According to Cointelegraph, Aave is evaluating the integration of a new Chainlink oracle aimed at redirecting profits from transaction frontrunning to its users. This development follows a proposal in Aave’s governance forum, highlighting the potential benefits of Chainlink's Smart Value Recapture (SVR) service. Released on December 23, SVR is designed to capture profits from Maximum Extractable Value (MEV) to support decentralized finance (DeFi) protocols.
On the same day as the release, Aave proposed incorporating SVR to recapture MEV from its liquidations and reinvest these profits back into the Aave ecosystem. MEV allows blockbuilders to reorder transactions before they are posted to the blockchain, sometimes at the expense of users. Aave, a platform that enables users to borrow cryptocurrency by depositing other crypto assets as collateral, faces challenges with MEV during the liquidation process. When collateral value drops significantly, it is liquidated, and third-party liquidators repay some debt, receiving collateral plus a liquidation bonus. This system, while effective, has led to significant profits for builders who do not perform the majority of the work, leaving protocol users with a smaller share.
Aave's proposal suggests that Chainlink’s SVR could sell the right to back-run Chainlink’s price-feed oracle through an MEV-Share auction, potentially capturing around 40% of MEV profits. These profits could then be redirected to the Aave DAO, benefiting its users. Across the Ethereum network, users and protocols are actively seeking ways to mitigate the costs associated with harmful MEVs. Private transactions have become prevalent as users aim to protect their trades. According to an August report from Blocknative, private orders, which involve sending transactions directly to a validator in a 'dark pool,' are increasingly common. This method is chosen by users to safeguard against MEV exploitation.
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Huang Bo
Bitcoinist