We’re excited to launch Chainlink Smart Value Recycling (SVR), a new oracle solution designed to help DeFi applications recover non-toxic Maximum Extractable Value (MEV) by using Chainlink price oracles.
The initial version of Chainlink SVR, developed in collaboration with BGD Labs, Flashbots, and other Aave DAO contributors, will initially focus on helping DeFi lending protocols recover liquidated MEV associated with oracles. SVR is built on Chainlink infrastructure, systematically reducing reliance on unnecessary third parties and eliminating the need to integrate intermediary smart contracts, making it easy for existing Chainlink price oracle users to adopt SVR.
The SVR-enabled version of the price oracle leverages Flashbots MEV-Share and an innovative on-chain “dual aggregator” contract architecture that provides greater efficiency and enhanced backup security. Chainlink SVR is currently running on the testnet and will be launched on the Ethereum mainnet soon. There are also plans to launch a fully customized version in the future, introducing more improvements, including greater decentralization, a DON-based auction system, enhanced gas efficiency, and cross-chain functionality.
The Aave community is in the process of approving the integration of Chainlink SVR through the governance process, and related discussions can be viewed on the Aave forum. The value recovered by SVR not only provides a new revenue stream for DeFi protocols, but can also be used to promote the long-term economic sustainability of Chainlink oracles, ensuring that DeFi protocols can continue to receive highly secure and reliable oracle services.
How oracles in decentralized finance create MEV opportunities
Maximal Extractable Value (MEV) refers to the value obtained by a block proposer (node in the blockchain network) by deciding to include, exclude, or change the order of transactions in the block. Today, these transaction ordering opportunities are typically discovered by "seekers" who compete through competitive auctions for the right to order transactions in a block. These values are then captured by the actors involved in the block construction process, such as seekers, builders, and validators.
As a subset of MEV, "Oracle Extractable Value" (OEV) refers to the MEV generated when oracle reports are uploaded to the chain and subsequently consumed by on-chain applications. The most common OEV opportunities arise in lending agreements, particularly during liquidation. In the process, seekers compete for the right to liquidate high-risk positions and earn compensation through liquidation rewards. On Ethereum, this block space auction process is usually implemented through MEV-Boost of Flashbots, which allows searchers to package clearing transactions with updates reported by price oracles, and achieve price chasing (backrunning) through transaction bundling.
Currently, the value generated by oracle-related MEV (such as liquidation) is captured by seekers, builders, and validators in the blockchain network, and this value is not returned to the DeFi protocol that originally generated the oracle-related MEV. , end users and oracles. Recycling this harmless MEV can ultimately return value to its source.
Note: The term "OEV" may be somewhat misleading, as it does not refer to the oracle actively extracting value from the user, but rather to the existence of MEV associated with the oracle. We use the term “OEV” here because it is commonly used to refer to this type of MEV.
Why choose Chainlink SVR?
Chainlink Labs and the broader Chainlink community have been actively researching solutions around MEV for years, such as Fair Sequencing Services (FSS) and Protected Order Flow (PROF). As a subset of MEV, we also focus on OEV research, exploring how DeFi protocols can reclaim this value and support the economic sustainability of oracles. We analyzed multiple OEV designs with the goal of achieving a solution that maximizes safety, reliability, and long-term economic viability.
Through research, we successfully developed an initial version of an OEV solution called Smart Value Recapture (SVR). Chainlink SVR is designed for clearing-related backrunning and cannot be used for frontrunning or sandwich attacks. These harmful MEV types harm the user experience, and the Chainlink network and community have been actively researching solutions to mitigate the impact of these issues for years.
Why choose Chainlink SVR?
We believe Chainlink SVR is the best choice for implementing a native MEV recycling solution as Chainlink price oracles already power many of the largest DeFi protocols and have a proven track record of security and reliability. By integrating Chainlink-based MEV recycling solutions, DeFi protocols can not only retain the security and reliability provided by Chainlink, but also further enhance the economic sustainability of themselves and the Chainlink infrastructure they rely on.
Key benefits of Chainlink SVR include:
1. Mature decentralized oracle network (DON) support
SVR is based on the same Decentralized Oracle Network (DON) infrastructure as Chainlink’s price oracles, which has been proven and strengthened over the past 5 years to successfully protect $75 billion in DeFi TVL at its peak , and supports $17 trillion in transaction value.
2. Reduce unnecessary third-party risks
For protocols that already use Chainlink price oracles, SVR reduces unnecessary third-party vendor risk, lowers the overall attack surface, and prevents unnecessary third-party diversion of economic value.
3. No need to integrate agency contracts
SVR does not require DeFi protocols to integrate intermediary contracts or “wrap” Chainlink price oracles, ensuring a more efficient smart contract workflow and avoiding the need for DeFi protocols to make substantial changes when using oracle data.
4. Economies of scale
As the most widely used oracle solution in DeFi, Chainlink can drive economies of scale through SVR, allowing searchers and their subsequent DeFi protocols to benefit from the highest potential opportunities and highest revenues.
Based on actual test results, we believe that the value recovery rate of Chainlink SVR can reach a realistic level of approximately 40% (i.e., for every $100 of liquidated MEV leakage value generated, $40 can be recovered). While some other solutions claim to achieve greater efficiency in liquidated MEV recovery, we have yet to see convincing real-world data proving this. Therefore, we believe that 40% is a conservative but realistic estimate that needs to be verified by collecting more data through actual operations.
