Original | Odaily Planet Daily (@OdailyChina)
Author | Azuma (@azuma_eth)
The two leading DeFi projects Aave (AAVE) and Chainlink (LINK) both experienced a significant increase today, but the reason is not because of Trump concept WLFI increasing its holdings again (see details in 'Which Assets Might the Trump Family Project WLFI Buy Next?'), but rather due to the collaboration of the two projects to promote a substantial partnership that is expected to help both sides increase revenue by tens of millions of dollars annually.
OKX market shows that as of around 11 AM Beijing time, AAVE is priced at 377.69 USDT, with a 24-hour increase of 16.66%; LINK is priced at 23.9 USDT, with a 24-hour increase of 5.8%.
Chainlink SVR
In the early hours of today Beijing time, Chainlink officially announced the launch of a new service called 'Smart Value Recapture (SVR)', which is a brand-new oracle solution designed to enable DeFi applications to recover MEV value in a 'non-toxic' way through Chainlink's quotes.
The so-called MEV refers to 'Maximal Extractable Value', which is the value obtained by block proposers through including, excluding, or altering the order of transactions in a specific block. As a subset of MEV, OEV ('Oracle Extractable Value') refers to the MEV generated when oracle reports are transmitted on-chain and consumed by on-chain applications. The most common OEV opportunities arise in lending protocols, especially during liquidation processes.
Odaily Note: The term OEV is actually a habitual misunderstanding, as it does not refer to oracle opportunities actively extracting value from users, but rather to MEV related to oracles.
In the current DeFi operating environment, the value of MEV (especially OEV) is captured by participants in the block construction process, such as searchers, builders, and validators, without returning to the DeFi protocols, end-users, and oracles that originally generated the MEV. If there is a way to recover these MEV, it would help return the relevant value to its original creators.
This is the original intention behind Chainlink's construction of SVR. From the application scenario perspective, Chainlink SVR cannot be used for controversial MEV extraction scenarios such as front-running or sandwich attacks, but is specifically designed for value recovery scenarios related to liquidation, i.e., addressing the OEV issue that commonly troubles lending protocols.
Aave community proposal integration
As one of the partners in the development of the initial version of SVR (specifically including BGD Labs, Flashbots, Aave DAO), Chainlink's announcement was quickly followed by BGD Labs initiating a preliminary proposal on the Aave community forum, proposing that Aave integrate SVR as soon as possible.
BGD Labs pointed out that Aave's long-standing stable operation has proven the effectiveness of its liquidation mechanism, but there are also obvious MEV arbitrage opportunities — in actual liquidation scenarios, builders often gain considerable profits, while the proportion received by searchers, i.e., protocol users, is much smaller.
Chainlink's SVR is expected to properly address this issue and more precisely define who benefits the most from transaction ordering. For the sake of stability, BGD Labs suggests deploying SVR for only 1-3 types of assets during the initial pilot phase, to advance the integration work in a controllable manner.
Potential value capture scale
According to data from Chainlink, after testing, Chainlink SVR is expected to achieve an actual value recovery rate of about 40% — for every $100 of MEV leakage recovered through liquidation, $40 can be recaptured.
Chainlink further stated that although some alternative solutions claim to achieve higher liquidation recovery efficiency, the team has not seen conclusive real-world data to prove this. For SVR, 40% is a conservative but realistic estimate, but actual performance is needed to collect real data.
BGD Labs further stated that the 40% recovery efficiency corresponds to the scale of past MEV leakage, which is expected to achieve tens of millions of dollars in value recovery.
It is worth mentioning that BGD Labs also noted that for the sake of system simplification, the asset form receiving the recovered value will be ETH.
Revenue sharing plan
Chainlink stated in its announcement regarding SVR that the value retrieved by SVR is planned to be distributed in a standard ratio between the integrated DeFi protocols and the Chainlink network, with 60% of the value going to the DeFi protocols and 40% to the Chainlink ecosystem — the ratio is not fixed and may be adjusted in the future.
For the first partner, in order to establish a long-term collaboration with Aave, Chainlink proposed to allocate 65% to Aave and 35% to Chainlink during the first six months, but the related data must be approved by Aave community governance.
As for the final flow of value after the revenue sharing, Chainlink did not explicitly mention it, only stating that 'it can support the economic sustainability of Chainlink oracles by paying transaction gas costs and other ongoing infrastructure expenses'; however, BGD Labs has clearly proposed to use the recovered value to benefit users, such as providing incentives to stakers in the Umbrella module — this may also be one reason why AAVE has seen a more significant increase compared to LINK.