DeFi (Decentralized Finance)<\/a>, the evolutionary line plotted through these developments has provided a relatively clear path for the future use-cases of decentralized technologies. What this path has shown is not only a broadened capacity for blockchain-based applications to execute increasingly complicated tasks in a trust-minimized manner, but also a deepened connection between decentralized applications and the real world. This has occurred through an expansion of smart contracts into services that extend beyond simple ledgers for transferring value from one account to another, and more resemble democratized services and financial products that not long ago used to only be provided by multinational corporations and large financial houses.<\/span><\/p>\nToday we have arrived at a reality where smart contracts and decentralized applications can be used to increase efficiency, reduce middlemen and costs, and provide increased transparency in hundreds of real-world applications through dozens of legacy industries. What\u2019s more, while the first step of this evolution towards real-world-connected decentralized applications has been in the realm of finance, we have only just gotten started. Moving beyond DeFi, smart contracts are poised to transform entire industries from insurance to supply chain management to gambling. What all of these industries have in common, besides their hospitality to blockchain-derived disruption, is their reliance on timely, reliable real-world data provided by APIs.<\/span><\/p>\nThe API Connectivity Problem<\/span><\/strong><\/h2>\nThe inability of smart contracts to access data not presently found in the blockchain is commonly known as\u00a0The Oracle Problem<\/em>. In practical terms, what this means is that due to the unique consensus-based security guarantees derived from using a decentralized network of nodes as the application platform, the smart contracts powering these applications cannot directly call APIs from the blockchain that the contract resides in. What is needed, then, is a solution that provides smart contracts with the ability to access API data in a way that maximally upholds the security guarantees of the underlying system, without introducing new attack surfaces to it. As this is ultimately at the core of the oracle problem as it has been defined today, we feel that it is useful to rename the problem as the\u00a0API Connectivity Problem<\/em>, as this demystified approach through a strategic reduction of scope significantly improves our ability to solve it in the most efficient and secure way. As a solution to the API connectivity problem, API3 proposes a new oracle paradigm, called a\u00a0decentralized API<\/strong>.<\/span><\/p>\nHow do dAPIs solve the API Connectivity Problem?<\/span><\/strong><\/h2>\nDecentralized APIs (dAPIs for short) are blockchain-native, fully decentralized API services composed of multiple data provider-operated nodes. The way in which dAPIs differ from existing decentralized oracle solutions, is that contrary to the current solutions, dAPIs include the APIs underlying the data feed in the scope of the solution. This enables them to provide superior data transparency all the way to the factual data source level, compared to existing decentralized oracles, which do not consider the data source API to be within the scope of their solution. In the context of dAPIs, this transparency is derived from having the API providers themselves run the middleware necessary to connect their API to the smart contract platform where its data and services are needed. We call this middleware the\u00a0Airnode<\/strong>\u00a0due to its light but robust serverless build, which can be deployed in minutes, does not require the API provider to manage and attend to the middleware on a day-to-day basis, and can have APIs integrated to it without the provider having to write any code.<\/span><\/p>\nIn addition to the added level of transparency provided by the use of first-party oracles, this approach also significantly reduces the transactional costs of delivering API data onto the blockchain, as it gets rid of middlemen node operators who in alternative schemes are needed to run the middleware as a compensated service to both the source data provider and the end user smart contract. As the over-redundant layer of middleman node operators is removed, transaction fees in the form of gas get lowered, and the node-specific fees flow to the factual source provider of the data.<\/span><\/p>\nFurthermore, to improve upon the current standards of decentralization and trust-minimization employed in the governance of existing oracle solutions, dAPIs composed by API3 will be fully and transparently governed by a Decentralized Autonomous Organization (DAO) of dAPI consumers, service providers, industry experts and partners. We believe that this new level of transparency, cost efficiency, decentralization and alignment of data provider incentives with those of the solutions they will serve, will lead to a proliferation of new data feeds available to the growing community of smart contract developers the world over.<\/span><\/p>\nWhat is the API3 token?<\/span><\/strong><\/h2>\nThe API3 token is used as a governance token, payment token, and fee-earning token. Its primary function is to align incentives between various stakeholders in the API3 protocol and facilitate smooth operations. <\/span><\/p>\n