On December 23, Chainlink introduced an innovative oracle solution designed to help DeFi applications “recapture non-toxic Maximal Extractable Value (MEV)” through what they call Smart Value Recapture (SVR). Currently, when DeFi protocols utilize price oracles—especially during liquidations—the profit generated is often snatched away by third parties like searchers and validators, with none of this value returning to the original protocols or oracles that created these opportunities.
Enter Smart Value Recapture (SVR): this pioneering solution aims to reclaim a portion of that lost value during liquidations, potentially allowing DeFi applications to recover about 40% of it. MEV is essentially the profit made by strategically arranging, including, or excluding transactions within a blockchain block, and it’s time for this value to find its way back to the rightful creators.
In collaboration with @bgdlabs, Flashbots, and contributors to the @aave DAO, Chainlink has put forth SVR, which creates a parallel set of Chainlink price feeds and employs the flashbots MEV-share for auctions. This system incorporates a fallback mechanism using standard price feeds, requiring minimal adjustments for existing protocols that already leverage Chainlink oracles.
The profit-sharing model for SVR is set at 60% for the DeFi protocols and 40% for Chainlink. However, there’s a special launch partnership agreement with Aave, which allows for a 65:35 split in favor of Aave for the first six months. This unique aspect demonstrates a collaborative move to boost both LINK and AAVE holders.
Zach Rynes, known in the Chainlink community as ‘ChainLinkGod,’ expressed enthusiasm about this initiative, stating, “Liquidation MEV in DeFi is measured in the tens of millions of dollars per year, presenting a significant economic opportunity for both communities.” Not only does SVR aim to improve profit-sharing, but it’s also envisioned as one of the first Chainlink services to integrate with the Payment Abstraction system, paving the way for the Chainlink Network’s share of the split to be converted into LINK using existing decentralized exchanges.
The market reacted positively to this development. Chainlink’s native token, LINK, saw a boost of around 9%, jumping from just over $22 to an intraday high of $24.78. There was a slight pullback, but LINK was still trading above $24, marking a significant rally. Although LINK is still down 54% from its May 2021 all-time high of $52.70, this announcement has reignited optimism among investors.
Meanwhile, prices of AAVE surged even more dramatically, climbing over 15% to exceed $380 at the time of writing. This increase represents its highest price since September 2021, though AAVE remains down about 43% from its May 2021 all-time high of $662.
As this significant news unfolds, DeFi enthusiasts and investors alike are keenly watching the developments. With the introduction of SVR, Chainlink continues to establish itself as a pivotal player in DeFi, offering solutions that not only enhance functionality but also benefit the entire community.
