it hit $19,457 yesterday, which was just a hair from breaking the all-time high price.

During Bitcoin’s steady rise, DeFi users stopped moving around tokens between wallets or DeFi apps. However, the tide could finally be turning. 

Earlier today, crypto bulls cashed in on Bitcoin’s rally toward its all-time high prices, leading to an intense sell-off that has seen the coin crash by over $2,000. 

This profit-taking trend will likely see investors look for cheaper altcoins to put BTC profits into, leading to an explosion in altcoin and DeFi markets.

What Do Surging Ethereum Gas Fees Mean?

According to crypto analyst Goomba, Ethereum transaction fees have been picking up since mid-November. Sharing the chart below, he tweeted

“$ETH transaction fees on the rise since mid-November was that to fill the $ETH 2.0 genesis contract or are going for another Uniswap/DeFi season?”

               ETH gas fees are starting rising again | Source Etherscan.io

It is likely that the uptick in gas fees was triggered by increased transactions as more ETH moved in preparation for the Beacon Chain genesis at the start of December. 

Another possible theory is that DeFi has started building again, and another DeFi season could be just around the corner.

Source: https://thedailychain.com/could-rising-eth-transaction-fees-point-to-new-defi-season/

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Crypto Lending and Borrowing 101: What are Crypto Loans Even For?

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Have you ever got a loan? Even if you haven’t, you’ve got to be familiar with the reason why people get them — they want to spend some money but don’t have it at the moment. 

Traditionally, loans have been issued by banks. These want to protect themselves from losing money in case a borrower cannot repay the loan — and they collect your data, make credit checks, require proof of income, and tons of other paperwork. Small loans can be issued fast, but when it comes to borrowing more money, approval can take days. 

Getting a loan in crypto solves most of these problems. Crypto lending issues loans in minutes with no credit checks and even without the identity confirmation — all you need is to provide collateral. In this guide, we will go through the reasons to get a crypto loan, explore why CeFi loans are a robust alternative to DeFi, and some exciting ways to spend your cryptocurrency loan on. 

Why crypto loans? 

The crypto adoption rate is yet far from perfect. Most of the car dealers, travel and real estate agencies, brokers, and other places where you could spend your loan, still haven’t got along with crypto. Now, you may be asking — why even bother yourself with cryptocurrency lending? Here are the reasons: 

  • Crypto loans are instant. A loan in crypto is in many ways similar to the fiat one: this is a capital issued to you that you can start using immediately. But with crypto, you can access this loan in minutes irrespective of its size. And here’s why:
  • Crypto loans are permissionless, accessible to anyone, and limitless. In comparison with banks, the only thing that a Bitcoin lending service needs from you is a sum of crypto that you can temporarily provide as collateral. This is why cryptocurrency lending platforms don’t require credit checks and any documents. This is what makes them accessible to all the people in the world: even if you don’t have a credit history (or have a bad one) or even a bank account, you can get a loan. 

And finally, this is why they are limitless: your upper loan size depends only on the amount of crypto you can provide as collateral. If the loan-to-value ratio is 50%, you’d need to put up 1 BTC to get 13,000 USDT or USDC. Loan-to-value indicator is used by the lending services to protect themselves from losing funds.  

  • A crypto loan is a way to use your Bitcoin without spending it. Hodling crypto is cool, but sometimes we feel like using our stashes of Bitcoin — even though that may harm our long-term investment strategy. However, there’s no need for harm — getting a crypto loan is a way to profit from your crypto portfolio right now. 

What are CeFi and DeFi loans? How are they different? 

In DeFi, loans are issued by the smart contract-based protocols which also store your collateral. These services are decentralized and peer-to-peer, which means they connect borrowers and lenders without intermediaries. 

Getting a loan in CeFi means there’s an organization that issues you some money and stores your collateral. This is how CoinRabbit works. By this moment, it may sound to you that DeFi loans have more perks: they are transparent, secured by blockchain technology, and intermediaries can’t do anything with your money. We’d even say, there’s a common belief about the infallibility of DeFi loans. 

