Author: Azuma, Odaily Planet Daily

The two leading DeFi projects Aave (AAVE) and Chainlink (LINK) both saw significant increases today, but the reason was not that Trump concept WLFI increased its holdings again (see (What assets may the Trump family project WLFI buy next?)), but that the two major projects have joined forces to promote a real cooperation, which is expected to help both parties increase their annual revenue by tens of millions of dollars.

OKX market data shows that as of around 11:00 Beijing time, AAVE was temporarily reported at 377.69 USDT, with a 24-hour increase of 16.66%; LINK was temporarily reported 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' manner through Chainlink's quotes.

MEV, or 'Maximal Extractable Value', refers to the value that block proposers can obtain by including, excluding, or changing 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 occur in lending protocols, especially during liquidation processes.

Odaily note: The term OEV is actually a habitual misunderstanding, as it does not refer to oracles 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 building process, such as searchers, builders, and validators, without being returned to the DeFi protocols that originally generated the MEV, the end users, or the oracles. If there is a way to recover these MEVs, it would help return the related value to its original creators.

This is the original intention behind Chainlink building the SVR. From the application scenario perspective, Chainlink SVR cannot be used for controversial MEV exploitation scenarios such as front-running or sandwich attacks, but is specifically constructed for value recovery scenarios related to liquidation, aiming to address the OEV issues that commonly plague lending protocols.

Aave Community Proposal Integration

As one of the partners developing the initial version of SVR (specifically including BGD Labs, Flashbots, and Aave DAO), Chainlink's announcement prompted BGD Labs to immediately initiate a preliminary proposal in the Aave community forum, proposing that Aave integrate SVR as soon as possible.

BGD Labs pointed out that Aave's long-term stable operation has proven the effectiveness of its liquidation mechanism, but there are also obvious MEV arbitrage opportunities — in actual liquidation scenarios, builders often make considerable profits while the entities doing most of the work do not; meanwhile, searchers, i.e., protocol users, receive a much smaller share.

Chainlink's SVR is expected to properly address this issue and more precisely define which entities benefit the most from transaction ordering. For stability considerations, BGD Labs suggests deploying SVR for only 1-3 types of assets in the initial pilot to promote integration in a controlled manner.

Potential Value Capture Scale

According to Chainlink's data, after testing, Chainlink SVR is expected to achieve an actual value recovery rate of about 40% — for every $100 leaked through liquidation MEV, $40 can be recovered.

Chainlink added that while some alternative solutions claim to achieve higher liquidation recovery efficiency, the team has not yet seen conclusive actual data to prove this. For SVR, 40% is a conservative but realistic estimate, but actual performance is needed to collect real data.

BGD Labs added that a 40% recovery efficiency corresponds to the scale of past MEV leakage, which is expected to achieve value recovery of tens of millions of dollars.

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 the announcement about SVR that the value recovered by SVR is planned to be distributed according to a standard ratio between the integrated DeFi protocols and the Chainlink network, with 60% of the value flowing to the DeFi protocols and 40% to the Chainlink ecosystem — this 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 a revenue share of 65% to Aave and 35% to Chainlink for the first six months, but the relevant data must be approved by the 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, from Aave's perspective, 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 of the reasons why AAVE's price increase is more pronounced than LINK's at present.