Oracle extractable value will be captured by oval in DeFi protocols


Oval is UMA’s new solution for DeFi protocols that aim to make the most of Oracle updates.

Oval, a solution developed by the Uma blockchain project, is designed to let DeFi protocols take advantage of oracle extractable value (OEV), a kind of MEV that is created when protocols ask an oracle for price updates. This value may be captured during oracle updates.

Using automated bots, MEV entails extracting value by changing the sequence of transactions in a block on the Ethereum network. This MEV type develops when many decentralized exchanges either don’t have enough liquidity or try to outrun each other in certain market situations.

Uma is right when she says that oracles are associated with one kind of MEV. Oracles play a key role in decentralized finance and protocols like lending and borrowing by providing smart contracts with external data, such as price feeds. The occurrence of an Oracle update, like a price feed update, might give rise to MEV possibilities. If a loan protocol uses an oracle to get the most up-to-date asset values, for example, a trader may have a small window of opportunity after the update to use this knowledge before the market reacts.

With tens of millions of dollars stolen annually, MEV is a huge problem for Ethereum. Hart Lambur, co-founder of Uma, said that protocols need price updates, which is why OEV accounts for a significant portion of that. By assisting processes in capturing OEV, Oval tackles a real-world challenge. It has been an honor to collaborate with the world-class team at Flashbots to launch Oval on the mainnet.

In order to prevent protocols like lending from losing value to bots, Oval is working on a solution that will allow them to keep and even benefit from this value. In this configuration, MEV searchers take part in a bidding war for access to data from protocol-specific Chainlink oracles. The procedure then benefits from the auction’s earnings.

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