Aave Integrates Chainlink's Smart Value Recapture (SVR) System to Recover Value Lost During Oracle Interactions

The collaboration introduces Chainlink's Smart Value Recapture (SVR) system to Aave V3 on Ethereum, aiming to bring back revenue that would otherwise be lost through maximal extractable value (MEV).

Aave, a leading decentralized lending platform, is integrating Chainlink’s Smart Value Recapture (SVR) system into V3 on Ethereum to recover value that would otherwise be lost during oracle interactions. This move aims to further minimize maximal extractable value (MEV) and optimize the efficiency of the Aave ecosystem.

The integration will help to bring revenue that would otherwise flow out of the protocol due to OEV back into Aave, where it can be used for protocol operations, community initiatives, or to return value to users in the form of lower borrowing costs or higher lending yields.

Why Aave Is Recovering MEVs During Liquidations

In DeFi, MEV refers to the profit that can be made by controlling the order and timing of blockchain transactions. A specific kind of MEV, called Oracle Extractable Value (OEV), occurs when someone takes advantage of delays in price data updates from oracles like Chainlink.

Whenever a lending protocol like Aave updates the prices of assets in its market through an oracle, there is a brief window where traders or bots can trade ahead of this update to extract value. For example, if Chainlink updates the ETH price on Aave and a trader notices that Bitcoin (BTC) has also moved in another market, they can quickly open a BTC position in anticipation of this price change being recognized on Aave.

This leaves Aave unable to fully capture the overall market value and results in a loss of revenue for the protocol, while also increasing the liquidation costs for users.

However, Chainlink’s SVR is able to identify and bundle transactions to economically recapture this value that would otherwise be lost during liquidations.

How the SVR Integration Works

The SVR system combines two key technologies:

This solution is focused on back-running liquidations—where a position is closed due to a lack of collateral—and ensures that this captured value goes back to the protocol. Importantly, SVR is not designed for exploitative strategies like sandwich attacks, which often harm users.

This upgrade was supported by a unanimous vote from the Aave DAO. The proposal passed with 100% approval and will be completed by March 29.

Here’s what Flashbots had to say about the integration:

Great to see Aave continuing to innovate in the quest for optimal, fair & efficient markets! 🍎 This move by Aave to adopt Chainlink SVR for optimal liquidation handling is a significant step towards minimizing the impact of (maximal) extractable value on Ethereum DeFi protocols.

The move by Aave to adopt SVR highlights how DeFi platforms are striving to become more efficient and user-friendly. The Aave team also hinted that more upgrades could follow as they continue working with Chainlink and other contributors to further enhance the protocol and expand its capabilities.