continued from previous post.
Section 2: Economic Considerations
2a) Revenue Split and Fees:
This proposal offers a split of 55% of net recapture OEV (after builder payments by searchers) to the Compound DAO and 45% to the Chainlink Network. This is proposed to be a fixed split across markets. The fee split presents a new revenue opportunity for the Compound DAO while supporting the economic sustainability of the Chainlink oracle infrastructure that powers Compound and the wider DeFi ecosystem.
2b) Additional Costs:
No additional subscription or service fees are required for integrating SVR.
2c) Expected Value Capture:
Based on data generated from Aave’s ongoing usage of SVR for recapturing liquidation MEV in select markets on the Aave V3 Core and Prime on Ethereum mainnet, we project SVR can enable Compound to consistently capture ~40-50% of the total liquidation bonus OEV that is currently leaked (total recaptured OEV, before the 55/45 split). By using established OFA providers, SVR is able to support an open, decentralized searcher ecosystem that helps ensure competitive bidding and market-driven recapture rates, as opposed to closed or single-searcher models that can artificially inflate recapture rates and introduce single points of failure. We will continue to onboard additional searchers to SVR, which can help increase recapture rates.
Applying these recapture projections to past Compound liquidations projects a sizable opportunity for Compound. Using onchain data paired with historical pricing data from Chainlink feeds, we estimate that Compound V3 on Ethereum has generated ~$7.0M in OEV since December 2022. Pace has increased in recent months: ~$6.2M (or ~89%) of OEV has been generated since the start of 2024, equivalent to an annualized rate of ~$4.3M in OEV / year.
Integrating SVR could unlock an estimated ~$1.0 - $1.2M annual revenue opportunity for Compound DAO, based on the following assumptions:
- Compound V3 on Ethereum generates ~$4.3M in OEV / year (average from January 2024 - May 2025)
- 40-50% of OEV is recaptured by SVR
- Compound DAO receives 55% of captured OEV as revenue
This revenue estimate is provided for Compound V3 on Ethereum based on historical TVL and OEV rates, which could fluctuate in the future. Expanding the use of SVR to multiple chains would grow the OEV recapture opportunity accordingly. It should be noted that OEV is highly volatile and difficult to predict. Past revenue over a set duration (monthly, annual) may not accurately predict future revenue.
2d) Revenue Distribution & DAO Accounting:
Compound’s portion of recaptured OEV fees will be automatically sent to the Compound DAO treasury address. Distribution will occur in the asset received from the auction (on Ethereum mainnet that is ETH). Distributions are made on a weekly basis. Since distributions take the form of onchain transactions, payments can be transparently tracked. We will publish a weekly update on the Compound forum on SVR’s performance, and in parallel work on a near real-time dashboard. Additionally, third-party service providers can provide data analytic dashboards, such as those that have been built for within the Aave community: https://svr.llamarisk.com/.
Section 3: Security and Risk Assessment
3a) Trust Assumptions:
Given Compound already uses Chainlink Data Feeds to secure the vast majority of the protocol’s TVL on its largest markets (e.g., Compound V2 and V3 on Ethereum), and the fact that SVR is a native extension to the existing Data Feeds, little-to-no additional trust assumptions would be introduced to the Compound Protocol. SVR leverages the existing trust placed in Data Feeds and the decentralized oracle networks that power those feeds. Trust in the OFA infrastructure (e.g., Flashbots MEV-Share) is minimized through the automatic fallback mechanism to standard Data Feeds, while also providing the option for Compound to revert back to standard Data Feeds manually (e.g., via DAO vote or admin action) at any time.
The same independent node operators that secure standard Data Feedsare used for SVR feeds, as the same oracle reports are used for both (i.e., the same oracle report is sent to standard Data Feedsand SVR feeds simultaneously via the DualAggregator contract). These node operators can be viewed on a per-feed & per-chain basis on the following analytics site: Decentralized Data Feeds | Chainlink.
The oracle node operators used in the DONs powering Data Feedsand SVR feeds include traditional Web2 telecommunication providers, leading data providers, and Web3 infrastructure providers, such as Deutsche Telekom T-Systems, Swisscom, Vodafone, and Infura. The same security that applies to the existing Data Feeds used by Compound also applies to SVR feeds. In situations where the OFA fails to operate as expected, SVR’s recapture efficiency would decrease or Compound would fall back to using standard Data Feeds; meaning protocol solvency would not be at risk.
