UMA launches OEV-resistant tool Oval to reduce protocol losses caused by oracle downtime.

The blockchain infrastructure project UMA announced today the launch of the Oracle Extractable Value (OEV) tool - Oval, which integrates with Flashbots' MEV-Share auction market, providing a new way for protocols that require oracle price feeds to protect their own interests. Source

What Is Oracle Extractable Value (OEV)

There Are Additional Costs to Oracle Feeds

The protection mechanism for Miner Extractable Value (MEV) in the blockchain industry has gradually matured, with various projects and teams entering the space, including Flashbots, CoW Swap, as well as projects related to privacy transactions, intent-based design, among others, attempting to solve this issue.

Not only is there a risk of value being stolen when waiting for node-ordered transactions, but there is also a similar issue when protocols call on oracles and wait for price information. This type of value theft is referred to as Oracle Extractable Value (OEV).

DeFi protocols such as Compound or Aave, especially during liquidation periods, can generate OEV. When the oracle issues updated information, such as price feeds updates, if the on-chain protocol relies on the latest prices, there may be a brief window before the price update where traders can exploit this information to steal OEV before the protocol reacts.

Chainlink price updates may overflow a significant amount of value outside of nodes, especially when price updates trigger liquidations, a large portion of risk-free profit will be transformed into OEV, ultimately being taken by third parties.

Lack of Infrastructure to Protect OEV

Currently, the industry lacks a universal mechanism to capture OEV, so most of the value ultimately flows back to block builders and validators rather than returning to the protocols and users.

Introduction to Oval

To address the above issues, the UMA blockchain infrastructure project team has created the anti-OEV tool Oval, which integrates protocols into the project structure.

Oval Operating Structure

Oval serves as an anti-OEV layer between Chainlink and on-chain protocols, encapsulating Chainlink data feeds and using Flashbots' MEV-Share tool for auctioning off liquidation rights, allowing the protocol to reclaim 90% of the value that would have been stolen as OEV.

Through the MEV-Share auction mechanism, Oval allows searchers to compete to provide the latest oracle information, obtaining the most accurate and fast prices through competition. As the prices obtained are fast and accurate, the protocol can operate swiftly, returning the value to the protocol rather than the block builders.

This structure's trust assumptions consist of three components:

• Oval node: This node is a server that receives searcher quotes and transmits information, ensuring its normal operation, currently operated officially via Uma's whitelist.
• Flashbots MEV-Share: Oval relies on this system to operate normally.
• Builders comply with MEV-Share rules: Since MEV-Share is just a third-party market with no binding force, but usually builders will adhere to the rules for long-term cooperation unless there are significant benefits.

Why Oval Chooses MEV-Share

• No need to reinvent the wheel: Building a high-speed order flow auction system typically requires a centralized component to facilitate connectivity between participants. Oval can leverage the existing Flashbots framework to limit the need for trust assumptions, which has already been tested and trusted by the community.
• Existing ecosystem: Searchers have already integrated with the Flashbots ecosystem, allowing the use of familiar auction infrastructure and APIs, instead of a new system or API integration.
• Strategic partnership: UMA can become a core component of the Flashbots ecosystem, enhancing UMA's influence by placing Oval near Flashbots. In the future, Oval will be part of Suave.

How to Handle Price Delay Risks

Adding an additional layer of components may increase the risk of delays. To address this issue, Oval's design aims to have Chainlink price feeds and auctions completed within the same block as much as possible to ensure that the protocol receives updated prices in a timely manner without any delay compared to the past. Of course, the trade-off is centralization.

However, in the event of network congestion, there may be delays in different blocks. If it exceeds three blocks, the protocol can directly read data from Chainlink to ensure that the protocol continues to operate smoothly.