Aave is considering integrating Chainlink’s Smart Value Recapture (SVR) oracle to enhance benefits for decentralized finance (DeFi) users.
According to discussions on Aave’s governance forum, this move aims to capture profits from maximum extractable value (MEV) activities and redirect a significant portion of these earnings to the protocol’s ecosystem and users. Chainlink unveiled its SVR oracle on December 23, marking a potential turning point in how MEV profits are distributed.
Capturing MEV profits for DeFi protocols
MEV refers to the profits generated by reordering or including specific transactions in a blockchain block. Historically, blockbuilders and validators have capitalized on these opportunities, while DeFi users receive minimal benefits. Aave has proposed using Chainlink’s SVR oracle to change this dynamic. The SVR oracle captures MEV profits by auctioning off the right to back-run Chainlink’s price-feed oracle during liquidations. The proceeds from these auctions would then flow back into the Aave ecosystem.
Under the proposed system, when a user’s position is liquidated due to collateral value dropping below a safe threshold, liquidators repay the debt and receive the equivalent collateral value and a liquidation bonus. However, Aave argues that the current system primarily benefits liquidators and blockbuilders, leaving users with limited gains. By integrating SVR, Aave seeks to redistribute some of these profits to its users and the broader protocol.
Aave to redirect 40% of MEV profits to DAO
As part of the initiative, Aave plans to allocate 40% of MEV profits captured through SVR back to the Aave DAO. This move is expected to improve the overall value proposition for Aave users while creating a more equitable system. Aave sees this as an opportunity to recapture profits generated during liquidations and return them to its community.
This initiative underscores Aave’s commitment to improving user experiences while addressing inefficiencies in the current MEV landscape. The proposal aims to shift the focus away from purely benefiting builders and validators, ensuring that protocol users can share in the economic rewards generated by the DeFi platform.
Growing MEV concerns push users toward private transactions
As MEV practices continue to grow, Ethereum users and protocols have increasingly adopted private transactions to shield themselves from harmful MEV activities. Many transactions are now conducted through private order flows, where users send their orders directly to validators instead of relying on the public blockchain. This approach helps users avoid excessive costs associated with MEV.
Aave’s potential adoption of Chainlink’s SVR oracle signals an industry-wide effort to address MEV-related issues and create a more sustainable and user-focused DeFi ecosystem. The proposal remains under discussion but highlights Aave’s proactive stance in tackling challenges affecting users and the broader DeFi community.