- SVR allows lending protocols to recover value lost during liquidation events using enhanced price feeds and minimal changes for DeFi platforms already using Chainlink oracles.
- The initiative has significant economic implications, with MEV-related liquidation opportunities in DeFi estimated at tens of millions of dollars annually.
On December 23, blockchain oracle provider Chainlink launched what it said was its innovation of the future: Smart Value Recapture (SVR). This is supposedly aimed at curbing a significant problem facing decentralized finance (DeFi) operations in the form of Maximal Extractable Value (MEV).
Inside Chainlink’s MEV Initiative
Traditionally, MEV represents profits achieved through the strategic arrangement, addition, or omission of transactions in a blockchain block. In DeFi, most of the value often leaves the original protocols and oracles to third parties like searchers and validators. SVR, as indicated by Chainlink’s announcement, seeks to correct this by allowing lending protocols to recapture some of the lost value in liquidation events, it reported.
SVR works through another set of Chainlink price feeds, that is, integrating with the flashbots MEV-share for running auctions. For security, it has a fallback mechanism dependent on standard price feeds, hence it’s reliable. According to Chainlink, the new solution requires minimal changes for DeFi platforms already using its oracles.
The captured value is generally divided, with 60% allocated to DeFi protocols and 40% to Chainlink. However, Chainlink has partnered with Aave for an exclusive launch arrangement, increasing the protocol’s share to 65% for the first six months, reported CNF.
Chainlink community ambassador Zach Rynes, also known as ‘ChainLinkGod,’ commenting on the development described it as “a very bullish development.” He explained that it carries significant economic value: “Liquidation MEV in DeFi is measured in the tens of millions of dollars per year, presenting a significant economic opportunity for both communities.”
Chainlink also announced that SVR would be one of the first services integrated into its Payment Abstraction system. This feature enables the share of the captured value to be converted into LINK tokens using decentralized exchanges (DEXs) by the Chainlink Network.
Market Response and LINK Price Action
The launch of SVR caused an immediate reaction in the market. LINK, Chainlink’s native crypto, skyrocketed by about 9%, from just above $22 to an intraday high of $24.78 on Monday. The momentum continued on Tuesday, December 24, as LINK price traded a little lower but remained above $24 at the time of writing. At press time, LINK was up 5.05% to $24.16 on Tuesday. Furthermore, the altcoin is seeing strong whale activity, per the CNF report.
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While this is a good price action, LINK remains at 54% below its all-time high of $52.70 from May 2021. Meanwhile, AAVE, the native token of Aave, was also up more than 15% after the partnership news, breaking above $380. This is the highest price for the token since September 2021.
However, it’s still 43% below the May 2021 peak of $662. Though the AAVE price came down to the $370 level on Tuesday, it still boasted gains of over 10%. Today, the AAVE token surged by 10.69% to $370.97.