However, the real picture is quite a bit different. Here are the reasons why DeFi loans are far away from being called trustworthy: 

  • Smart contracts are made by people, and they may have bugs that hackers use to steal money. DeFi protocols are no stranger to bugs, and hackers are constantly looking for them. Only this year, a decentralized lending protocol bZx has been hacked twice in a matter of days, and a similar project Value DeFi has lost $6 in a hacker attack. These were the so-called flash loans famous for processing the loan in one transaction. 
  • Since DeFi loans are fully blockchain-based and there’s no “central processor”, no one may help you out in any case. Inversely, at CoinRabbit, you always know that there’s a 24/7 support team that can resolve any issue. As an example, we can increase your loan size at any moment.   
  • CeFi is a lot easier to use. In DeFi, you have to know what smart contracts are and how they work, all about self-managed crypto wallets, and more. In CeFi, you can get a loan without lengthy preparations using a user-friendly and intuitive interface. 
  • Genuine Bitcoin as collateral is possible in CeFi. Since most of the DeFi is based on Ethereum, you can’t operate there with Bitcoin. The best thing you could do is to exchange your Bitcoin for Wrapped Bitcoin — it was breaking news when wBTC was added as a collateral option in May this year on the Maker protocol. At CoinRabbit, doing this is not necessary — simply provide your live Bitcoin, and you’re good! Moreover, we will soon add fiat collateral options — a thing which could probably never be possible in DeFi. 

How can I use my crypto loan? 

  • Fulfill your dream without further delay. Buy anything that you’ve always wanted, but didn’t have enough money at hand to afford. Even if you can’t pay for it with crypto directly, mind that we issue loans in stablecoins — assets that can be easily swapped to USD and other fiat currencies. 
  • Invest or trade. USDT and USDC are compatible with a wide variety of assets and are accepted basically everywhere. When you trade, their stable price can serve as protection for your funds’ price fluctuation. If you invest in a high-yield project, repaying your loan might be much easier.
  • Arbitrage. Borrow on CoinRabbit at a 5% interest rate, and lend this crypto on a different service with a higher interest. The difference will be your profit. We will dedicate one of our further articles to this use case. 

Final word

By taking out a crypto loan, you’re making your crypto work for you. Bitcoin in your crypto wallet looks particularly cool in this bull run, but why simply look at it and enjoy the rising numbers? Provide it as collateral and explore all the opportunities of instant crypto loans. See here how much USDT or USDC you can get right now!

Post Author: CoinRabbit.io

Source: https://coinrabbit.io/blog/crypto-lending-and-borrowing-101-what-are-crypto-loans-even-for/

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How To Navigate Through Crypto Taxation in 2021?

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Cryptocurrency and taxation may sound incompatible: decentralized digital currency was inspired by libertarian ideas and the wish to minimize government and bank influence in finance. However, 11 years after the Bitcoin creation, we have a crypto market that is subject to regulations and even taxation. This might have been a nightmare for the early crypto adopters, but from today’s point of view, looks like a thing to bring much good to the community. How is that possible? And how to understand if you have to pay any crypto taxes? Find the answers below! 

Should I pay any crypto taxes?

First of all, that depends on your jurisdiction. Many countries have established strong crypto regulations and taxation, while others still struggle with defining the legal and fiscal status of Bitcoin. To cover both categories, we will consider the crypto taxation policy in the USA, Great Britain, and India. However, if you are from a different country, don’t skip this paragraph — here, you will gain a basic understanding of what crypto taxation looks like and the way it is applied. 

United States 

If you are an American taxpayer, you are required to report gains and losses from each of your crypto transactions. In 2021, the Internal Revenue Service will ask you in Form 1040: “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” Interestingly, the IRS treats cryptocurrencies as property, not as a currency. 

Here are the events to report on: 

  • Earning crypto. Whether that be a job, mining, staking, airdrop, or interest from Bitcoin lending — if you’ve got any income in crypto, you are liable for income taxes. 
  • Selling crypto for cash. This is a way to realize the gain on your crypto property — quite a taxable event in the eyes of IRS. 
  • Paying for goods or services; buying one crypto with another. Another way to profit from your crypto earnings — and gain attention from the IRS!

