Aave Eyes Chainlink Integration to Capture 40% of MEV Profits

• Aave, a leading DeFi protocol, is contemplating the integration of a new oracle service from Chainlink, the SRV that aims to redirect profits from transactions back running back to its users. 
• The SRV service aims to recapture about 40% of MEV, potentially generating millions in revenue, which miners can achieve by manipulating transaction orders.

Aave has recently put forth a proposal to integrate with Chainlink’s Smart Value Recapture (SVR) off-chain value (OEV) solution. Through this integration, Aave aims to recapture the maximum extractable value (MEV) associated with liquidations, essentially, when a user’s collateral is sold off due to a decline in value, and redirect those profits back to users within the Aave ecosystem. This proposal has been submitted to Aave’s governance forum and is currently awaiting approval from the community.

For context, Chainlink is a decentralized blockchain oracle network that connects off-chain data to blockchains. It unveiled the SVR service on December 23. Recognizing the potential benefits of this service, Aave promptly proposed integrating SVR to effectively recapture MEV from its liquidations and return those resources to the Aave ecosystem. 

How SRV Can Address Aave’s MEV Challenges

Changes in the block creation process within the Ethereum ecosystem have driven Aave’s need for the Smart Value Recapture (SVR). Today’s process involves multiple participants, including Searchers, Builders, and Validators, all working together to validate transactions and blocks.

According to Aave’s proposal, the framework has introduced clear opportunities for maximum extractable value (MEV) that directly impact Aave’s liquidation bonus structure. In liquidation scenarios, if an asset has a 3% liquidation bonus but only requires a 2% incentive for liquidators, the remaining 1% becomes potential profit. 

This creates competition among searchers who quickly identify liquidation opportunities and offer builders part of that profit to have their transactions included. The current system skews profitability towards builders at the expense of Aave’s users and searchers, highlighting the need for solutions like SVR to ensure a fairer distribution of liquidation profits.

The estimated value recaptured from leaked miner extractable value (MEV) could be around 40%, potentially reaching millions of dollars, depending on the assets and not assuming full SVR application. 

Distribution plans for recaptured value will be decided after the pilot, with an initial proposed split of 65% for the Aave DAO and 35% for the Chainlink community in the first six months. This would then change to 60% and 40% to cover infrastructure costs, pending Aave governance approval. The recaptured value is intended to benefit Aave users, particularly by incentivizing Umbrella stakers who help manage protocol risk.

Chainlink’s SVR leverages a proven decentralized oracle network that has effectively managed over $75 billion in DeFi total value locked and facilitated $17 trillion in transactions. By reducing the need for third-party vendors, SVR decreases risk for protocols using Chainlink Price Feeds and streamlines smart contract processes by eliminating intermediary contracts. 

Looking ahead, Chainlink SVR plans to evolve into a versatile, decentralized, and adaptable off-chain value (OEV) solution, leveraging Chainlink’s proven infrastructure for cross-chain functionality. Aave’s native token AAVE has seen its token price surge to $373, marking a 10% gain in the past 24 hours and a 0.49 gain in the last 7 days.