A new oracle system aims to recoup additional fees paid by decentralized application (DApp) users to miners, called maximum extractable value (MEV). It is the maximum value that a miner can extract from moving transactions when producing a block on a blockchain network.
The MEV can be defined as the maximum value that can be extracted from block production above the standard block reward and gas fees. The MEV includes, among others, arbitration and settlement fees, which can be in the millions and are often extracted by block producers.
A new oracle system called Oracle Extractable Value (OEV) promises to change that and return the extra revenue to the DApp instead of third parties and block producers. Decentralized oracle service provider API3 has come up with the OEV concept that promises to offer an additional revenue stream for decentralized finance (DeFi) protocols.
The traditional way to mine MEV is by participating in block slot auctions, which were often run by third parties and block producers, but OEV-enabled oracles take the auctions off-chain and auction the right to mine value on-chain. to the same third-party search engines that used to bid for block space.
Speaking about how OEV oracles work and how it would help the DeFi ecosystem, Burak Benligiray, head of the API3 core technical team, told Cointelegraph:
“OEV auctions will occur off-chain, which means that even when a lot of value is extracted, gas prices will not be affected. Also, proceeds from block space auctions are claimed by block validators, while OEV revenue can be redirected to the dApps that create it.”
Flashbot data suggests that block producers have captured nearly $653 million worth of MEV. Flashbots is a centralized entity dedicated to the transparent and efficient mining of MEV.
OEV-enabled data feeds then pass the proceeds of these auctions back to the DApps that generate the value in the first place. OEV-enabled data feeds not only help retrieve the MEV, but also minimize it by accurately updating it when needed, achieving a zero deviation threshold.
OEV oracle services are available on numerous Ethereum Virtual Machine (EVM) compatible networks, including Ethereum, Polygon, Arbitrum, Optimism, BNB Chain, Avalanche, Milkomeda, Fantom and many more.
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