No tax is paid for these crypto activities:

  • Buying and HODLing crypto. Great news for the long-term crypto investors! You’re not liable to tax in the case of buying and hodling Bitcoin or other cryptos unless you sell them to make a profit. In case you do, this will be treated as getting income, which is subject to taxation today. 
  • Transferring crypto between wallets. No new profits generated here = no taxable event has been triggered. 

If you trade on major crypto exchanges, you might have seen the options of collecting data for your tax authorities. These make it easy to track how much of your income is liable for taxation. Let’s say, if you bought 1 Bitcoin at $16,000 and then sold it for $26,000, you would incur a $10,000 capital gain. The sum of money you’d need to pay as tax here depends on your tax bracket. The tax for $10,000 will be added to the total taxation amount you have. 

And here’s the good news: if you lost money on your trading, the losses will be deducted from your income this decreasing the final tax size. 

Great Britain

Same as the USA, Great Britain views digital assets as property. If you trade cryptocurrency, your gains are subject to taxation, while losses can reduce your taxable earnings. Here’s what’s different: 

  • HODLers have to pay taxes. It’s 10% even if you aren’t actively trading your Bitcoin. 
  • You’re free from taxes if your net crypto income is below 12,500 GBP. If it’s above, from 20% to 45% have to be paid depending on your tax bracket.

India

Cryptocurrency was legalized in India in 2020. Yet, not enough time has passed for the authorities to establish any clear guidelines for crypto income declaration. “Income from Other Sources” is the category that Indian exchanges recommend their users to choose when classifying their crypto earnings. 

While the Indian government is reportedly planning to impose a 30% tax on cryptocurrency, the exact fiscal status of crypto remains unclear. Spheres that are supposed to be subject to future taxation include mining, selling crypto for cash, buying goods and services, and more. 

Do I have to pay a tax when I take out a loan in crypto? 

Irrespective of your jurisdiction, the short answer is: no, you don’t. 

If you do crypto lending yourself, you will be liable for taxation on the amount you earn. While cryptocurrency lending may be quite a lucrative activity, this is mostly a part of the DeFi sector. At CoinRabbit cryptocurrency lending platform, here’s what we can explain to you as a borrower: IRS hasn’t issued any clear guidance on crypto loans taxation yet. The Service is basing its work on the frameworks from 2014, which is like forever ago for the crypto industry — there were barely any crypto loans back at that time. While we are to expect the new regulations, crypto loans don’t seem to be a thing to declare.

What do the crypto enthusiasts think about taxation in crypto? 

As you may guess, many cryptocurrency adopters are very skeptical about any government participation in the crypto industry. This does not only include taxes but any regulation in general. 

However, we seem to be still far from a world where genuine peer-to-peer governance could be combined with wide adoption. Lack of regulation in crypto lead to the unprecedented spread of scams in the ICO boom in 2017, and the same pattern seems to be repeating for the current DeFi craze. 

This undermines trust in crypto from the institutional investors and all those who can drive the really wide adoption of digital assets. And inversely, higher regulations rate and taxation make the market more trustworthy and transparent. 

Whatever the case, the crypto loans’ taxation definition and framework haven’t been developed yet — and this is a great chance to enjoy borrowing without having to worry about any tax. Secure custody resistant to hacks, no credit checks, no monthly payments, and limitless loans at 50% loan-to-value — borrow stablecoin USDT or USDC at CoinRabbit and start fulfilling your dreams now!

Post Author: CoinRabbit.io

Source: https://coinrabbit.io/blog/how-to-navigate-through-crypto-taxation-in-2021/

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Ethereum tumbles by 9% after breaching new all-time high

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Ethereum has stolen the limelight from Bitcoin this week, forming a new all-time high of $1,440 while Bitcoin consolidated in a range between $34,000 and $37,000.

