SVR recaptures liquidation MEV historically leaked to blockchains and returns it to DeFi apps, helping unlock new revenue streams.
Chainlink, the standard for onchain finance, BGD Labs, a Web3 development initiative focused on the Aave ecosystem, and Aave Chan Initiative, one of the driving forces behind the Aave protocol, announced today that the Aave DAO community has officially integrated Chainlink Smart Value Recapture (SVR) on Ethereum Mainnet to recapture oracle-related MEV, affirmed in a recent onchain vote that is now in the timelock execution stage. This integration establishes a new standard for how DeFi apps can reclaim oracle-related MEV previously leaked to blockchain networks, further increasing their revenue and creating sustainable economics for both DeFi protocols and oracle infrastructure.
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Chainlink SVR is a novel oracle solution that enables DeFi applications to recapture the Maximal Extractable Value (MEV) derived from their use of Chainlink Price Feeds. Also referred to as Oracle Extractable Value (OEV), this category of MEV is commonly generated when undercollateralized loans are liquidated within DeFi lending protocols. Historically, tens of millions of dollars worth of liquidation OEV has been leaked and captured by participants of the block building process, with none of the value returning back to the DeFi protocols or oracle infrastructure that generated it.
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Built in collaboration with BGD Labs, Flashbots, and other Aave DAO contributors, Chainlink SVR recaptures oracle-related MEV using a combination of Chainlink oracle networks and Flashbots’ MEV-Share service. SVR is underpinned by the same time-tested and battle-hardened decentralized infrastructure that has powered Chainlink Price Feeds for the past 5+ years—which have successfully secured $75 billion in DeFi TVL at its peak and enabled $20T+ in transaction value. Chainlink SVR is built specifically for backrunning liquidations, and therefore cannot be used for frontrunning or sandwich attacks.
Aave has integrated Chainlink SVR to recapture liquidation MEV, starting with an initial set of markets, including tBTC, LBTC, AAVE, and LINK, and plans to expand to additional markets. Recaptured OEV revenue will be split between the Aave and Chainlink communities, starting with an initial 6-month discounted rate of 65% to the Aave ecosystem and 35% to the Chainlink ecosystem as confirmed in an Aave DAO vote.
Chainlink SVR is also the first Chainlink service to be connected to Payment Abstraction—a cross-chain enabled payment system that reduces payment friction in the Chainlink Network by enabling service fees to be automatically converted into LINK using Chainlink services (CCIP, Automation, Price Feeds) and a decentralized exchange. The Chainlink Network portion of SVR fees will be converted to LINK and made available to Chainlink Network service providers. More information on the use of Payment Abstraction for SVR fees will be provided in the near future.
“Optimizing liquidation algorithms on DeFi while keeping the protocols financially and technically secure is a massive endeavor. But once again, the Aave-Chainlink partnership delivers, innovating responsibly on the edge with SVR and its OEV recapturing model.” — Ernesto Boado, Co-Founder of BGD Labs
“Just use Aave, Powered by Chainlink.” Marc Zeller, Aave Chan Initiative
“This Chainlink SVR integration increases revenue for the DAO, strengthening the Aave ecosystem.” — Stani Kulechov, Aave Labs Founder
“Efficient markets for MEV help create sustainable economics for lending protocols and DeFi infrastructure. Flashbots is proud to support Aave’s integration of Chainlink SVR with MEV-Share.” Shea Ketsdever, Product Lead, Flashbots
“The partnership between Chainlink and Aave has played a fundamentally important role in shaping, developing, and pioneering blockchain innovations since the early days of DeFi. The depth and scale of what Aave has become is a great example of the intuitive and innovative aspects of this industry. Chainlink SVR is another milestone along that shared path, establishing a new standard in DeFi economics, where liquidation MEV value is returned back to DeFi apps in a highly secure, efficient, and transparent manner as well as helps support oracle infrastructure. SVR is a big step toward creating a truly long-term sustainable DeFi economy. We look forward to continuing to work with Aave to increase the security and efficiency of our industry as a whole.” Johann Eid, Chief Business Officer at Chainlink Labs.
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A future upgrade to Chainlink SVR is planned featuring increased decentralization, enhanced gas efficiency, cross-chain capabilities, and more. For DeFi protocols interested in recapturing non-toxic MEV via Chainlink SVR, reach out here. More information about Chainlink SVR can be found in the original announcement and follow-up research article.
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Source – Businesswire
