Ethereum lending protocol Aave announced plans to integrate Chainlink's new Smart Value Recapture (SVR) oracle service, aiming to redistribute profits from Maximal Extractable Value (MEV) during liquidations back to Aave users. This proposal targets unfair profit allocation caused by MEV, enhancing protocol sustainability.
Understanding MEV
Maximal Extractable Value (MEV) refers to profits block validators or miners extract by reordering, inserting, or canceling transactions. While these actors gain, ordinary users face inflated costs, delays, and reduced returns. MEV exploits systemic inefficiencies, often at the expense of decentralized finance (DeFi) participants.
👉 Learn how Flashbots mitigates MEV crises
MEV Challenges in Aave’s Current Liquidation System
Aave’s liquidation mechanism incentivizes third parties to repay undercollateralized debts in exchange for collateral plus a fixed bonus. However, MEV bots often intercept these profits:
- If liquidation profits are set at 3%, but bots execute at 2%, the remaining 1% becomes MEV.
- Validators or miners prioritize their own transactions, sidelining regular users.
How SVR Recaptures MEV via Bidding
Built on Flashbots MEV-Share, Chainlink’s SVR introduces a competitive bidding process:
Price Updates:
- Oracle data syncs to MEV-Share (primary) and a backup standard oracle.
Bidding:
- Searchers bid for liquidation rights on MEV-Share, paying for transaction priority.
- Revenue is shared with Aave users and Chainlink operators.
On-Chain Execution:
- Updated prices are written to the blockchain regardless of bid outcomes. SVR defaults to the backup oracle if bidding fails.
Aave-Chainlink SVR Integration Flow
Expected Outcomes
40% MEV profit recovery:
- 65% to Aave’s ecosystem.
- 35% to Chainlink operations.
- Minimal disruption to existing liquidation mechanics, with minor parameter adjustments.
FAQs
Q: Will SVR affect Aave’s liquidation speed?
A: No. SVR operates alongside current processes, optimizing profit distribution without delaying transactions.
Q: How does SVR prevent harmful MEV (e.g., frontrunning)?
A: SVR applies only to backrunning (non-disruptive trades), blocking frontrunning and sandwich attacks.
Q: Is this integration live?
A: Currently a proposal. Voting and testing phases will precede full deployment.
👉 Explore MEV solutions in DeFi
Risk Disclosure: Cryptocurrency investments carry high volatility and risk of capital loss. Assess risks independently.
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