Evaluating OEV Solutions for Moonwell: Community Temperature Check

Proposals Moonwell Improvement Proposal
1

Summary

The Moonwell DAO has received three innovative proposals to optimize Oracle Extracted Value (OEV) capture, presenting a unique opportunity for the protocol to enhance revenue generation. Each proposal offers a distinct approach to improving the way liquidations are handled and subsequent revenue is captured, with varying trade-offs in terms of implementation, complexity, and security.

This post outlines the three proposals submitted by Solidity Labs, RedStone, and API3 to help the Moonwell community assess the best path forward. A Snapshot temperature check vote will be held next week to gauge community sentiment on the preferred solution.

For additional insights and discussions, watch the “Great OEV Debate” replay here.

Proposal 1: Solidity Labs – Capturing OEV in the Moonwell Protocol

Overview
Solidity Labs presents an innovative onchain solution enabling Moonwell to capture 100% of Order-Flow Extractable Value (OEV) revenue from liquidation events. This groundbreaking approach introduces a trustless priority fee auction mechanism, eliminating reliance on centralized offchain infrastructure and ensuring maximum protocol revenue.

Key Benefits

  • Complete Revenue Capture
    Moonwell DAO retains all OEV income, ensuring maximum profitability and efficiency without third-party profit sharing.
  • Seamless Integration with Chainlink Oracles
    The system integrates with Chainlink’s trusted price feeds, preserving Moonwell’s high-security standards for liquidation pricing.
  • Risk-Minimized and Transparent Deployment
    Designed for security and simplicity, the solution requires minimal code modifications and has undergone extensive auditing by Halborn Security to mitigate risks.
  • Decentralization at its Core
    Fully onchain, the system adheres to Ethereum’s principles of decentralization and transparency, avoiding centralized offchain dependencies.
  • Resilient Fallback Mechanisms
    In rare scenarios where no bids are placed, liquidations will proceed as they currently do, ensuring the protocol remains secure and operational even in volatile markets.

Implementation Roadmap

  • An initial rollout will begin on the ETH Core Market on Optimism, allowing for comprehensive testing and valuable community feedback.
  • Following its success, the solution will be expanded to other networks and markets, reinforcing Moonwell’s leadership in decentralized innovation.

Conclusion
By capturing 100% of OEV revenue through a secure, trustless, and efficient system, Solidity Labs’ proposal represents a significant leap forward in revenue generation and protocol design, ensuring Moonwell stays at the forefront of DeFi advancements.

Read the full proposal: Capturing OEV in the Moonwell Protocol

Proposal 2: RedStone – Additional revenue stream for Moonwell ecosystem via OEV implementation

ZERO ADDITIONAL DELAY

When the price falls rapidly every second of delay reduces the potential OEV and may lead to bad debt. RedStone protects against that by:

  1. Reducing the auction time to 500ms

  2. Auctioning the raw off-chain price updates before they are available on-chain (when the network is congested, Chainlink feeds could be additionally delayed by 30s - 60s)

ZERO CODE MODIFICATIONS

Integration with RedStone OEV doesn’t require any code changes. RedStone fully follows the Chainlink’s interfaces.

Other OEV solutions that require code changes can expose protocols to unforeseen risks (i.e. a potentially harmless upgrade of Compound’s rewards allowed $160M worth of COMP to be stolen).

FALLBACK MECHANISMS

We designed and crash-tested the solution to work uninterrupted even if the auctioneer mechanism is down. In the worst-case scenario only the potential OEV is at risk.

FUTURE-PROOFING

RedStone OEV is fully aligned with the principles of SuperChain not polluting the network with bids, which are offloaded to a separate module. Solutions based on MEV tax are overloading the gas logic and don’t follow the recent call from Jessy Pollak (Base founder).

POSITIVE SIDE EFFECTS

Every few seconds RedStone proposes a new price update and if it could cause a liquidation, the solver will bring that update on-chain. Therefore RedStone increases the frequency of updates and reduces the deviation threshold to be virtually 0%.

CURRENT STATE

RedStone with Fastlane has already deployed the infrastructure on BASE. We have also already passed the voting for the AERO market.

Read the full proposal: Additional revenue stream for Moonwell ecosystem via OEV implementation

Proposal 3: API3 – Switch Moonwell Moonbeam’s Markets to using API3’s OEV Enabled Data Feeds

As Moonwell grows, it makes perfect sense to start to look at alternative oracle providers that are able both to provide new revenue streams, and support future protocol growth to new chains and ecosystems where existing oracle partners may not be present.

Swapping all markets on Moonbeam’s Moonwell deployment to using API3 gives Moonwell an opportunity to test API3’s OEV data feeds in a lower TVL instance. API3’s OEV feeds are already used by Compound V2 forks (like Moonwell) - Mendi, Ionic, and Orbit have been using our feeds in production for 6 months without any issues. API3 has never misreported, and has secured over $1B of TVL successfully. Additionally, Compound’s risk assessors have given API3’s data feeds their seal of approval to be used in new Compound deployments.

As well as the opportunity to recapture OEV, API3 offers Moonwell flexibility in adding new chains, and will remain committed to supporting planned new Moonwell deployments wherever needed. API3’s data feeds support Moonwell’s existing Chainlink interfaces, and requires no code changes.

Overall, voting for API3’s proposal allows Moonwell to have the value of OEV demonstrated by the only production tested OEV solution, and also allows API3 to demonstrate their suitability to support Moonwell’s long term cross-chain expansion plans.

Read the full proposal: Switch Moonwell Moonbeam's Markets to using API3’s OEV Enabled Data Feeds

Voting Options

The Moonwell DAO will vote on these proposals to determine the preferred approach for OEV implementation:

  1. Proposal 1: Solidity Labs
  2. Proposal 2: RedStone
  3. Proposal 3: API3
  4. Abstain (No preference for any proposal)
9 Likes
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Really incredible to see the community pushing to drive Moonwell protocol revenue!

4 Likes
3

Love this initiative from Moonwell! I wanted to share a recent incident on Base of MEV spam filling up almost 1000 transactions in a block, and related concerns to the proposal from Solidity Labs.

Base is increasingly experiencing congestion from MEV spam, posing a growing risk to its scalability and long-term success. The Solidity Labs proposal would contribute to worsening Base congestion during periods of market volatility, increasing costs and disrupting user experience for the entire Base ecosystem at critical times. This is due to the approach forcing all auction bids to land on-chain. The Ethereum community has consistently addressed such challenges by moving MEV auctions off-chain with solutions like MEV-Boost and the Uniswap and Metamask auctions. Adopting Redstone OEV would align Moonwell with Ethereum’s proven approach, and in contrast to the Solidity Labs proposal, would help to reduce the negative externalities of MEV on users while promoting scalability of Base. This proactive decision to integrate Redstone would enhance Base’s ecosystem and support sustainable growth.

This tweet further explains why the problem of MEV spam cannot be solved by continuing to increase the Base gas limit. MEV spam will just continuously grow in response to gas limit increases. The only true solution is for apps to implement off-chain MEV auctions.

2 Likes
4

Great to see the proposal.

How much OEV has been captured in these 6 months? What would this equate to for Moonwell?

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Agreed, imo the solution presented by RedStone is the most interesting one. For the protocol and also for the entire base eco.

2 Likes