3b) Audits:
NCC Group conducted an audit of Chainlink SVR in November 2024, focusing on the changes introduced between the original OCR2Aggregator.sol and the updated DualAggregator.sol at commit ee7f7ad. The review identified a total of three findings: two low-risk and one informational. Of the low-risk findings, one was determined to be a false positive, and the other was accepted after risk evaluation. The informational finding was addressed and resolved. Both the offchain Chainlink node software and the onchain smart contracts are source available, along with Flashbot MEV-Share.
3c) Production Testing and Simulations:
SVR is currently being used in production on Aave V3 Core and Prime markets on Ethereum mainnet, covering ~30% of Aave’s TVL on Ethereum. Initially activated on March 29 for a limited set of markets (LBTC, tBTC, LINK, and AAVE), and later expanding on May 12 (eBTC, cbBTC and WBTC on the Aave V3 Core & USDC, WETH, rsETH, ezETH and wstETH on the Aave V3 Prime).
SVR has recaptured $25K+ in liquidation MEV and processed $1.8M+ in liquidations across 88 transactions, with zero bad debt accrual. This encapsulated a time period of providing SVR coverage during a price range of $74K-$100K in BTC/USD, including periods of heightened market volatility. More data can be found on SVR dashboards. In the past 30 Days ±57% of the liquidation bonuses paid out have been recaptured by the system with 8 unique searchers having successfully won a bid via SVR out of 23 across Aave in total. This means Aave has managed to almost cut their liquidation bonuses in half in some markets over that timeframe.
3d) Oracle Accuracy and Manipulation Resistance:
Since SVR feeds use the same Chainlink DON infrastructure that secure existing Data Feeds, including those used by the Compound protocol to secure billions of dollars in TVL over the past four years, the same rigorous level of security and reliability apply. Data Feeds, including SVR feeds, leverage multiple layers of decentralized data aggregation at the data provider, node operator, and network levels to mitigate central points of failure and manipulation. Oracle reports are cryptographically signed by a quorum of independent node operators and validated onchain before any price oracle reports can be made available to consuming protocols, preventing price spoofing attacks. More information on the security model of Chainlink Data Feeds, which encapsulate SVR feeds, can be read here.
3e) Failure Modes:
We want to be sure that no single failure can adversely affect Compound.
As noted above, in the event of an auction or transmission failure of SVR-enabled Price Feeds (i.e., MEV-Share failure), the DualAggregator contract will fall back to providing data from standard Data Feeds, which are delivered onchain directly by Chainlink DONs. In these situations, the liquidation process would revert back to how existing liquidations occur in existing non-SVR activated Compound markets. For example, with the SVR delay set at a maximum of 6 blocks on Ethereum, the maximum delay for liquidations to occur would be 6 blocks.
3f) Insurance and Recourse:
Security is the number one priority for our ecosystem; a value we do not and will not compromise upon. As such, all Chainlink services are rigorously audited by multiple leading security auditing firms, along with operating multiple bug bounty programs with a maximum bounty reward of $3M. By taking a security-first approach to oracle infrastructure, there have been zero instances of oracle-related losses on Compound markets powered by Data Feedsover the past four years. In this proposal, we do not propose a specific insurance fund, but are open to discussing how Chainlink approaches comprehensive risk management.
3g) Upgrade and Maintenance Security:
The upgradability processes used for SVR feeds follow the same standard practices used for existing Data Feeds used by the Compound protocol. Oracle networks are not static but rather require regular updates and adjustments to maintain a high level of security and reliability. The ability for adjustments to be made in response to unpredictable externalities is how Chainlink has securely scaled to over 1,000 independent oracle networks while securing tens of billions of dollars in DeFi TVL and can continue scaling to help secure onchain markets. More information about upgradability processes for Data Feeds and SVR can be read on the Chainlink FAQ.
3h) Responsible Disclosure:
Chainlink has multiple bug bounty programs in place, including Immunefi and HackerOne which cover all services, with a maximum bounty reward of $3M. More information can be found on each corresponding bug bounty page.