However, Ethereum failed to resist against a market-wide sell-off on Wednesday morning, with it plunging by more than 9% to as low as $1,238 before finding a bounce.

The move to the downside coincided with a drop in the price of Bitcoin, which has been attributed to a lack of bullish momentum to the upside.

Whilst investors will be looking on nervously as Ethereum continues its plight to the downside, it remains bullish on all higher time frames and most importantly from a macro perspective.

The recent high of $1,440 marks the fourth consecutive higher high, while there has also been sequential lower highs to the downside, indicating a clear uptrend.

ETHUSD chart by TradingView

Ethereum will only fall into bearish territory upon a reversal, which would be triggered if it begins closing daily candles below the psychological level of support at $1,000.

This would only happen if Bitcoin continues to lose momentum and tumble below $30,000 and if Ethereum falls back to around 0.03 against its BTC trading pair.

All eyes will be on how Ethereum performs on February 10, as this marks the listing of Ethereum futures on the CME.

While this event is considered by many to be bullish, Bitcoin’s listing on the CME in December 2017 marked the top of the bull market.

What we can expect this time around is a rally in the price of Ethereum moving into the event before a subsequent sell-off in fear that history may repeat itself.

For more news, guides and cryptocurrency analysis, click here.

Source: https://coinrivet.com/ethereum-tumbles-by-9-after-breaching-new-all-time-high/

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API3 Review: Building Decentralized APIs for Web 3.0

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Decentralized Autonomous Organizations, more commonly called DAOs, are an increasingly common way of providing hands-off governance for blockchain projects, and one of the projects recently in the spotlight is API3.

The project is an ambitious one that is looking to tackle the “Oracle problem” and find a way to connect the various APIs of data providers. The approach of building a decentralized API network (dAPI) is what’s drawn so much attention to the project. It has also been called the “Chainlink Killer” and that name is also bringing a lot of hype to the project.

In the following review we will take a look at the API3 project and how it works, while also discussing its approach to solving the Oracle problem. We will also look at the tokenomics of the project, while discussing the use cases and key features of API3.

What is API3?

In order to get a grasp on the concept of what API3 is doing we first have to understand what the API itself does. The acronym API stands for Application Programming Interface, and it is a well documented protocol that enables the transfer of data and services.

APIs have long been in use by web and mobile applications and programmers are extremely familiar with them. One example of an API is the method that’s used by the various cryptocurrency exchanges to provide data to the aggregators like Coinmarketcap.com.

API3 Logo

The API3 project is a potential solution to the oracle problem. Image via API3.org

The API is extremely handy for all types of applications. It’s also been used to monetize data in many cases where data providers allow developers to include their data in an app for a fee. This is quite positive for software development since it is one way for developers to more efficiently build their app without having to create everything themselves. Think of APIs like a Lego set, where developers can choose what they need and then snap it into their applications. Without APIs many applications would fall apart.

While all of this sounds wonderful for application development, there is a problem occurring due to the evolution to dApps and Web 3.0. That problem is the API infrastructure is not compatible with these new technologies. However, API3 is working to make it possible for the older API data providers to connect their data sources to smart contracts without the need for a third-party intermediary. They are accomplishing this through the dAPI decentralized blockchain API network.

Value Proposition of dAPI

Prior to the API3 solution it was thought that oracle technology could provide data to smart contracts as a middleware solution. One of the best known of these is Chainlink. The Chainlink solution has a node that sits between the API provider and the smart contract that requires data. The problem is that this adds a new intermediary to the process, and one of the guiding principles in decentralization is to remove third-party solutions.

One issue with this design is that often an oracle network will be rent-seeking, meaning the cost of everything is continually rising. And since Chainlink has become a dominant oracle network it is also gaining a monopoly over data feeds, which is creating a type of centralization. Additionally, there is no way to govern the data being provided to the oracles. Yes, the nodes are punished for providing bad data, but there’s no penalty enforced on the data provider.

Chainlink Oracle

Requests on Chainlink are distributed across both oracles and data sources.

