Aave integrates Chainlink SVR on Ethereum: a new era for DeFi

The Chainlink SVR technology allows DeFi protocols to recapture the Maximal Extractable Value (MEV) generated from the use of Chainlink’s Price Feeds

The Aave DAO community has formalized the integration of Chainlink Smart Value Recapture (SVR) on the Ethereum mainnet, aiming to recover the value extractable from oracles (Oracle Extractable Value, OEV) related to liquidations and convert it into a new source of revenue for the protocol.

This decision, confirmed by an on-chain vote, marks a turning point for decentralized finance (DeFi), ushering in a sustainable model that reintegrates into the system the value technically lost during liquidation operations.

Aave integrates Chainlink SVR on Ethereum: a new era for DeFi

The Chainlink SVR technology enables DeFi protocols to recapture the Maximal Extractable Value (MEV) generated from the use of Chainlink’s Price Feeds, particularly during the liquidations of inadequately collateralized loans.

Historically, this often million-dollar value has been claimed by blockchain validators involved in the block-building process, without any return for the oracle infrastructure or the DeFi protocol engaged.

The integration, developed in collaboration with BGD Labs, Flashbots, and other contributors of the Aave DAO, involves a solution that jointly employs the Chainlink oracle network and the MEV-Share service by Flashbots. SVR is specifically designed to handle backrunning liquidations, avoiding vulnerabilities to frontrunning or sandwich attack techniques, thus ensuring a secure and transparent implementation.

Redistribution of the OEV: who gains what

According to what has been established, the recovered OEV value will initially be distributed 65% to the Aave ecosystem and 35% to the Chainlink ecosystem. This discounted fee scheme will be valid for the first six months and will then be subject to new DAO votes.

Currently, SVR is active on an initial group of markets available on the Ethereum network (including tBTC, LBTC, AAVE and LINK). An extension to other assets is expected in the near future.

Payment Abstraction and automation with Chainlink

SVR also represents the first Chainlink application to use the Payment Abstraction system, a cross-chain payment solution that eliminates friction in the payment of services on the Chainlink network.

The fees attributed to Chainlink in the SVR context will be automatically converted into LINK tokens, employing Chainlink services (Automation, Price Feeds, CCIP) and a decentralized exchange platform. This mechanism helps maintain a high level of service efficiency while simultaneously incentivizing the Chainlink infrastructure providers.

This is what the protagonists say: Aave, Chainlink, Flashbots

Stani Kulechov, founder of Aave Labs, highlighted that the integration “will increase revenues for the DAO, further strengthening the Aave ecosystem”. The contribution of SVR is not only economic but also impacts the security and technical integrity of the entire protocol. In fact, the implementation of SVR redefines the management of MEV in the DeFi landscape, transforming it from a cost to a profit opportunity for the protocols themselves.

Chainlink SVR is based on a decentralized infrastructure that has been operating for over five years, the same that supports Chainlink Price Feeds used by over 75 billion dollars in TVL (Total Value Locked) at their peak and powers transactions valued at over 20 trillion dollars. The system also contributes to the technical resilience of the network, safeguarding protocols from manipulation and inappropriate access.

The co-founder of BGD Labs, Ernesto Boado, stated that optimizing liquidation algorithms while maintaining protocol security presents a complex challenge, but the collaboration between Aave and Chainlink once again showcases the capability to innovate responsibly within the technical boundaries of DeFi.

Shea Ketsdever, Product Lead at Flashbots, added that “more efficient MEV markets help to create sustainable economies for lending protocols and DeFi infrastructure”. The participation of Flashbots with its own MEV-Share system is an integral part of this virtuous redistribution of value generated on the blockchain.

According to Johann Eid, Chief Business Officer of Chainlink Labs, the partnership with Aave represents an exemplary case of how innovation in the cryptocurrency sector can translate into tangible and profitable tools for the entire ecosystem. The integration of SVR, Eid emphasized, signals a new standard for MEV recovery, enabling safe, efficient, and verifiable reinvestment within DeFi applications and support for oracle infrastructure.

Future updates for Chainlink SVR

Looking ahead, Chainlink has planned new updates for SVR, including a higher level of decentralization, improvements in gas efficiency, and additional cross-chain functionalities. These future developments promise to extend the effectiveness of the mechanism even to more complex DeFi scenarios or interconnected across different blockchains.

In conclusion, the integration of Chainlink SVR into the Aave protocol brings tangible benefits for the economic and technical sustainability of DeFi, offering an innovative model for the management and redistribution of OEV. For both industry operators and governance participants, this move represents a concrete example of how collaboration between leading entities can reduce systemic losses and increase the value returned to the ecosystem.

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