3i) Security Incident Monitoring and Management:
All Chainlink services, including the Data Feeds used by Compound today and the SVR feeds within this proposal, undergo extensive real-time monitoring. For SVR feeds, this includes real-time monitoring and alerting for all the DONs, OFA streams, and onchain activity. Additionally, SVR feeds are supported by 24/7/365 on-call rotations with subject matter experts, which is aligned with industry-standard best practices, along with the support of hundreds of engineers at Chainlink Labs. As previously mentioned, if there is any transmission issue with SVR fees (e.g., MEV-Share failure), the DualAggregator will fallback to providing data from standard Chainlink Data Feeds.
3j) Developer Support:
Documentation on SVR feeds and all other Chainlink services, including Data Feeds, can be found in the Chainlink documentation webpage: Smart Value Recapture (SVR) Feeds | Chainlink Documentation. A dedicated team at Chainlink Labs on call is in contact with the relevant parties in the Compound community. Additionally, there is a dedicated SVR developer relations team available to support searcher onboarding.
Dedicated Chainlink Labs personnel can be contacted on Telegram at @CL_Raoul and @ash_cll.
3k) Real-time Metrics:
As a part of this proposal, we plan to create a near real-time dashboard that can allow the community to track SVR performance on SVR. We are happy to collaborate with the community on the specific metrics desired but the following is our initial expectations:
Dollar adjusted values
- Recapture Chance: the % chance that a dollar of liquidation bonus flows through SVR
- Recapture Rate: the % of a recaptured dollar that received as a bid via the auction
Absolute values:
- Total collateral liquidated: SUM of collateral_liquidated via SVR price updates
- Total liquidation bonus: SUM of total liquidation bonus via SVR price updates
- Total value recaptured: SUM of value_recaptured
- Number of liquidations: COUNT of liquidations triggered by SVR price updates
Metrics would be sourced and calculated based on onchain data via transaction logs and can be verified by independently calculating the same metrics using onchain data. There are third parties, such as LlamaRisk, who have set up SVR dashboards for other users, we are happy to work with third parties if desired for the creation of a dashboard.
Final Considerations
Based on Compound’s existing usage of Chainlink Data Feeds for the past four years, we believe that the battle tested Smart Value Recapture (SVR) serves as the optimal OEV recapture solution for the Compound protocol given its built on the same Decentralized Oracle Network (DON) architecture that has secured billions in DeFi. SVR is already being adopted by the Aave protocol, where it currently secures $9B+ in TVL, recapturing OEV without meaningfully changing the protocol’s risk profile. Since deployment, we have seen recapture rates increase 2x (~25% to ~50%) and we expect recapture rates to continue improving as more searchers are onboarded.
SVR is currently live on Ethereum mainnet, with plans to rapidly expand its presence onto more chains in-scope in this proposal in the coming weeks and months. Notably, SVR’s modular design allows it to support multiple established Order Flow Auction (OFAs) providers, enabling the best OFA solution to be used on each supported blockchain network. Furthermore, a future, fully custom implementation is planned to introduce further improvements, including increased decentralization, a DON-based auction system, enhanced gas efficiency, and cross-chain capabilities.
Chainlink SVR’s design is aligned with Compound’s existing ethos of permissionless, decentralization liquidation processes, helping ensure a competitive searcher market that supports the solvency of the Compound protocol by tapping into established OFA providers and their searcher networks.
We look forward to our continued collaboration with the Compound community on integrating secure oracle infrastructure, while also increasing the protocol’s revenue.
Disclaimer
Chainlink Labs’ contributions under this proposal are provided “as is” without representations, guarantees, or warranties of any kind, on a commercially feasible basis. These contributions are made expressly subject to Compound DAO having accepted, and agreeing to be bound by, the Chainlink Labs terms of service (“Labs Terms”) and the Chainlink Foundation terms of service (“Foundation Terms”). The benefits described in the proposal are provided exclusively to the Compound Protocol as a whole, and not to any other party. By approving this proposal, Compound DAO shall be deemed to have accepted the Labs Terms and Foundation Terms, each as may be amended from time to time.