Aave proposes integration to capture 40% MEV fees

Aave (CRYPTO:AAVE) is considering integrating Chainlink’s (CRYPTO:LINK) Smart Value Recapture (SVR) oracle to redirect profits from Maximum Extractable Value (MEV) back to its ecosystem.

According to a proposal in Aave’s governance forum, the integration aims to capture around 40% of MEV profits generated through liquidations and return them to users.  

Chainlink released the SVR oracle service on December 23. The service specializes in capturing MEV profits by auctioning the right to back-run its price-feed oracle.

This process benefits decentralised finance (DeFi) protocols by redirecting profits often earned by blockbuilders.

These builders profit by reordering transactions, sometimes at users' expense, when creating blockchain ledger entries.  

The proposal highlights that Aave’s liquidation process, where collateral is forfeited if its value drops below a certain threshold, creates significant MEV opportunities.

Third-party liquidators repay debt and claim collateral with a liquidation bonus. However, much of the profit from these transactions currently goes to builders rather than Aave users.  

“Lately, a problem has appeared that deserves optimization: MEV,” the proposal states. It adds that Chainlink’s SVR offers a way to rebalance this distribution and bring substantial value to the Aave DAO and its users.  

MEV concerns extend beyond Aave, with Ethereum users and protocols taking measures to mitigate these costs.

According to an August report from Blocknative, private transactions, often referred to as "dark pools," now dominate Ethereum’s (CRYPTO:ETH) order flow.

These transactions involve sending orders directly to validators to protect against harmful MEV extraction.  

If implemented, Aave’s proposal could mark a significant step in addressing MEV challenges and redistributing profits to its community.

The governance forum is currently discussing the potential integration.

At the time of reporting, the price of Aave (AAVE) was $380.22, and the price of Chainlink (LINK) was $24.17.