API3 believes the solution is to allow the API providers to run their own nodes. This creates competition that will lower inflation, it promotes decentralization, and it allows a way to actually govern the data providers themselves. With the immense growth of the DeFi economy it is crucial that applications are able to source trustworthy and reliable data. And one way to ensure this is to make the process as transparent as possible.

Under the API3 system each oracle would own their data and the services being provided, making them first-party oracles. This not only increases decentralization, it will also allow the data feeds to be curated transparently, which is an important consideration in DeFi applications.

The Oracle Problem

One of the most well known issues facing smart contracts for years has been the oracle problem. It arises because when you have an on-chain smart contract with enforceable functions and rules it seems very useful. Until you realize that it is only useful with the data already inside the Ethereum network.

As an example from financial markets, there’s no way to make a smart contract on the price of an asset, such as an equity or gold, when the only source of data is off-chain. And there’s the heart of the oracle problem.

Oracle Problem

What’s a blockchain to do when it needs off-chain data? Image via InfoQ.com

How is it possible to get this data on-chain, and how do you do it in a decentralized and trustless manner? And in addition to that how can you protect against an attack on the data source, and verify the truth of the data? When relying on oracles you are increasing the available attack vectors on the smart contract and on the oracle provider.

Ever since smart contracts were developed blockchain engineers have been looking for ways to solve the oracle problem, and they’ve gone at the solution in a number of ways. Some of these, like Augur and Gnosis, use the very circuitous method of prediction markets. But the preferred method has always been an oracle provider that will deliver data anonymously, cost-effectively, and without the need for any third-party intervention.

That’s led to the creation of Chainlink.

Chainlink Onchain

Behavior of an on-chain Oracle as defined by Chainlink. Image via: Chainlink Whitepaper

Considering the current state of solutions that include oracles we can’t very well discuss the oracle problem without discussing Chainlink. It’s become the most well-known oracle solution, and in the past several years the project has made significant strides in the blockchain industry. They have a large and invested community, and their LINK token is positioning itself to be one of the blue-chip crypto tokens that could stand the test of time.

However all is not perfect with Chainlink. It does have problems. Problems that API3 can solve.

The API Problem

So basically the oracle problem is really just an oversight in the development of smart contracts on the Ethereum network. The development of oracles did not consider the decentralization of the nodes collecting and delivering oracle data. And we shouldn’t overcomplicate the problem by considering that anyone could deliver oracle data, should we?

In reality the problem that oracles solve isn’t as complex as many might have you believe. What oracles are trying to solve, in a fairly complex manner, is simply the ability to pull off-chain data into on-chain smart contracts. In that respect oracles have been compared with APIs used in web and mobile apps since both solutions are used to deliver data to an end consumer.

Data Transfer

Oracles are just one way to pass data to a blockchain. Image via 3commas.io

So, rather than thinking of an oracle as an abstraction of the API, why not just use the actual design philosophy of the API in the blockchain?

Wouldn’t it be better to design an network where you can use an API call to get data rather than paying an oracle several dollars? Even if the oracle cost is brought down to pennies it would be quite expensive over time. And wouldn’t it be good if you actually knew where the data was coming from rather than trusting in a series of anonymous nodes?

Finally, wouldn’t it be great to avoid all the possible attack vectors opened by the use of oracles and just deliver data in a seamless integration without any additional security risks?

That’s exactly what Chainlink can’t do, but what API3 is trying to do.

The API3 Solution

Now that we know all the problems in delivering data on-chain to smart contracts let’s look at how API3 plans on solving the problems more effectively than the current oracle-based solutions.

Basically API3 wants to take all the value that would be passed to the nodes in Chainlink  and deliver it to the actual data providers. This gets rid of the middleware. Rather than plopping some nodes in between the data providers and the smart contracts, API3 suggests it would be better to simply make the data providers themselves nodes.

That gets rid of an additional, and unneeded layer and solves a number of the problems that Chainlink is already working against, and others that it will face in the future as it scales.

