Chainlink, the “standard” for onchain finance, BGD Labs, a Web3 development initiative focused on the Aave ecosystem, and Aave Chan Initiative, one of the forces behind the Aave protocol, announced that the Aave DAO community has integrated Chainlink Smart Value Recapture (SVR) on Ethereum (ETH) Mainnet to “recapture oracle-related MEV, affirmed in a recent onchain vote that is now in the timelock execution stage.”
This integration establishes a 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.”
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.”
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.”
SVR is said to be “underpinned by the same decentralized infrastructure that has powered Chainlink Price Feeds for the past 5+ years—which have 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 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.”
Johann Eid, Chief Business Officer at Chainlink Labs said:
“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.”
A future upgrade to Chainlink SVR is reportedly planned featuring “increased decentralization, enhanced gas efficiency, cross-chain capabilities.”