[TEMP CHECK] Integrate Oval for the BAL & SNX Ethereum V3 Markets

Voting ended almost 2 years agoSucceeded

Title: [TEMP CHECK] Integrate Oval for the BAL & SNX Ethereum V3 Markets Author: UMA Date: 2024-01-31

Summary

This proposal seeks to integrate Oval developed by UMA into the BAL and SNX Ethereum V3 markets. This pilot program will enable Aave DAO to capture MEV associated with oracle updates from liquidations that occur in the BAL & SNX markets. This proposal is purposefully small in its initial scope, targeting only two isolated pools (BAL & SNX), to allow Aave to experiment with MEV capture with a bounded, low-risk pilot.

Motivation

Aave incentivizes third parties to liquidate Aave debt positions that have become distressed through a liquidation bonus. These liquidations generate enough profit that searchers compete to send their liquidating transactions immediately after the Chainlink price feed update. The MEV from Aave liquidations has benefitted searchers, block builders and validators, but not Aave protocol, which could have generated up to $62.2MM (Jan 2021 to Jan 2024) via Oval.

Oval allows Aave to capture the majority of this MEV as revenue. Oval is a MEV capture tool for Oracle Extractable Value built on Chainlink Data Feeds and Flashbot’s MEV-Share infrastructure. Oval requires no smart contract code changes to integrate.

Specification

Oval enables OEV capture by wrapping Chainlink price updates as they are pushed onchain so that OEV cannot be extracted without the consent of the protocol.

With Oval, when searchers perform a liquidation on Aave an order flow auction is triggered using Flashbots’ MEV Share—a trusted tool that allows MEV searchers to compete for MEV extraction offchain.

To extract the OEV created by an update, searchers must submit a winning bid, most of which is paid to the protocol as revenue. The winner of the auction gets the right to backrun the oracle update transaction—performing the liquidation by adding their transaction to the block immediately after the price update.

If no bid is received by the end of the auction window, the Chainlink price is automatically released and Aave liquidations function as normal.

Deploying Oval requires two simple steps:

Deploy Aave’s own instance of the Oval smart contracts for the BAL and SNX markets (UMA is happy to assist with this).
Update the BAL and SNX market’s oracle address from the Chainlink price feed to the Oval smart contract that points to the same Chainlink price feed. These steps are further detailed in our docs 4. UMA is committed to providing ongoing support to ensure a successful implementation of Oval.

Useful Links

Disclaimer

This proposal is powered by Skywards. The Aave Chan Initiative is not directly affiliated with UMA Team and did not receive compensation for creation this proposal.

Next Steps

If consensus is reached on this [TEMP CHECK], escalate this proposal to the Snapshot stage.
If the Snapshot outcome is YAE, this proposal will be escalated to ARFC stage
Publication of a standard ARFC, collect community & service providers feedback before escalating proposal to ARFC snapshot stage
If the ARFC snapshot outcome is YAE, publish an AIP vote for final confirmation and enforcement of the proposal