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, which captured a significant portion of the stolen funds. Eventually, the funds were returned to Curve.

MEV bots will continue to be a “pervasive issue” on leading chains like Solana and Ethereum, where validators can process transactions from users willing to pay a higher fee rather than taking the first posted transaction. As millions are siphoned by these bots, Chainlink unveils a strategy to help mitigate this problem.

Chainlink’s MEV Plan: Will It Work?

In a post, Chainlink stated that their new Smart Value Recapture (SVR) initiative could save DeFi protocols, especially lending platforms like Aave, millions from “non-toxic” MEV related issues. SVR aims to help these lending protocols recapture value that would otherwise be absorbed by third-party bots, ultimately promoting “economic sustainability.”

How it works? Chainlink explains that SVR leverages a dedicated Oracle solution that integrates seamlessly with Flashbots’ MEV-Share system, designed to reduce the negative impact of MEV on Ethereum-based protocols.

It also introduces the “Dual Aggregator” feature to enhance transaction ordering efficiency while minimizing the need for external dependencies. Testing showed that SVR allows lending DeFi protocols to recapture around 40% of the value lost to liquidation MEV.

Liquidation Versus Normal MEV Bots

Liquidation MEV bots generally aim to extract value from liquidation events on DeFi lending platforms like Aave and Maker. When prices drop, lending protocols may forcibly sell collateral at market rates to protect lenders. Liquidation MEV bots exploit this drop by manipulating liquidation timing to purchase assets at discounted prices.

Normal MEV bots on Solana and Ethereum can front-run and back-run transactions, benefiting from expected price movements, particularly with large orders. They can also perform sandwich attacks, combining front- and back-running techniques.

Impact of SVR on DeFi: Will LINK Rise?

Given what this solution promises, the Aave community is exploring this option. Adopting it could enable Aave to increase its revenue by capturing value that would otherwise be lost to third parties, leading to fairer liquidations and fair asset valuation for buyers of liquidated assets.

Ultimately, the effectiveness of SVR hinges on adoption by Ethereum-based DeFi protocols. The more that adopt it, the more likely it is that LINK, Chainlink’s native token, will appreciate.

At the time of this writing, LINK is facing downward pressure, but a recovery trend exists from Q4 2024.