Oval Launches to Revolutionize Oracle Data Usage in DeFi Protocols
UMA, an Ethereum-based oracle protocol, has announced the launch of its latest product, Oval. This innovative tool aims to optimize the utilization of oracle data by decentralized finance (DeFi) protocols such as Aave and Compound. Oval introduces a new concept called Oracle Extractable Value (OEV) to address a subset of Maximal Extractable Value (MEV).
Understanding Oracle Extractable Value (OEV)
MEV refers to the profits that miners, validators, or searchers can make by manipulating the order of transactions in a blockchain block. Oval focuses on OEV, which specifically relates to the use of oracle data. For example, miners or validators can front-run a large trade by prioritizing their own transaction, leading to higher fees and potential network congestion for other users.
Reapportioning Profits to DeFi Protocols
Oval aims to redistribute the value obtained through OEV back to the originating applications in the DeFi ecosystem. Currently, external parties such as block builders, validators, and searchers capture a significant portion of this value. Oval introduces an auction mechanism where searchers can bid for the right to use Chainlink’s price data. The proceeds from these auctions will be shared among Aave, Uma, and Chainlink, promoting a more equitable distribution of profits.
Mandatory Adoption for Major Protocols
While the transition to Oval may impact the revenue streams of block builders and validators, it is necessary for major protocols like Aave to integrate this new system. This will ensure a fairer distribution of profits within the DeFi ecosystem. UMA claims that Oval can allow a protocol to capture up to 90% of the OEV it creates. According to Uma co-founder Hart Lambur, protocols like Aave and Compound are losing millions of dollars in MEV each year.
Hot Take: UMA’s Oval Enhances Efficiency and Fairness in DeFi
UMA’s newest product, Oval, revolutionizes how DeFi protocols manage and utilize oracle-based MEV. By introducing OEV and facilitating an auction mechanism, Oval strives to create a more equitable distribution of profits within the DeFi ecosystem. This tool addresses the challenges of front-running and overpayment by major protocols while optimizing the use of oracle data. With the mandatory adoption of Oval by protocols like Aave, there is potential for an enhanced efficiency and fairness in Ethereum’s blockchain profits. This development showcases UMA’s commitment to driving innovation and disrupting the DeFi landscape.
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