Additional revenue stream for Moonwell ecosystem via OEV implementation.

This proposal aims to introduce a new revenue stream for the Moonwell DAO by implementing Oracle Extractable Value (OEV) technology. By using RedStone’s solution, Moonwell can capture the extra value generated during liquidations, redirecting it back into the protocol reserves instead of being lost to third-party liquidation bots. The initial rollout will test the solution on the AERO market on Base, with plans to expand to other markets based on its success. RedStone will cover all associated costs, ensuring seamless and low-risk integration.

ABOUT REDSTONE

RedStone is the fastest-growing oracle in 2024. Our clients include leading DeFi protocols such as Morpho, Venus, Enzyme, Pendle, FraxLend, Euler, Silo, Gearbox, EtherFi, Ethena, Puffer, Renzo, Lombard and 100+ other clients. Our team has been supporting Base since day 1 mainnet launch and we are backed twice by Coinbase Ventures. RedStone specializes in the delivery of LST, LRT and other types of price feeds and is the leading BTCfi oracle as the creator of the only in-market Bitcoin Liquid Staking Oracle for Lombard, Solv, pumpBTC and others.

RedStone’s mission is to enable DeFi protocols and dApp’s builders to reach their full potential with versatile, gas-optimized and robust price feeds delivered cross-chain. Our team consists of seasoned engineers with an average of 15+ years of dev experience and a hard-working BD & Marketing team supporting partner protocols at every step: conferences, Twitter spaces, targeted intros, etc. Our technology has been acknowledged by the leading figures in the crypto space, we are proud to be backed by the most renowned Web3 Entrepreneurs such as Stani Kulechov (Aave), Sandeep Nailwal (Polygon), Alex Gluchovski (zkSync), Emin Gün Sirer (Avalanche), Richard Ma (Quantstamp) and many more.

ORACLE EXTRACTABLE VALUE

OEV is a value that can be captured during liquidations. Liquidations usually generate profit thanks to bonuses intended to motivate multiple parties to send a liquidation transaction. The bonus is captured only by the first liquidator, therefore liquidators compete to place the transaction as early as possible, ideally just after the Oracle update. Effectively it’s a race to liquidate straight after the price update is delivered on-chain that triggers liquidation of the position.

The idea behind OEV is to redirect the value captured by the MEV operator to the parties controlling price updates - Oracles and the Protocol. For every price update that may trigger a liquidation an auction is created and the collected payments are shared between both the source of data (Oracle) and the protocol itself. This OEV switch would direct the 50% Moonwell split of OEV back to the AERO market as reserves, generating more revenue for the protocol. The suggested solution includes the implementation of an auction with an MEV search solution on Base within the price feed liquidating a position. The implementation is done in a way that doesn’t interfere with the existing code of the Moonwell protocol minimizing any potential risks and side effects. It also means that traditional liquidations will still take place if there are any potential edge cases or execution failure scenarios where the auction might not perform as expected. We have successfully implemented the above flow with one of the largest lending protocols in DeFi and are rolling it out with the next protocols currently.

COMPETITIVE EDGE FOR MOONWELL

The implementation would make Moonwell more secure and resistant to bad debt, allowing faster liquidations via dedicated auctions.

The value captured via the OEV mechanism would be redirected into the Moonwell pool increasing the atractiveness of rates in comparison to other lending markets. We propose a 50/50 split of the value captured between the protocol and the other part covering infrastructure & maintenance costs. RedStone will cover all the costs associated with setting up, testing and monitoring the solution and will be in close contact with core Moonwell contributors for any further requests or suggestions.

NEXT STEPS

We suggest the first rollout of the solution on Moonwell’s AERO core market and after the first successful period expanding to other markets as Moonwell sees fit. AERO seems like a good fit with the number of positions and volatility of the asset. The success will be determined by the number of successful OEV liquidations and the total value captured by the protocol. The suggested planned rollout includes: Phase 1: Initial setup and integration (2 weeks) Phase 2: Testing period on AERO market (4 weeks) Phase 3: Review and assessment of results (2 weeks) Phase 4: Expansion to other markets based on results (TBD)