UMA and Flashbots Launch Oval to Monetize Oracle Extractable Value
Oval's mechanism recaptures up to 90% of lost revenue for lending protocols, contributing to the sustainability of decentralized finance.
By: Camila Russo • Loading...DeFi News
UMA, in collaboration with Flashbots, today announced the launch of Oval, a mechanism that allows lending protocols to capture and monetize Oracle Extractable Value (OEV) in order to generate revenue and contribute to the sustainability of decentralized finance (DeFi).
Oval creates new income streams for lending protocols by leveraging Chainlink price updates and Flashbots' MEV-Share, minimizing integration costs and trust assumptions.
UMA is an oracle and dispute arbitration system that allows for arbitrary types of data to be brought on-chain. Flashbots is a research and development organization which focuses on mitigating the negative externalities posed by Maximal Extractable Value (MEV).
Oracle Extractable Value
Oval aims to address the issue of OEV, a type of MEV, that is lost by lending protocols when consuming Chainlink oracle data for price updates.
The system fights OEV by wrapping Chainlink price updates and utilizing Flashbots' MEV-Share to auction off the OEV, redirecting up to 90% of the value back to the protocols that created it. This mechanism presents an opportunity for lending protocols to create sustainable revenue streams and improve the overall stability of DeFi.
Ethereum's leading DeFi protocols, such as Aave and Compound, have generated over $100 million in OEV since their inception. Oval has the potential to recapture as much as 90% of this value for the protocols themselves, significantly impacting the revenue generated by lending activities.
“MEV protection, particularly MEV capture, is the frontier of Ethereum research,” Robert Leshner, CEO of Superstate and founder of Compound Finance, said in the announcement. “Personally I am very excited to see UMA working with Chainlink and Flashbots to attempt to capture the $100s of millions of MEV that lending protocols leak."
Live on Ethereum Mainnet
The mechanism does not require code changes for integration, making it accessible for established protocols. Oval is currently live on the Ethereum mainnet.
Oval, which has been audited by Open Zeppelin, operates by attaching repayment instructions to a searcher's bundles, ensuring that any excess value is repaid back to the protocol. In case of any delays with Oval or MEV-Share, the Chainlink price is automatically released to ensure prompt liquidations.
The collaboration between UMA, Flashbots, and Chainlink highlights the ongoing efforts to minimize the impact of MEV on Ethereum. Flashbots estimates that over 415,000 ETH in value has been extracted since the launch of Ethereum's Merge in September 2022, with the majority of the revenue going to block builders and validators.
Oval aims to disrupt this MEV supply chain by diverting significant value back to the lending protocols themselves.
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