AAVE reaches new heights? With the help of Chainlink, it is expected to increase revenue by tens of millions of dollars every year.

Author: Azuma, Odaily Planet Daily

The two leading DeFi projects Aave (AAVE) and Chainlink (LINK) both experienced significant gains today, but the reason is not that the Trump concept WLFI has added positions again (for details, see "What Trump Family Project WLFI May Buy Next" assets?》), but the two major projects have joined forces to promote a real cooperation, which is expected to help both parties increase their revenue by tens of millions of dollars every year.

OKX market data shows that as of around 11:00 Beijing time, AAVE was temporarily trading at 377.69 USDT, a 24-hour increase of 16.66%; LINK was temporarily trading at 23.9 USDT, with a 24-hour increase of 5.8%.

Chainlink SVR

In the early morning of this morning, Beijing time, Chainlink officially announced the launch of a new service called "Smart Value Recapture (SVR)". This is a new oracle solution designed to enable DeFi applications to pass Chainlink The offer recovers MEV value in a "toxic" way.

The so-called MEV, which stands for "Maximal Extractable Value", refers to the value obtained by the block proposer 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 the chain and consumed by on-chain applications. The most common OEV opportunities arise in lending agreements, especially during liquidation.

Odaily Note: The term OEV is actually a misunderstanding, because it does not refer to the oracle actively extracting value from users, but refers to the MEV associated with the oracle.

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 being returned to The DeFi protocol, end users and oracles that originally generated MEV. If there was a way to recycle these MEVs, it would help return the associated value to their original creators.

This is the original intention of Chainlink to build SVR. From the perspective of application scenarios, Chainlink SVR cannot be used for controversial MEV plunder scenarios such as front-running or mezzanine attacks. Instead, it is specially built for value recovery scenarios related to liquidation, that is, to solve the OEV problem that generally plagues 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, and Aave DAO), as soon as Chainlink's announcement was issued, BGD Labs immediately launched 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-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 obtain considerable profits, and This entity does not do most of the work; at the same time, searchers, users of the protocol, receive a much smaller percentage.

Chainlink’s SVR promises to properly address this issue and more granularly define who benefits most from transaction ordering. Inexpensive. For stability reasons, BGD Labs recommends deploying SVR on only 1-3 assets in the early pilot phase to advance the integration work in a controllable manner.

Potential value capture scale

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

Chainlink added that while some alternative solutions claim to achieve greater 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 actual data.

BGD Labs added that the 40% recovery efficiency corresponds to the scale of past MEV leaks and is expected to achieve tens of millions of dollars in value recovery.

It is worth mentioning that BGD Labs added that for the sake of simplifying the system, the asset form that receives the recycled value will be ETH.

revenue share plan

Chainlink stated in its announcement about SVR that the value recovered by SVR is planned to be distributed between the integrated DeFi protocol and the Chainlink network according to a standard ratio, of which 60% of the value will flow to the DeFi protocol and 40% to the Chainlink ecosystem - Proportion It is not fixed and may be adjusted in the future.

For the first partner, in order to achieve long-term cooperation with Aave, Chainlink proposed to share 65% with Aave and 35% with Chianlink in the first six months, but the relevant data must be approved by Aave community governance.

As for the final flow of value after sharing, Chianlink did not clearly mention it, only mentioning that "the economic sustainability of Chainlink oracles can be supported by paying transaction gas costs and other ongoing infrastructure costs"; but Aave , BGD Labs has clearly proposed to use recovery value to benefit users, such as providing incentives to Umbrella module stakers - this may be one of the reasons why AAVE's current increase is more obvious than LINK.