API3, a service that provides data feeds to blockchain-based smart contracts, is becoming a decentralized autonomous organization (DAO), a democratized system of decision-making using cryptocurrency and blockchains.
Announced Thursday, API3’s DAO contains the startup’s treasury worth close to $100 million, gleaned from its token sale at the end of last year, and composed of $23 million of stablecoin USDC and 25 million API3 tokens (valued at $2.75 a piece at time of writing).
Blockchain projects like to espouse some degree of decentralized governance; it’s a good reason to issue a token, for example. But DAOs go the whole hog, handing over the project’s direction and control of treasury holdings to the voting power of token holders rather than a smaller group of governing individuals.
AIP3’s so-called Authoritative DAO has been built using the Aragon DAO creation platform.
How it works
API3 token holders will gain one vote per token staked in the DAO smart contract, where these tokens will be locked up for 12 months, allowing voters to share in staking rewards, starting at 47.12% APY and adjusting downwards as the collateral targets are met, explained API3 co-founder Heikki Vänttinen.
In terms of the API3 use case, providing accurate and relevant data to blockchain smart contracts has become very big business thanks to the explosive growth of decentralized finance (DeFi). API3 says it wants to create a more transparent and accountable data oracle option than Chainlink, far and away the market leader in DeFi data feed provision.
As well as voting to steer the direction of the API3 project, the aim is also to provide a kind of decentralized insurance against oracle failings, Vänttinen said, such as when a critical data feed falters, or perhaps the wrong data finds its way into a DeFi platform, and users can lose money.
“We are going to be providing collateral for an insurance product that’s going to be available to the data feed consumers,” said Vänttinen in an interview. “So, if a data feed goes down, the consumer of that data feed will be able to file a claim to the insurance and then get compensated from the pooled tokens if the claim is valid.”
DeFi and decentralized insurance alternatives like the popular Nexus Mutual platform include oracle failings in the repertoire of risks covered, but Vänttinen argued the API3 DAO insurance provision is better aligned with the overall goals of the project.
“All the people governing the API3 DAO are directly incentivized to keep the data feeds running as they should, and maintain a high quality of operations for the DAO. Because that means there won’t be any outages or malfunctions that would lead to them getting slashed from the insurance pool,” he said.