Tldr; Oval now lets lending protocols wrap RedStone price feeds to capture OEV during liquidation events. An Oval-enabled market that captures OEV from RedStone price updates has been deployed on Morpho as a proof-of-concept.
Key takeaways:
Oval has added support for RedStone price feeds on Ethereum mainnet.
Lending protocols can wrap prices served by RedStone to capture OEV when they expose undercollateralized positions.
Re7 Labs has launched an Oval-enabled market for Puffer’s $pufETH that pulls in RedStone prices on Morpho and other protocols can use the oracle to capture OEV now.
Oval launched on Ethereum mainnet earlier this year to break new ground in MEV capture. Oval is built to let lending protocols generate revenue by capturing a type of MEV known as Oracle Extractable Value when they make liquidations.
Protocols make liquidations when oracle price updates expose underwater positions. When Oval launched, it solely used prices provided by Chainlink. Oval would wrap Chainlink prices and funnel searchers into an auction through Flashbots’ MEV-Share.
Today we announce a significant update for Oval as the solution expands support to RedStone’s price feeds on mainnet. RedStone is one of DeFi’s most reputed oracle projects and many leading protocols like ether.fi, Venus, and Pendle rely on its price feeds every day. Now, lending protocols can use RedStone’s prices to generate revenue from reclaiming OEV.
The expansion to RedStone is one of Oval’s biggest updates since launching and it sets the stage for additional oracle support and other key developments to follow this year. We explain in more detail below.
Wrap prices served by RedStone to capture OEV
Lending protocols use liquidations to maintain their health. Whenever a borrower’s position is underwater, protocols sell their collateral at a discount to MEV searchers. Protocols rely on accurate oracle updates to expose undercollateralized positions.
Oval launched with support for Chainlink Data Feeds, wrapping price updates and running order flow auctions in Flashbots’ MEV-Share. Searchers would bid for the right to use a price and the proceeds from the winning bid would go back to the protocol.
With Oval’s latest iteration, lending protocols can also opt to use RedStone price feeds. RedStone focuses on providing prices for yield-bearing collateral assets on lending markets, most notably Liquid Restaking Tokens and Liquid Staking Tokens. It provides prices for assets like $weETH, $ezETH, $pufETH, $sUSDe, $STONE, $osETH, and more.
The process for capturing OEV is the same as it is with Chainlink: the protocol consumes RedStone price updates, and when an update exposes an underwater position, it wraps the price and runs an auction in MEV-Share.
Offering support for RedStone gives Oval users greater flexibility as they no longer have to rely on a single solution. While Chainlink is trusted across the DeFi ecosystem, giving protocols an additional option means they are not required to lock into one provider benefit from reclaiming OEV.
Capturing OEV on Morpho
Many leading protocols use RedStone prices every day. One of them is Morpho, the novel lending primitive that lets users permissionlessly launch their own markets. This feature distinguishes Morpho from competitors like Aave, where new markets can only be added through a complex governance voting process.
Morpho is also the first protocol to use Oval to capture OEV. Market managers can easily enable Oval on any given market when setting the parameters. Re7 Labs recently deployed the first Oval-enabled market on Morpho Blue, using RedStone’s $pufETH/$ETH feed (Puffer’s LRT). With the newly updated Oval, other managers can also choose between Chainlink or RedStone when opting to capture OEV.
Enabling Oval to start capturing OEV is also a simple process for other protocols, with only one contract switch required. When doing so, protocols can opt to use RedStone prices.
Oval uses destination adapters that offer compatibility with contracts for many oracles. This means protocols can safely use Oval with RedStone without re-auditing their contracts.
Oval and a healthier DeFi
Oval is easy to integrate and its latest update benefits protocols that want to reclaim OEV. MEV capture is still a novel concept in DeFi but we believe that will soon change.
Every time lending protocols make liquidations, they leak OEV to the MEV supply chain. Tens of millions of dollars get leaked to the MEV supply chain every year. In other words, OEV is of significant interest to protocols. This is why MEV capture will catch on — because it lets protocols generate revenue instead of leaking it.
With an additional revenue source, protocols can explore ways of maintaining their health and bolstering growth. On Morpho markets, for example, the OEV captured with Oval will clear bad debt and go towards boosting lending yields. Such approaches can incentivize adoption while also giving early adopters a competitive edge over solutions that do not embrace OEV capture. If a lender can get 6% on an Oval-enabled market where OEV boosts the yield or 4% elsewhere, they are incentivized to go for the 6%.
Morpho is a pioneer in MEV capture and it could inspire similar moves from other protocols in the future. We think this is good news for the protocols but it also benefits DeFi more broadly. When lending protocols are in a better place, DeFi is in a better place.
Capture OEV with Oval today
Morpho is already using Oval to capture OEV with RedStone price feeds and other protocols can also integrate the solution today. We believe that MEV capture will become ubiquitous across every major lending platform in the future and Oval is here to make it happen. To learn more about how your protocol can integrate Oval to start capturing OEV, visit oval.xyz or fill out our integrations form.
Words by @dreamsofdefi
