Aave Considers Chainlink Integration to Redirect MEV Fees Back to Users
Date: 2024-12-24 Author: Henry Casey Categories: BUSINESS
Decentralized finance protocol Aave is planning to introduce a new Chainlink oracle service that will allow it to redirect MEV (maximum extractable value) revenues back to the platform’s users. The proposal was published on the Aave governance forum.
On December 23, Chainlink introduced Smart Value Recapture (SVR), a service that aims to extract MEV revenues for decentralized finance protocols. On the same day, Aave proposed integrating the service to redirect asset liquidation revenues back to the Aave ecosystem.
MEV occurs when block builders reorganize transactions before they are written to the blockchain. This can be beneficial to block builders, but sometimes it harms users.
Aave allows users to borrow cryptocurrency against other assets. If the value of the collateral falls below a set level, the assets are liquidated.
The proposal would pay a bonus to the liquidator, who repays the debt and receives an equivalent amount of collateral plus a small increase. However, this mechanism has resulted in increased opportunities to extract MEV, which has created a problem for users.
Liquidation bonuses provide significant profits to block builders, although most of the work is done by the protocol. As a result, Aave users only receive a small share of the potential profit.
Integration with Chainlink SVR will allow the right to "build a block" to be sold through a MEV-Share auction. Aave estimates that this will redistribute about 40% of the profits from MEV to the DAO and users of the platform.
With the rising costs of MEV, Ethereum users and protocols are increasingly looking for ways to minimize their impact.
A significant portion of transactions on the Ethereum network are now conducted through private channels such as "dark pools", according to a Blocknative report from August. This allows users to submit transactions directly to validators, bypassing the public queue and protecting against malicious MEVs.
The integration of Chainlink SVR will be an important step for Aave, allowing it to protect the interests of users and redistribute some of the profits from liquidations to the platform ecosystem.
