Mike Massari - Tackling 200 MIllion Dollar Problem: OEV Design That Works and Scales

Okay, again back in the days. So basically straight on to the next panel. Um we have tackling a 200 million problem. Uh basically each year protocols uh lose hundreds of millions due to Mav poor liquidation strategy. So today with uh Mike Masari that is an engineering exe executive with over two decades of experience uh chain link right too and now uh to OV ov right can return to that value to the protocols.

So again uh big applause to Mike Masari the stage is yours you can uh talk to us. Thank you so much.

Thank you very much. Nice to see you everybody. I am Mike Masai as you know I am strategic advisor at Reston. Today we're going to talk about this tubing and problem in production. So an OEV design that actually works.

Let's start with some context. Liquidations in lending protocols. Who is familiar with them? Two people. Okay.

Fantastic. So whenever you have a position in a lending protocol that position is collateralized to a certain extent if price changes your position may become under collateralized and get liquidated. This is what happens today in every lending protocol. If you use compound morpho a oiler they're all the same. Now the problem is that when that position gets liquidated a knife fight begins and this knife fight is done by MEV bots that try to raise each other for liquidating the position before everyone else and effectively this creates a problem.

and creates multiple problems. The first one is that obviously you have no money that gets recaptured in the protocol and that's very bad. Also, you waste a lot of gas. There's a lot of transactions that get made to the chain and so the chain gets spammed with transactions, but all the risk control is also outsourced. So overall, this isn't really a system.

is just the wild west and protocols actually lose out on billions of dollars of potential revenue every year. There is a better way to do this which is called OEV which stands for Oracle extractable value and effectively switches this problem on its head with OEV. Whenever there is a price update that can trigger a liquidation, we run an off-chain auction where all the liquidators can bid for the right to liquidate a specific position. And this off-chain auction has three main advantages compared to the war that we used to have since now. First one is that there's no blind guessing.

You know exactly once the auction finishes who's going to liquidate the position. Everything is very very specific. There's no gas war anymore because people just bid in this close bid auction. And then finally you don't have duplicate transaction. They're dragging the network right down.

What we do is we get the result of this auction and then we batch it with the price update. we put it into a single atomic transaction and then we send that on chain and we capture the oracle extractable value that comes from the liquidation and we give that back to the protocol. So I'm going to take you through in the next few minutes exactly how this works and why this matters. When we created this at Redston, we sat down as we usually do as we do for every problem. We do it for RWA when we talk about our RWA feeds and and the talk that I did just minutes before, but we did it for this as well as we do it for everything.

And we decided on five things they are important and on five things they are these good traits that every OEV system should have. First one it needs to be fast. Liquidations are timesensitive matter and so we want to make sure the protocol don't slow down because this exists and we made it fast in a very simple way. We are actually batching two transactions together into one. So we are sending on chain at the same time the liquidation information and the price update.

So in the worst case scenario is just as fast as it was before and in the best case scenario is actually much faster. It needs to be easy to adopt which is crucial because I'm a developer and I'm lazy and you guys are engineers that are also lazy and at the end of the day if you can implement a new system and bring revenue to the protocol without having to do code changes without having to reodit your contracts without having to modify any sort of market. That's just a perk and it makes the adoption of this much much smoother. So the resin solution for OEV requires exactly zero code changes on the protocol side. There's nothing that needs to be changed.

Everything is seamless. We will talk about it in a bit. Third, it needs to be safe and secure with and reliable, which for me is the most important thing for everyone at Redstone is the most important thing. Oracles are a sensitive matter and the most the topmost value of an oracle is to be reliable and is to be safe. Reson didn't have any downtime since we started our oracle in production on mainet.

We wanted to keep it this way even with OEV. So no matter what happens in the auction, we want to make sure that the price gets always pushed to the chain. Then it needs to be permissionless and it needs to be open. And this is a very important thing because at the end of the day, I still like to believe that this is the reason why we're all here. We started this whole crypto thing because we didn't want to have permission system.

