OEV

Overview

Oracle Extractable Value (OEV) is a subset of Maximal Extractable Value (MEV) that occurs as a result of an oracle update.

The idea is that different oracle updates have different importance. Some updates expose profitable opportunities on the market. Searchers actively compete with each other to be the first to realize these - paying a majority of the exposed value to block validators in the process. This dynamic is unhealthy, because the majority of the value should be split between the dApp and the searcher that realizes the opportunity.

OEV solves this problem by offering the exclusive rights to execute the oracle update(s), allowing searchers to atomically update the price feed(s) used by the dApps and profit from the opportunities on the market. The exclusive update rights guarantee no competition and searchers avoid paying premiums on gas fees.

Api3 facilitates OEV using two ways:

1. Private auctions performed via partnered searchers on non-delayed data.
2. Searching using public Signed APIs on delayed data, open for anyone to participate.

💡 Tip

For quick reference, you can copy-paste llms-full.txt to your choice of AI assistant.

Practical example

Imagine an overcollateralized lending platform that uses Api3 price feeds. Borrowers in the protocol can be liquidated with an incentive whenever their position becomes unhealthy to ensure the protocol remains solvent. Say liquidations can occur if the loan-to-value ratio exceeds 90%. Let's look at what happens with the protocol's health over time.

Assume that initially there are no unhealthy positions. Many of the price feed updates that happen are "unnecessary" because they don't expose any unhealthy positions and the protocol remains healthy. However, after some time there is a price drop that causes many positions using that asset as collateral to approach the 90% liquidation threshold.

In this scenario, the next price update that causes a position to become unhealthy is valuable. Api3 partnered searchers monitor the dApp and public Api3 data sources and notice that a position will become unhealthy after the next oracle update. They submit a transaction that executes the oracle update and perform the liquidation atomically.

The concept of OEV is not limited to liquidations, but can occur anywhere where price feed updates potentially expose profitable opportunities, such as arbitrage and many others.

OEV distribution

Thus, the majority of the OEV is distributed to the dApp and the searchers.

Api3 searching revenue is split between:

1. Paying the dApps in the form of OEV Rewards.
2. Api3 protocol fee.

For Api3-curated markets, the entirety of the OEV belongs to Api3.

Get started with OEV

Here are resources to help you get started with OEV:

1. See OEV Dashboard to browse the past OEV performance.
2. Dive deeper into OEV by reading the OEV Litepaper.
3. Connect with other developers and OEV enthusiasts in our OEV Discord channel.
4. Follow Api3 on X for the latest news and updates on OEV.