Chainlink vs API3

The chainlink solution (left) vs the API3 solution (right). Image via API3 Whitepaper

Consider that the data providers under API3 will now have a reputation to uphold. They are no longer anonymous, but are providing their data directly to consumers, and if that data is flawed it is immediately known and there are repercussions.

In oracle solutions the node is punished, but the data provider can continue providing false data with no penalty. And because nodes in Chainlink are anonymous no one ever knows which node was involved in the bad data either. The API3 solution means that the data providers are directly invested in the process and in the truthfulness of their data.

The API3 solution removes the possibility of ‘oracle bribing’ and it’s done so in a most cost effective manner. To be certain Chainlink  has also solved the oracle bribing problem, but the solution they’ve used is prohibitively expensive. In order to avoid the possibility of a node being bribed Chainlink has designed its network to use multiple nodes to deliver the true data, but each node is expensive, and using multiple nodes becomes very expensive.

Airnodes

Airnode is designed to be deployed once by the API provider, then not require
any further maintenance. Image via API3 Whitepaper

The API3 solution is called Airnode. It is deployable on-chain and it requires very little in the way of onboarding for the API provider. The API3 team is able to assist, making the addition of Airnode easy. And it is a set it and forget it solution, requiring no maintenance on the part of the API provider. The data is there, live on-chain and available to anyone who wishes to call it. There’s no nodes required, no need for incentive costs, and no added attack vectors.

It’s a simple and elegant solution.

How does Airnode Work?

Airnode was developed by API3 on Ethereum’s network. It is an off-chain system that feeds data to an aggregator contract using Ethereum nodes. That aggregator contract is a decentralized API that is callable from other contracts. In essence Airnode is an oracle node, but it is operated by the API providers in an almost frictionless way.

A challenge to decentralized API solutions has been that the API providers are relatively unfamiliar with blockchain architectures and systems, meaning it is extremely difficult to transition them to the operation of oracle nodes. By providing a solution like Airnode, which is basically a wrapper on a traditional Web API, the API providers can easily have their data written to a blockchain.

Airnodes Cloud

The Airnodes API gateway works just like a piece of cloud service infrastructure. Image via API3 blog.

By allowing API providers to run their own oracles it becomes far easier for them to service blockchain applications and to manage all the metadata that’s needed for reliability and monetization of the data. In the oracle system the top Chainlink node operators have been able to earn as much as $100,000 per month as DeFi becomes increasingly popular.

If those rewards were extended directly to the API providers it could open up a whole new market for the providers, and decreased costs for the applications that use the dAPI data.

An additional benefit of API3 is that is allows a data consumer the option of using on-chain insurance. This insurance protects them from the malfunction of an oracle or API, and compensates data consumers for quantifiable losses. This method provides an incentive for the API3 governing body to maintain integration and data quality, while also allowing a fallback in the event of a technology failure.

API3 Token Use Cases

API3 intends on using a decentralized autonomous organization (DAO) for its governance, which means every participant in the ecosystem will have their own say in the development and security of the network.

API3 Ecosystem

The complete ecosystem and interactions on API3. Image via API3 Whitepaper.

As a result the API3 token will have the following use cases:

  • Staking: API3 token holders can stake API3 to earn rewards and participate in on-chain governance.
  • Governance: There is a direct economic incentive for voting, as stakers receive a portion of dAPI revenue and their staked tokens are collateral for on-chain insurance.
  • Collateral: The staking pool will act as collateral for on-chain insurance.
  • Payments: There will be a subscription fee for dApps using the dAPI network. Additionally, data providers will receive payment in API3 tokens.
  • Disputes: In the case of loss of revenue due to malfunction, downtime, or incorrect data, dApps using will be able to open disputes to raise an insurance claim. The team plans to use Kleros to resolve insurance claims.

Governance Hype

Governance, specifically decentralized governance, seems to be a requirement of any blockchain projects these days. API3 has that covered as it plans on following a DAO governance model. That adds to the value of the tokens beyond a simple monetary value.

It means those who own and stake API3 tokens have a say in the governance of the blockchain. They can decide to vote for or against any updates to the fee structure, or other governance changes that could have an impact on their investment in the project. Considering that API3 will be a data marketplace this could be quite powerful, and is a bullish signal for the project.

