On December 23, Chainlink unveiled a novel oracle solution called Smart Value Recapture (SVR), aimed at enabling DeFi applications to recapture non-toxic Maximal Extractable Value (MEV). Traditionally, when DeFi protocols utilize price oracles, value generated, particularly during liquidations, is often absorbed by external entities such as searchers and validators, leaving original creators devoid of benefits.
The introduction of SVR seeks to change this by allowing DeFi lending protocols to reclaim up to 40% of the typically forfeited value. MEV represents the profit potential realized through the strategic sequencing or exclusion of blockchain transactions.
Chainlink worked alongside key partners including @bgdlabs, Flashbots, and contributors to the @aave DAO to craft this innovation.
The system involves a secondary set of Chainlink price feeds utilizing flashbots MEV-sharing for auctioning and incorporates a standard price feed fallback for reliability. This requires minimal adaptation for protocols already leveraging Chainlink oracles. Under a special arrangement with Aave, the recaptured value will be split 65:35 between DeFi protocols and Chainlink for an initial six-month period, deviating from the usual 60:40 distribution.
Zach Rynes, Chainlink's community ambassador, known as ‘ChainLinkGod,’ expressed strong optimism regarding this development. He noted that liquidation MEV in DeFi is a multi-million-dollar-per-year opportunity, significantly benefiting the involved communities.
Rynes added that SVR aims to be among the first Chainlink services integrated with the Payment Abstraction system. This integration will enable the Chainlink Network’s share to be converted into LINK via existing decentralized exchanges (DEXs).
The announcement had an immediate positive impact on Chainlink’s native token, LINK, which saw a 9% price increase, rising from just over $22 to an intraday high of $24.78.
Though there was a slight retracement, LINK continued trading above $24, still down 54% from its May 2021 peak of $52.70. Meanwhile, AAVE, benefitting from the partnership, surged over 15%, reaching over $380—its highest since September 2021. However, AAVE remains 43% below its May 2021 all-time high of $662.