Due to the ambiguity of the data source, the Web3 protocol is vulnerable to hacking and exploitation. To prevent this, trust between the oracle and the protocol is crucial. Encrypted KOL Salazar.eth explains how API3DAO solves this problem through hosted dAPI in his article.
Oracle helps to verify and execute data obtained from external sources and then access it on smart contracts. Oracles obtain data from other oracles (enabled with APIs) or directly from APIs. However, using third-party systems in smart contracts can bring problems such as lack of composability, inability for users to add or remove APIs on the oracle, higher cost where users must pay for all related third-party oracles, and lower transparency requiring more trust in middleware.
Enter API3 and its new technology that makes data sources trustworthy. There are dAPIs (decentralized APIs), and then there are hosted dAPIs. dAPIs eliminate third-party intermediaries by directly linking API providers to oracle smart contracts. Hosted dAPIs make it better by increasing transparency, security, and integrity, making it an ideal choice for dApps seeking accurate, reliable, and secure data. These scopes make hosted dAPIs better:
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1) Hosted dAPIs use first-party oracles, providing reputable API data directly through API3 Airnode. No third-party intermediaries reduce manipulation and attack medium. Trust is established through source reputation, transparency, and more.
2) On-chain data validation. Hosted dAPIs aggregate data from multiple first-party oracles, increasing accuracy and reliability with multi-source data feeds. Different data points contribute to overall data quality. Each beacon represents a unique verifiable provider.
3) Pushing oracle architecture. Hosted dAPIs use a push oracle architecture to provide data to dApps in real-time and encourage easy migration from other oracle services.
4) Enhancing security through native chain aggregation. Hosted dAPIs use native chain aggregation to enhance data security without bridging. They set a new standard for DeFi oracles with transparency, reliable data sources, efficient delivery, and strong security.
Reference: https://twitter.com/0xSalazar/status/1665047487684694016
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