Chainlink has launched Smart Value Recapture (SVR), a groundbreaking solution that enables protocols to reclaim a significant portion of the non-toxic Maximal Extractable Value (MEV) generated during liquidations.
The oracle solution is meant to benefit DeFi applications by enhancing their economic sustainability and efficiency.
Here’s what this means for the cryptocurrency market.
Substantial loss from liquidation events—enter SVR
When DeFi protocols utilize price oracles for liquidations, the associated MEV is captured by third parties, such as validators and searchers. This means original protocols and users involved in the liquidation receive no returns, leading to significant economic losses.
MEV has caused over $1.3 billion in lost value for Ethereum users alone. This highlights the pervasive nature of MEV across various DeFi interactions, including trading, lending, and liquidity provision.
However, through collaboration with key partners like Aave and Flashbots, SVR allows DeFi protocols to reclaim 60% while Chainlink receives 40% of the recaptured value.
For the first six months, the Aave ecosystem will receive 65%, and 35% will go to the Chainlink Network, pending approval by the Aave DAO community.
The solution enables this by using a dual aggregator architecture that minimizes the need for additional smart contract integrations. This makes it easier for existing Chainlink users to adopt this new technology.
Furthermore, it is easy for protocols using Chainlink Price Feeds to adopt with minimal changes to their current systems.
SVR will enable DeFi protocols to reduce reliance on intermediaries by allowing them to directly access recaptured value. This also diminishes potential security risks associated with third-party integrations.
It also makes more funds available, which protocols can invest in technological advancements and user experience improvements. This would improve security measures, optimize operations, and enhance features that attract users.
Implications for the cryptocurrency market
The ability to recapture value by integrating SVR could attract more users and liquidity into these ecosystems. This could lead to an increase in the use of DeFi platforms.
Reclaimed MEV could also contribute to greater market stability, which could lead to improved price stability and reduced volatility.
Additional revenue from SVR could drive new financial products within DeFi. This could mean exploring unique yield farming opportunities or developing novel incentive structures that leverage recaptured funds.
SVR could give Chainlink a competitive edge as a leader in oracle solutions within the DeFi space. This would be because of enhanced value recapture mechanisms that attract more developers and projects looking for reliable oracle services.
Finally, the partnership between Chainlink and DeFi protocols could create a more sustainable ecosystem overall. This is because both parties benefit economically from their SVR cooperation.
Price action of Chainlink
LINK/USD price action (Source: TradingView)
Currently, Chainlink is trading at $23.863 at a market cap of $15.28 billion. The RSI of 53.75 means the token is in neutral momentum, which shows that while there may be buying interest, it is not significant enough to push the price substantially higher or lower.
MEV poses significant challenges for individuals engaging with DeFi platforms, like financial losses, consensus instability, and inefficiency in liquidity usage. However, the introduction of SVR not only addresses this critical issue but also enhances the economic sustainability of DeFi applications and positively impacts the overall health and efficiency of the cryptocurrency market.
