Aave considers Chainlink integration to address MEV concerns
Aave considers Chainlink integration to address MEV concerns
Aave, a leading decentralized finance (DeFi) protocol, is exploring an integration with Chainlink’s newly launched Smart Value Recapture (SVR) oracle.
This proposal aims to reclaim Maximum Extractable Value (MEV) profits from transaction frontrunning and redistribute them to Aave users, potentially retaining 40% of these profits within the ecosystem.
MEV arises when blockchain transactions are reordered or manipulated to capture additional profits before finalizing a block. While this process often benefits block builders, it can disadvantage users by inflating transaction costs or impacting liquidation processes.
Aave, a protocol enabling users to borrow cryptocurrency using collateral, encounters MEV during liquidations. In these cases, third-party liquidators repay a portion of a borrower’s debt and claim the collateral plus a bonus. This bonus creates opportunities for MEV exploitation, with external entities profiting disproportionately, leaving users with reduced benefits.
In a proposal shared on Dec. 23, Aave outlined plans to leverage Chainlink's SVR oracle to mitigate these issues. The service facilitates MEV-Share auctions, allowing participants to bid for "back-running" opportunities tied to Chainlink’s price-feed oracle updates. By implementing SVR, Aave intends to redirect a significant portion of MEV profits to its decentralized autonomous organization (DAO), which would then distribute the gains among users.
A path toward greater value for users
The proposed solution could transform the way DeFi protocols handle MEV, making them more user-centric. With an estimated 40% of MEV profits potentially recoverable, this initiative could establish a sustainable revenue stream for Aave users while enhancing overall protocol efficiency.
The integration also reflects a growing trend in the Ethereum network to shield users from MEV exploitation. Private transaction methods, such as sending orders directly to validators (known as "dark pools"), have gained traction as a protective measure.
Aave’s potential adoption of Chainlink’s SVR underscores a broader movement in DeFi to address systemic inefficiencies and promote fairer profit-sharing mechanisms. If successful, this integration could set a precedent for other protocols to adopt similar strategies, fostering trust and engagement among DeFi participants.
Additionally, Aave V4 plans to launch a testnet by year-end featuring smart accounts.
