📔Oracle Extractable Value (OEV)
Introduction
BBOX is the first perpetual DEX that captures Oracle Extractable Value in the liquidation process through an innovative auction mechanism that capitalizes on the inherent latency in oracle price updates.
What is OEV
Oracle Extracted Value (OEV) is a concept that represents value-extracting opportunities arising from the latency inherent in oracle price updates. These opportunities can be found in many DeFi settings that rely on timely and accurate oracle price feeds.
Let's explore an illustrative scenario to understand the impact of OEV on a perp DEX. Imagine a situation where:
the actual market price of ETH/USD momentarily spikes to 2010 and then reverts back to 2000.
meanwhile, due to the latency in the oracle system, the price feed that the perp DEX uses for margin ratio calculation remains stale at 2000.
as a result, vaults that should have been liquidated when the price hit 2010 never get liquidated.
This situation reflects a significant missed liquidation opportunity that could lead to potential losses for the protocol.
OEV Auction in BBOX
We are the first perpetual DEX that harnesses Oracle Extractable Value in the liquidation process through an innovative auction mechanism that capitalizes on the inherent latency in oracle price updates, improving price efficiency and creating a unique revenue stream.
Workflow
Auction Initiation and Bidding: Liquidators constantly monitor the prices and status of the vaults. When they detect a potential liquidation event, they initiate an OEV auction by creating a meta-transaction that includes the liquidation details and their bid. The auction service receives the meta-transaction and initiates the auction. Bidders submit their bids along with meta-transactions that include the liquidation details.
Winning Bid Selection: The auction service assesses the bids and selects the winning bid according to pre-defined rules. OEV auctions in our perp DEX system utilize a high-frequency sealed-bid auction mechanism, where bidders submit their offers without any visibility into the bids of others. The secrecy of all bids is maintained until the auction concludes, at which point the highest bid is declared the winner.
Price Update and Liquidation Execution: The auction service uses the winning bidder's meta-transaction to request the price update from the oracle and execute the liquidation on their behalf. The smart contract verifies the meta-transaction, updates the oracle price, performs the liquidation, and credits the liquidation rewards to the winning bidder's address.
Auction Reward Distribution: The fee from the winning bid is collected and potentially distributed to LPs and/or the protocol itself.
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