What Is OEV On The SEDA Network?

SEDA
3 min readFeb 6, 2024

SEDA is leading Web3 in redirecting Oracle Extractable Value back to network participants and data consumers.

OEV (Oracle Extractable Value) continues to be at the forefront of Web3 conversations. Traditionally in Web3, value extracted from oracle feed updates has leaked into the hands of chain operators and searchers, leading to inefficiencies and ‘gas-wars’ on any given blockchain. SEDA, having built the second largest oracle, Flux, is set to integrate game-changing OEV mechanics to redirect value back into the hands of network participants. SEDA is creating a fair value exchange for data providers while mitigating unnecessary network congestion and burnt value via ‘gas-wars’.

SEDA leads Web3 fair distribution of Oracle Extractable Value.

What is OEV (Oracle Extractable Value)?

Oracle Extractable Value (OEV) refers to the value extraction opportunity that is present whenever a data feed provides an update to a blockchain. When the blockchain receives an update, a state change occurs. The moments before the state change is finalized on the blockchain, ‘searchers’ can use the benefits of a data update, such as a change in a token’s price, to insert their transaction before the state of the blockchain is updated.

An Example of OEV

As an example of OEV, let’s imagine that a centralized oracle provides updates for a DeFi protocol. Parties participating with this DeFi protocol may stand to be liquidated if their financial position is undercollateralized. During the liquidation event, the oracle operator that triggers the liquidation will receive a fee from the network for undertaking the liquidation. So a searcher can scan for incoming updates and look for opportunities to insert their transactions before price updates.

Having access to this information gives them an early advantage. This type of behavior is known as front-running, (where a transaction is inserted before an update) or back-running, (where a transaction is inserted after an update). In the case of liquidation, searches will look for back-running opportunities.

Using this information, the oracle operator can advantageously layer transactions to execute user liquidations before other operators. The fees earned for triggering liquidation are the OEV in this case.

Value Leaks Associated With Current OEV Practices.

Putting a value on the data that oracles supply to destination networks has historically been challenging. As a result, oracles have adopted business models from web2. Value continues to be leaked to L1 validators as they need to be bribed to have a searcher transaction included, after the oracle update.

Whenever an oracle update results in an opportunity, a ‘gas-war’ commences from other network participants, known as ‘searchers’, who monitor the chain to spot current or imminent opportunities for value extraction. This gas war results from searchers bidding to be the first transaction to be executed after an oracle state change to extract the newly created value.

Since searchers don’t have guaranteed execution, the gas war results in searchers, who sometimes don’t even get to execute their strategies, burning significant amounts of gas on the native destination network. This war means that a ton of value leaks as burned gas for failed transactions, and the destination network experiences unnecessary load.

How Does SEDA Create Fair Distribution of OEV?

Historically in Web3, the Data Providers have received less value for the data they provide to oracles. SEDA removes the middle-man between provider and consumer allowing for lower costs and removing value extraction opportunities for third parties. This results in higher levels of value in the hands of the delivery service provider and away from all network participants.

SEDA presents an opportunity to establish an additional revenue stream for not just Data Providers but also Validators and other participants within the network. The right to bundle transactions containing oracle updates on the SEDA network is auctioned off. Searchers (those seeking OEV opportunities), can bid for the guarantee to have their transaction first after the oracle update is live. The value received via a transaction bundle auction is then redistributed to data consumers and network participants such as validators, data providers, and the SEDA Network.

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SEDA is a modular data layer that allows any blockchain to configure & interact with custom data feeds for price data, RPC data, or any available API endpoint.