'The Rising Importance of First-Party Oracles' by API3DAO api3 blockchain
stake cryptocurrency
With Airnode, API providers no longer have good reasons to choose not to run their own oracle software. We can finally realize the obvious benefits of first-party oracles, cutting out the third-party middlemen, increasing efficiency, and reducing risk.We’ve been conditioned by middlemen with a profit motive to believe that third-party oracles are decentralized and that decentralized is always better.A core tenet of Web3 is decentralization.
Transparency allows us to independently review and verify something from an individual. On its own, transparency doesn’t guarantee truth. An individual can lie and “transparently” provide false or misleading information to support the lie. Decentralization is a way to reduce the risk of an individual lying. It’s less probable that 3 out of 4 individuals will collude and lie than it is that one individual will lie.
As stated before, the benefit of decentralization is that it reduces the risk of an individual lying. But the thing that’s decentralized when we’re talking about third-party oracle networks is the third-party oracle nodes, not necessarily the API providers. In fact, it’s quite normal for third-party oracle nodes to acquire their data from the same APIs. In some cases third-party oracle networks even “decentralize” data from only a single source and then “aggregate” it back together.
The risk of an attack on or by third-party oracle nodes exists, even if it’s reduced using decentralization. With first-party oracles the middlemen nodes are eliminated entirely so there is no third-party trust problem to solve. The added risk from third-parties is zero because there are none. In both cases the risk from the API provider is the same so with third-party oracles the overall risk is increased, even when those oracles are “decentralized”.
Of course, with opaque third-party oracles you would never know. You have no choice but to trust them.
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