Aave and Chainlink Join Forces to Recapture Oracle-Related MEV with SVR

Aave, a leading decentralized finance (DeFi) protocol, has integrated Chainlink’s Smart Value Recapture (SVR) on the Ethereum mainnet, aiming to recover lost oracle-related Maximum Extractable Value (MEV) and enhance its revenue.

• Aave integrates Chainlink’s SVR on Ethereum mainnet
• Focus on recapturing liquidation MEV from tBTC
• Revenue split: 65% Aave, 35% Chainlink

In a move that could redefine financial sustainability in the DeFi space, Aave has teamed up with Chainlink to implement Smart Value Recapture (SVR). This innovative feature, now live on the Ethereum mainnet, aims to claw back oracle-related MEV that has been slipping through the cracks and into the hands of blockchain networks. This integration, greenlit by Aave’s community vote, is a bold step forward in addressing a persistent challenge within DeFi.

So, what exactly is MEV, and why does it matter? MEV, or Maximum Extractable Value, is the profit that can be made by reordering, including, or excluding transactions within a block. It’s like the crypto equivalent of front-running in traditional markets. Oracle-related MEV, known as Oracle Extractable Value (OEV), is a subset of MEV that pertains to the data feeds provided by oracles. These oracles are critical for smart contracts, providing real-world data, but they’ve also been a source of lost earnings for DeFi protocols. By implementing SVR, Aave and Chainlink are tackling this head-on, aiming to boost Aave’s protocol revenue and set a new benchmark for the DeFi ecosystem.

The Aave-Chainlink collaboration is not just a solo act; it’s a symphony of innovation involving key players like BGD Labs, Aave Chan Initiative, and Flashbots. Initially, SVR will focus on recapturing liquidation MEV from Threshold Bitcoin (tBTC), a token that allows users to tap into DeFi opportunities on Ethereum using their Bitcoin. The plan is to expand support to other tokens like LBTC, AAVE, and LINK, broadening the scope of value recapture. This strategy not only aims to recover lost value but also sets a precedent for how DeFi platforms can enhance their financial sustainability.

The revenue from this recapture is shared, with Aave taking home 65% and Chainlink receiving 35% for the first six months. This distribution aims to boost both platforms’ financial sustainability. Chainlink plans to convert its SVR fees into LINK, which will then be distributed to network service providers, ensuring the ecosystem’s continued growth and stability.

Ernesto Boado, the co-founder of BGD Labs, highlighted the significance of this integration:

“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.”

This integration is a testament to the relentless innovation in DeFi, but it’s not without its challenges. The efficiency rate of SVR is estimated to be around 40%, according to Chainlink. While this is a significant step forward, it’s worth noting that there’s still room for improvement. Future enhancements, including increased decentralization, gas efficiency improvements, and cross-chain capabilities, could further solidify SVR’s role in the DeFi ecosystem.

However, the reliance on Flashbots, gas costs, and governance dependence could pose hurdles to the widespread adoption of SVR. These challenges highlight the delicate balance between innovation and practicality in the DeFi space. Despite these obstacles, the Aave-Chainlink partnership is setting a precedent for responsible innovation, which could lead to a more sustainable and secure future for the industry.

From a Bitcoin maximalist perspective, this development might be viewed with skepticism. Bitcoin purists might argue that such complexities distract from Bitcoin’s core principles of simplicity and security. Yet, in the broader crypto ecosystem, these innovations are necessary to fill niches that Bitcoin itself does not (and perhaps should not) serve well. Aave and Chainlink’s efforts showcase the dynamic nature of the DeFi landscape, where different protocols and technologies complement each other in the quest for financial revolution.

Key Takeaways and Questions

• What is the purpose of integrating Chainlink’s SVR into Aave?

  The purpose is to recover oracle-related MEV that has been lost to blockchains, thereby increasing Aave’s protocol revenue and setting a new standard in the DeFi ecosystem.

• Which entities are involved in the SVR integration project?

  The entities involved include Chainlink, BGD Labs, Aave Chan Initiative, and Flashbots.

• What is the initial focus of SVR on Aave?

  The initial focus is on recapturing liquidation MEV from Threshold Bitcoin (tBTC).

• How will the revenue from recaptured value be distributed between Aave and Chainlink?

  For the first six months, the revenue will be split with 65% going to Aave and 35% to Chainlink.

• What are the plans for Chainlink’s portion of the SVR fees?

  Chainlink plans to convert its portion of the SVR fees into LINK, which will then be distributed to network service providers.