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Designing for Fair Oracle Extractable Value: A Theoretical Framework and Empirical Findings from DeFi

In: Mathematical Research for Blockchain Economy

Author

Listed:
  • Nikolaos Andreoulis

    (Chainlink Labs)

  • Marco Di Maggio

    (Imperial College Business School)

  • Louis-Henri Merino

    (École Polytechnique Fédérale de Lausanne)

  • Kyle Montag

    (Chainlink Labs)

  • James Ward

    (Chainlink Labs)

Abstract

This paper studies Oracle Extractable Value (OEV) as a distinct channel of rent and risk in decentralized finance (DeFi). Using granular data on liquidations from Aave V2 and V3 across Ethereum and major rollups (2023–2025), we document that OEV is large, heavy-tailed, and increasingly captured by vertically integrated builder–searcher coalitions, especially during periods of market stress. We then introduce a stylized model of Oracle Update Rebate Window (OURW), an oracle mechanism that seeks to redirect a portion of liquidation profits to protocols. The model establishes conditions under which censorship is unprofitable and shows how refund rates, fallback windows, and builder competition interact to deter attacks. A case study of Aave illustrates how these dynamics manifest empirically. Together, our analysis integrates descriptive evidence and mechanism design to provide practical guidance: with moderate parameters and sufficient builder diversity, OURW-style mechanisms can safely recover value while preserving liveness.

Suggested Citation

  • Nikolaos Andreoulis & Marco Di Maggio & Louis-Henri Merino & Kyle Montag & James Ward, 2026. "Designing for Fair Oracle Extractable Value: A Theoretical Framework and Empirical Findings from DeFi," Lecture Notes in Operations Research, in: Stefanos Leonardos & Amir K. Goharshady & William Knottenbelt & Panos Pardalos (ed.), Mathematical Research for Blockchain Economy, pages 48-62, Springer.
    • Handle: RePEc:spr:lnopch:978-3-032-13377-9_3
    DOI: 10.1007/978-3-032-13377-9_3
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