KEY TAKEAWAYS
- Chainlink introduces Smart Value Recapture (SVR) to enable DeFi applications to reclaim non-toxic MEV using Chainlink Price Feeds.
- SVR focuses on DeFi lending protocols, simplifying adoption by minimizing third-party dependencies and eliminating intermediary smart contracts.
- The integration of SVR by the Aave community is pending governance approval, promising new revenue streams for DeFi protocols and Chainlink oracles.
- Future enhancements of SVR include increased decentralization, cross-chain capabilities, and integration with the Payment Abstraction system.
Chainlink has announced the introduction of Smart Value Recapture (SVR), a new oracle solution aimed at enabling decentralized finance (DeFi) applications to recapture non-toxic Maximal Extractable Value (MEV) derived from their use of Chainlink Price Feeds. This initiative was developed in collaboration with BGD Labs, Flashbots, and other contributors to the AaveDAO.
The initial focus of Chainlink SVR is on DeFi lending protocols, specifically targeting the recapture of oracle-related MEV from liquidations. Built on Chainlink’s infrastructure, SVR minimizes third-party dependencies and eliminates the need for intermediary smart contracts, simplifying adoption for existing Chainlink Price Feed users.
How Chainlink SVR Works
The SVR-enabled Price Feeds utilize Flashbots MEV-Share and a novel onchain “Dual Aggregator” contract architecture to enhance efficiency and security. Currently live on testnet, Chainlink SVR is set to launch on the Ethereum mainnet soon. Future enhancements are planned to include increased decentralization, a Decentralized Oracle Network (DON)-based auction system, enhanced gas efficiency, and cross-chain capabilities.
The integration of Chainlink SVR by the Aave community is undergoing governance approval, as detailed on the Aave forum. The value recaptured by SVR not only provides DeFi protocols with a new revenue stream but also supports the long-term economic sustainability of Chainlink oracles.
Understanding MEV and OEV
Maximal Extractable Value (MEV) refers to the value that block proposers can extract by altering the order of transactions in a block. Oracle Extractable Value (OEV), a subset of MEV, arises during the transmission of oracle reports onchain, particularly during liquidation processes in lending protocols. Currently, the value from oracle-related MEV is captured by searchers, builders, and validators, with none returning to the DeFi protocols or oracles that generated it.
Chainlink SVR aims to recapture this non-toxic MEV, returning value to its originators. The initial implementation of SVR involves a parallel set of Chainlink Price Feeds, maintaining the standard feeds as a fallback. This design reduces integration burdens for existing users, requiring minimal code changes.
Economic Implications and Future Plans
The recaptured oracle-related MEV is planned to be split between integrating DeFi protocols and the Chainlink Network, with a proposed 60% going to the DeFi protocol and 40% to Chainlink. For Aave, a launch partner, the near-term revenue split is proposed at 65% to Aave and 35% to Chainlink, pending governance approval.
Chainlink SVR is expected to be one of the first services connected to the Payment Abstraction system, which aims to reduce billing and payment friction for users and developers. This system will convert fee tokens into LINK via existing Decentralized Exchange (DEX) contracts.
For more details, the full announcement can be read here.
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