What is API3 and how does it work?

API3 is a collaborative project to provide traditional API services to smart contract platforms. Ethereum is the best-known such platform. Cardano and Solana are also gaining traction in the running of these contracts which automatically self-execute, allowing for decentralized applications (dApps).API stands for application programming interface, a set of protocols for building and integrating application software and which in the case of API3 get delivered in a "decentralized and trust-minimized way,” said Messari.

API3 is the project’s native currency.

API3 was built as a competitor to Chainlink, a provider of third-party smart contract data sharing (oracle) services. Its data feeds are comprised of first-party oracles operated directly by independent API providers.

Per Messari, API3 can trace its origins back to 2019 and a novel protocol called Honeycomb Marketplace. Seeing the flaws in Honeycomb’s third-party model, the projects’ three founders (Burak Benligiray, Sasa Milic, and Heikki Vanttinen) transitioned API3 to the trustless, first-party model used today. 

API3’s Airnode protocol serves as the project’s “glue” allowing API providers to link their data stream to any relevant blockchain based application.

For traditional data providers with limited blockchain experience, Airnode offers an easy, hassle-free solution that ditches the 3rd-party, revenue snagging “middlemen” present on competing protocols.

It serves as governance token and also as a means of rewarding API providers in exchange for error-free data. The token also grants holders voting rights in the API3 DAO, an autonomous and decentralized organization which manages protocol governance.

API3 went public via an initial DEX offering in November of 2020, according to Messari.