We didn't want to trust central entities and we wanted our OEV solution to be the same. We wanted our EV solution to be open and as permissionless as it can possibly be. And finally, it needs to be crosschain by default. So we want to make it compatible with every EVM chain. EVM is is by far in DeFi the biggest ecosystem at the moment and Redstone is on over 100 chains.

Most of them are EVM. We wanted to start with the biggest pool that we can possibly start with at the same time. very important to say that this is not just you know optional polish. These are fundamental traits that a good OEV system needs to have and we sat on either having these all of these or going back to the drawing table and start over again. So, we created an OEV system that actually ticks all of these five boxes.

And this is how it works. Very simply, there's two parts of it. There's an onchain part and there's an off-chain part. Let's say let's start with the offchain that Reston detects a price update that could trigger an liquidation on a specific position on a specific chain and on a specific protocol. At that point, we partnered with a company that is called Fast Lane, which created this amazing system called Atlas that spins up an off-chain auction in which liquidators can bid for the right to liquidate that specific position.

Step three, we create as a result of the auction bids an ordered list with all the liquidators in order from the one that liquidates the position all the way down. Then we go to the onchain part. So we batch this into one single atomic transaction and the Rstone relayer actually sends this information on chain. In the same transaction we have price update and liquidation information all together. Finally, once the information is actually on chain, there is a try catch loop and a try catch mechanism that gives obviously the first liquidator the right to liquidate the position and then if they don't liquidate it, it goes to the second and to the third and to the fourth so that we make sure that the position eventually gets liquidated.

As you can imagine, once you bid as an liquidator for liquidating a position, you made your math and your liquidation is going to be profitable. So, chances are you're going to liquidate it. But at the same time, maybe there is a problem. Maybe there is something that doesn't go according to plan. So, we go to the second one and then to the third.

In our test so far, we never got further than the third liquidator. like at the third liquidator, every single position was liquidated. Most of them were actually liquidated on the first try. And the kicker of all of this is that this old process takes maximum 300 milliseconds. Which means that if there are no bids in the auction after 300 milliseconds only we fall back to the regular price update.

So at the very very worst as I was saying before we are making the chains sorry the protocols the same speed that they always were 300 milliseconds is faster than the block time of most chains. In the best case scenario, everything happens faster because you get more information within this window of time. We run a PC for this. This doesn't just exist in theory. This is actually live today.

In December when we started this concept, we ran a PC with Venus. Uh Venus is a very very famous landing protocol. We run it on a very specific market. So just on BMBB chain just for a month just on selected price pair because we wanted to get learnings from this PC. We wanted to bring this system to a place where we were comfortable of expanding it and scaling it up in production as we're doing now.

After 30 days, there were about 19 liquidations. This was a time sometimes of quite high volatility. It was December last year, so you can remember prices were going up and down quite a bit. We captured $165,000 in liquidation volume in just a month. This is why we say this is a multi- hundreds of millions of billions of dollar problem.

and we recapture C 6.44 44 of that volume into the actual liquidation bonus with zero downtime which was interesting and you know I'm an engineer so when I run PC's I do expect stuff to go wrong I kind of want stuff to go wrong but in this particular case not much did So we sat back on the table and we were like okay fantastic this system works but we still need to understand learnings and we still need to understand how to improve it in the future and that's what we did. So we have four major takeaways from this one the system actually working out of the box. So no code changes to Venus were required. There was no downtime.

Everything was fine. good learning. It means that our foundation is solid. It means that a lot of these four things, five things that we tried to achieve, we actually did achieve right off the bat. Two, liquidators didn't need to change their infrastructure.

Fast Lane has got actually a very very good liquid bot which is open source on GitHub. You can try today. But if you are already an liquidator and you run your own liquidation bot, you don't have to change that. You just need to tell the bot instead of bidding for gas of just bidding in the auction. That's the only change that you need to make.

