On December 23, 2023, decentralized finance (DeFi) protocol Aave announced a proposal at its governance forum to integrate the newly launched "Smart Value Recapture (SVR)" service by decentralized oracle service provider Chainlink. This service aims to feedback the profits generated from transaction backtracking to users of the Aave ecosystem, reducing the unfair distribution caused by the current Maximum Extractable Value (MEV).
In the DeFi ecosystem, Maximum Extractable Value (MEV) refers to the additional profit earned by memory block builders by reordering or inserting exchanges before packaging memory blocks. This behavior is particularly common in liquidation events, usually bringing high profits, but users find it difficult to benefit from it.
Aave As the main decentralized lending protocol, it allows users to borrow other cryptocurrencies by depositing cryptocurrency assets as collateral. If the value of the collateral drops significantly, the user's position will be liquidated. According to Aave's design, when a third-party liquidator repays a portion of a user's debt on their behalf, they will receive corresponding collateral and additional liquidation rewards.
However, this reward mechanism provides clear MEV profit opportunities for memory block builders, while users who truly participate in the protocol can only receive minimal benefits. Aave pointed out in the proposal that this phenomenon results in "memory block builders" receiving the majority of profits, while users can only receive insignificant returns.
It should be emphasized that MEV is not a problem unique to Aave, but a challenge faced by the entire Ethereum network. According to Blocknative's report in August 2023, in order to avoid losses caused by MEV, more and more users are choosing to transmit transactions through private transactions, a method known as' Dark Pool '. By directly sending transactions to validators instead of publicly entering the trading queue, users hope to reduce the risk of MEV attacks.
Chainlink The SVR oracle sells the usage rights of the "backtracking price oracle" to memory block builders through the MEV Share auction, which allows builders to obtain important information related to prices in advance, so that they can reorder transactions and profit from them when packaging memory blocks. The profits generated by the auction can flow back to Aave, which is equivalent to indirectly recovering a portion of MEV profits. According to Aave's estimation, SVR It is expected to capture about 40% of MEV profits and redistribute these profits to Aave DAO, ultimately giving back to users of the entire Aave ecosystem.
Aave The proposal shows that if Chainlink SVR is successfully integrated, it can not only optimize the clearing mechanism and reduce the unfairness caused by MEV, but also directly feedback a considerable proportion of MEV profits to Aave DAO, benefiting all participants. This will help enhance the economic sustainability of the Aave protocol and strengthen users' confidence in the DeFi ecosystem.
Despite the recent significant pullback in the cryptocurrency market, AAVE tokens have surged by over 15% in the past 24 hours, rebounding to the high point of the cycle. Regarding this, Arthur, the founder of DeFiance Capital, who has long been bullish on Aave, said:
Perhaps some institutions will re-enter the market so that they can announce in their year-end reports that they have Aave; one of the best performing DeFi assets and the future of finance