The initial version of SVR is just the beginning. Over time, Chainlink SVR plans to evolve into a highly configurable, highly decentralized, generalized, cross-chain OEV solution built entirely on Chainlink’s proven infrastructure. We expect the protocol to maximize MEV revenue recovery on any supported chain, while eliminating unnecessary risk and time delays introduced by other OEV solutions.
How the initial version of Chainlink SVR works
圖源：ChainlinkChainlink Price Feeds provide the market-wide, volume-weighted average price of crypto assets by using decentralized oracle networks and multiple independent data sources.
The initial implementation of Chainlink SVR will include a parallel set of Chainlink price oracles powered by the same proven DON (Decentralized Oracle Network) architecture that is currently used to secure existing price oracles Serve.
SVR-enabled Chainlink price oracles will be deployed to reclaim liquidation-related MEV in lending protocols integrating the solution, while retaining standard Chainlink price oracles as a fallback. The "dual aggregator" price oracle design enables a single Chainlink data DON to generate exactly the same oracle report as currently, while transmitting the oracle report to the chain in different ways. SVR oracles are based on existing Chainlink contracts and interfaces, greatly reducing the integration burden for existing Chainlink users as minimal code changes are required (possibly just pointing to a new aggregator or SVR oracle).
Oracle reports sent to SVR-enabled price oracles will have updates transmitted to the chain via Flashbots MEV-Share, where the rights to bundle liquidated transactions with oracle report updates are auctioned to seekers in a permissionless manner. At the same time, the same oracle reports are also transferred to existing standard price oracles via the public mempool as a fallback to mitigate potentially risky scenarios. Users of standard price oracles will not experience any SVR-related impacts, as SVR is optional.
圖源：ChainlinkThe smart contract infrastructure underpinning Chainlink Smart Application Recapture (SVR).
If an SVR-enabled price oracle experiences a transmission failure (i.e., a MEV-Share failure), there will be a failsafe mechanism ensuring that the oracle is still able to report prices to the DeFi protocol. When an SVR-enabled price oracle is judged to be stale (based on a configurable time period), it will return the latest price report from the standard price oracle before the cutoff point. This delay is necessary to prevent liquidators from bypassing the value recovery mechanism provided by Chainlink SVR and thereby extracting value.
The diagram below provides an overview of how SVR is planned to be integrated in Aave V3 on Ethereum.
圖源：ChainlinkThe proposed implementation of Chainlink SVR with Aave v3 on Ethereum.
The process in the figure is as follows:
1. Chainlink data DON generates price oracle reports the way they are today (i.e. via heartbeat or deviation thresholds). However, price reports are transmitted twice, from different accounts.
A price report is transmitted to a standard price oracle via a public mempool (the same as today).
Another price report is transmitted to the SVR price oracle contract via the Flashbots Protect RPC endpoint.
2. MEV-Share is an open source protocol that selectively shares data about transactions, such as price oracle updates, with searchers, who bid to bundle transactions into a transaction package shared with builders. The builder then selects the highest seeker bid and includes the associated backrun and liquidation transactions in a block. If there are no bids, the price oracle report will be published directly to the chain without any follow-up liquidation transactions.
3. When price reports and price chasing clearing transactions are published to the chain:
Price Report updates the SVR price oracle.
Price chasing trades use price updates to liquidate the underlying position.
Most of the value is recycled by Aave and Chainlink.
4. In the example described, the SVR oracle returns an updated price. However, if no new price is available (for example, if MEV-Share fails), the oracle contract connected to Aave will have a failsafe mechanism that returns the price from the standard Chainlink price oracle after an adjustable delay.
economic model
Oracle-related MEV recycled through Chainlink SVR is scheduled to be distributed between the integrated DeFi protocol and the Chainlink network according to a standard ratio, with 60% of the value being allocated to the DeFi protocol and 40% to the Chainlink ecosystem. This distribution scheme provides an additional revenue stream for DeFi protocols while supporting the economic sustainability of Chainlink oracles by covering transaction gas fees and other ongoing infrastructure fees. Please note that these ratios may change in the future with the goal of enabling a sustainable economic model between DeFi protocols and the oracles that power them.
Due to the long-standing and deep partnership between Chainlink and the Aave community, and Aave's role as a launch partner, the revenue distribution plan planned to be provided to Aave in the short term is: In the first six months after the integration of the production environment, the Aave ecosystem will receive 65% of revenue, with the Chainlink ecosystem receiving 35% – a plan that requires approval by Aave community governance.
We anticipate that Chainlink SVR will be one of the first Chainlink services to connect to the Payment Abstraction system, depending on the results of the security audit and the status of deployment. Payment Abstraction is an on-chain smart contract system designed to significantly reduce billing and payment friction when users and developers interact with Chainlink services. The system is designed to convert fee tokens into LINK via existing decentralized exchange (DEX) contracts.
Interested in recycling MEV with Chainlink SVR?
If you are a DeFi protocol and interested in integrating Chainlink SVR to recover MEV, please feel free to contact us or follow us for more updates in the future.
Disclaimer: This article does not constitute investment advice. Users should consider whether any opinions, views or conclusions in this article are consistent with their specific circumstances, and abide by the relevant laws and regulations of the country and region where they are located.
This article is reproduced with permission from: (MarsBit)
Original article by Chainlink
"Revolutionary upgrade!" Chainlink launches SVR oracle solution, can DeFi usher in new opportunities? 』This article was first published in "CryptoCity"