API3 DAO

The concept of DAOs and sub-DAOs put forward by API3. Image via API3 Whitepaper

Included in the governance aspect is a staking mechanic, which not only allows for voting and governance, but also rewards those who are willing to stake their tokens as insurance against data errors or malfunctions in the system.

It would be naïve to think that this won’t happen, but with a good design they should be few and far between. We’ve already seen similar errors occur on other platforms, and it is good to see that API3 is acknowledging this and putting in a solution for the possibility.

The other benefit to staking is that it reduces the circulating supply, which is always good for price.

The API3 Team

API3 was co-founded by three individuals. The team lead is Heikki Vanttinen who led a development team of about 20 members. He is a veteran in the segment of the language machine.

He was joined by Burak Benligiray, a former Google scholar. He is also the former CTO at CLC Group and Honeycomb. According to his own curated online resume he does oracle and vision stuff. He has a passion for smart contracts and bringing cutting-edge technology into real-world use. Previously he has worked at start-ups and provided freelance research consultancy in computer vision and artificial intelligence.

Heikki Burak Sasa

The three API3 cofounders. Image via LinkedIn.com

The third co-founder of the project is Saša Milić, who describes herself as a software engineer / data scientist / researcher in the cryptocurrency / blockchain space. Prior to joining API3 she worked in software engineering (both small startups and large tech companies including Facebook), data science in venture capital, research (computational linguistics, cognitive science) and teaching (computer science, data science) in both academia and industry.

The API3 Token

API3 raised $3 million this past November in a private funding round. That was followed by a public sale in December 2020. That public sale raised $23 million and API3 tokens were sold on a bonding curve starting at $0.30 each and going up to $2.00. Since then the token has done very well, returning roughly 1,300% on a USD basis to the early investors.

With a total supply of 100,000,000 API3 tokens there were a total of 30,000,000 sold in the private (10 million) and public (20 million) sales. It’s notable that only the public tokens are unlocked. All the other tokens are subject to either 2-year or 3-year vesting schedules. Tokens are required for staking and governance as well, so the early investment seems to be quite a smart move.

API3 Token Allocation

Most of the API3 tokens will remain unvested for 2-3 years. Image via API3 blog,

The tokens began trading on December 1, 2020 at $1.30 and immediately began climbing higher. Within a week they were solidly above the $2.00 level. There was a dip back under $2.00 at the end of 2020. The price climbed steadily in early 2021, and jumped sharply in mid-January 2021, basically doubling to a high of $4.70 on January 17, 2021.

That sharp move higher was part of a broader move in all the DeFi linked names at the time, so it’s uncertain if the gains will hold, or if the token will drift back down in the coming weeks.

Conclusion

There’s no doubting that as blockchain usage grows, and developers come up with more novel and complex use cases the dApps created will also need better ways to interface with third-party data sources. The existing oracle solutions are functional, however there have been compromises made in their design that could lead to serious problems as the solutions need to scale.

Data could be compromised, and costs are likely to increase to the point of exclusion. In the case of data compromise or corruption the impacts could be huge as the highly automated nature of smart contracts and dApps could see any data corruption spread throughout the entire network.

The solution from API3 that enables the API providers to operate the Airnode oracle would give us interoperability with third-party services in a decentralized manner. And it will also ensure that the API providers are incentivized to provide trusted, high-quality data.

When you consider the huge returns that node operators in oracle systems have seen it is pretty likely that API providers will be glad to capitalize on their ability to easily provide data and services via the incredibly easy to implement Airnodes.

Unless something superior comes along it appears that API3 is bringing a powerful solution to the problem of connecting traditional API services and decentralized blockchain technology.

It’s certainly too early to determine if API3 will be the solution to the oracle problem, but things do look very promising in these early days. You may want to keep your eyes on this project and see how it develops and grows.

Featured Image via Shutterstock

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

Source: https://www.coinbureau.com/review/api3/

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