Then furthermore, Reston handle the sequencing, the execution, the fallback mechanism all seamlessly. Sometimes we wanted to trigger a fallback just for the sake of seeing if that worked and it did. And finally, there was real value that was captured in production safely and precisely and then redistributed to the protocol and to the users. This shows that this old system is not theoretical is actually something that is living and breathing in production. It's already providing value to a lot of people.

Integration for all of this is that simple. I'm going to tell you in the next few minutes how to integrate Reson into a protocol. So step one, you whit list as a protocol the res layer and that's all. No step two, no code changes, no changes to the markets, no changes to the contract. If you're using Reson feeds on your market, you just get OEV automatically.

This is huge because it's a big differentiator for us in the market. We want to make sure that the life of the protocol is as easy as possible. And obviously you may ask yourself and you may ask me who's benefiting from all of this, right? Who are the winners of having these OEV? You know, liquidation have been running for years.

ME bots have been running for years. Why change it? Right? And there's three main winners. And as you can see, liquidators are actually one of them.

So the first winner clearly is the protocol, right? This effectively turns a byproduct into a revenue stream for the protocol protocol. were losing on all of this revenue. It didn't exist and we are creating it for them. What this means in practice is that this improves capital efficiency so you can have better LTV so you can have better APY and therefore a better protocol and therefore also the users win because they get a more predictable liquidation.

They get less dripage. they get fewer surprises and they have a better long-term borrowing terms from the protocol themsel because they are effectively operating on more efficient markets. And finally also the liquidators win because now they get open access to the liquidation. They don't have to invest a lot of capital in gas and waste a lot of capital in gas. There is no white list, no collocation, no under the table or over the table shake of hand deal between liquidators and protocols, between liquidators and chains.

Everything is open air and open source. You can run a liquidator if you want today, which I'm sure you could not have done before because probably before it would not have been profitable for you to do so. the old system works better. It's just something that it was a problem that us in the didn't talk about for a very long time and now we're starting to talk about it and we're starting to solve it. Obviously, if this was working on just one chain, it would not make a lot of sense.

So we built it to support every EVM chain and there will be non EVM chains in the future but for now as I said we're focusing on EVM. We are live today July 2025 on Uni Chain and on BMBB and we are about to go live on Katana on Hyper Core, Hyper EVM and on base and then there will be more coming Polygon, Optimism, Arbitrum the one that you imagine it needs to be scalable. So effectively this happens within the same architecture with the same logic. So the liquidators bot actually they get also an abstraction layer so that they can liquidate through our open source liquidator bot everywhere. And more importantly in order to make this integration on our end so to go to a new chain it takes about 10 days.

So this is not a long process with a slow roll out a phase roll out. We are pushing the chain out one after the other. And the reason why we're doing it so far in a conservative manner is because we wanted the product to be perfect. Now that it is the roll out is super super fast. So B&B, uni chain and then hypercore base, katana, polygon, optimism, arbitum more more and more.

I talked about before and I want to close with a little about why this is important not only for retail investors but also for institutions. at Restston. We just published our RWA report which is more than 60 pages of details of why we believe that RWA is the future of the DeFi expansion and I would encourage you to watch the recording on my other talk about that. But how does OEV help with that? It's something that we ask ourself and it's something that I want to tell you.

Institutions as you know they are very risk adverse. They want to avoid unexpected losses. They want to make sure that whenever their money is on chain is as safe as it could possibly be. And with OEV actually can be because you are getting effectively an additional security layer on top of your investment. You get instant liquidations.

You get a plugandplay security. There's no gas war. So therefore, by having faster, more accurate liquidations, you have access to safer looping. And by having safer looping, you have a higher LTV, so a more competitive APY. So it's not only good for security, but it's also good for profit.

So we truly do believe that OEV is crucial and we truly do believe that the protocols that are going to adopt OEV the quickest are going to be the one that are going to be advantage in this big RWA institutional move that's happening in DeFi. Thank you so much for your time. It's been lovely talking to you. If you have any questions, please do reach out to me in my Twitter, MK Masari or you can follow us at resonfi. If you have any question now, I'm I'm happy to answer them.

Otherwise, thank you so much for your time. [Applause]