Every year, maximal extractable value (MEV) bots capture millions by front-running transactions and, in some cases, from liquidation events. As bad as they may be—take, for instance, the recent Ross Ulbricht front-running, which forced ROSS prices down—they can also be valuable in some instances. For example, during the Curve hack, the exploiter was front-run by a bot. The bot then captured a significant portion of the stolen funds. Eventually, the funds were returned to Curve.
MEV bots will continue to run and be a “pervasive issue” on leading chains like Solana and Ethereum, where validators can process transactions willing to pay the higher fee, not necessarily the first one posted. As millions are siphoned by these bots, Chainlink is unveiling a strategic plan to at least help mitigate this problem.
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Chainlink Has an MEV Plan: Will It Work?
In a post, Chainlink, a leading oracle provider, stated that their new Smart Value Recapture (SVR) initiative could save DeFi protocols, especially lending platforms like Aave, millions from “non-toxic” MEV.
SVR will help these lending protocols recapture value that would otherwise be absorbed by third-party bots. After implementation, it would easily return value to the protocol or its users, thereby promoting “economic sustainability.”
But how does it work?
In their explainer, Chainlink said SVR takes advantage of a dedicated Oracle solution that seamlessly integrates its infrastructure with Flashbots’ MEV-Share system. Flashbots is a platform looking to reduce the negative impact of MEV on Ethereum-based protocols.
It will also introduce the “Dual Aggregator” feature to enhance transaction ordering efficiency while minimizing the need for external dependencies.
Their tests revealed that SVR allowed lending DeFi protocols to recapture around 40% of the value lost to liquidation MEV bots.
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Liquidation Versus Normal MEV Bots
For clarity, it should be known that liquidation MEV bots often aim to extract value from liquidation events on DeFi lending platforms like Aave and Maker, for example.
Often, when prices tank, lending protocols forcefully sell collateral at market rates to protect lenders. Liquidation MEV bots take advantage of this drop to manipulate liquidation timing, allowing them to purchase assets at discounted prices.
Normal MEV bots running rampant on Solana and Ethereum can front-run and even back-run transactions, benefiting from expected price movements, especially if the order is large. They can also launch sandwich attacks, which combine front- and back-running.
Impact of SVR on DeFi: Will LINK Rise?
Considering what this solution brings to the table, the Aave community is exploring this option.
If they adopt it, Aave will likely increase its revenue by capturing value that would otherwise be lost to third parties. Additionally, there will be fairer liquidations, and those who buy liquidated assets will get them at fair valuations.
Ultimately, the success of SVR depends on whether DeFi protocols on Ethereum adopt this solution. The more that do, the better, and thus LINK, the native token of Chainlink, may rise.
At press time, LINK is under pressure, but the uptrend from Q4 2024 remains.
For buyers to take charge, LINK must reject any attempt to drive the coin below $18 and the February lows.
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