Aave Integrates Chainlink's Smart Value Recapture (SVR) on Ethereum Mainnet

Aave, a leading decentralized finance (DeFi) protocol, has officially integrated Chainlink's Smart Value Recapture (SVR)

Aave has officially integrated Chainlink Smart Value Recapture (SVR) on the Ethereum mainnet, marking another step in optimizing value recapture, beginning with liquidations in markets such as Threshold Bitcoin (tBTC), LBTC, AAVE, and LINK. The integration was proposed by Aave developers and approved by the community via an on-chain vote. It introduces a new approach to handling oracle extractable value (OEV) in Aave liquidations.

Historically, when undercollateralized loans were liquidated on DeFi lending platforms, a lot of value known as Maximal Extractable Value (MEV) was extracted and went to third parties. This MEV, which includes profits that can be extracted from the liquidation process and other transaction ordering strategies, was traditionally used by block builders, those responsible for ordering transactions within an on-chain environment. However, the value never returned to the protocols like Aave or the oracle infrastructure (based on Chainlink) that enabled the liquidation. This process is similar to a traditional auction house where the auctioneer (Chainlink) sets the prices, and the house (Aave) provides the platform. When the loan was liquidated, a third party (block builder) historically captured a portion of the profit, leaving both Chainlink (the price setter) and Aave (the lending platform) without direct compensation. Chainlink SVR has been deployed to address this issue.

The Chainlink Smart Value Recapture (SVR) system, built in collaboration with BGD Labs, Flashbots, and other Aave DAO contributors, allows Aave to reclaim a portion of the MEV that was previously extracted by block builders. It does this through Chainlink’s decentralized oracle networks and Flashbots’ MEV-Share service. The system is strictly designed for backrunning liquidations and cannot be exploited for malicious practices such as frontrunning or sandwich attacks.

The integration has already started recapturing liquidation MEV in markets such as tBTC, LBTC, AAVE, and LINK. In the near future, Aave SVR is set to be expanded to additional assets to further assist with AAVE revenue optimization.

The MEV value recaptured through SVR will be divided among the Aave and Chainlink communities. The Aave DAO vote confirmed that the split will be 65% for the Aave ecosystem, 35% for the Chainlink ecosystem (over the first six months). Chainlink plans to pool its share of the SVR revenues, convert it to LINK tokens, then distribute the same among its network service providers. This creates a virtuous cycle, incentivizing the infrastructure that supports the DeFi ecosystem.

“This partnership with Aave is a prime example of how innovation in the crypto sector can spawn concrete and profitable tools for the entire ecosystem. The integration of Chainlink SVS on Aave marks a shift toward a new standard in MEV recovery, enabling safe, scalable, and verifiable reintegration within DeFi applications and oracle infrastructure,” said Johann Eid, Chief Business Officer at Chainlink Labs.

Chainlink SVR also marks the first application of Payment Abstraction, a cross-chain payment solution that streamlines fee payments within the Chainlink network. This system utilizes CCIP (Cross-Chain Interoperability Protocol), Chainlink Automation, and Price Feeds to automatically convert service fees into LINK tokens. For instance, suppose a DeFi protocol is reading the value of an asset using Chainlink Price Feeds to set the collateralization ratio of a loan. In that case, this integration eliminates friction by automating payments in LINK when a given loan is liquidated through SVR’s system.

“It is no small feat to optimize liquidation algorithms while still preserving the security of the protocol. This partnership between Aave and Chainlink demonstrates how to responsibly innovate within the technical limits of DeFi. We are excited to see the impact of SVR on the Aave ecosystem and look forward to continuing to collaborate on pushing the boundaries of Web3 technology further,” said Ernesto Boado, Co-Founder of BGD Labs.

“The contribution of SVR is not purely economic but also implicates the security and technical integrity of the protocol. Moreover, this integration increases revenues for the DAO, further strengthening the Aave ecosystem. We are thrilled to see this collaboration come to fruition and look forward to exploring more avenues for mutual benefit with the Chainlink ecosystem in the future,” added Aave Labs founder Stani Kulechov.

“Efficient markets for MEV help build sustainable lending and DeFi infrastructure. We are proud to have collaborated with Aave, BGD Labs, and the broader community to launch this integration and look forward to seeing its impact on the DeFi ecosystem,” said Shea Ketsdever, Product Lead at Flashbots.