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KeeperDAO: Take you out of the dark forest of Ethereum | Rhythm Research Institute talks about the dark forest of Ethereum Series 2

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Users and arbitrageurs bear all the risks. No matter who wins after fighting each other, miners will always be the beneficiaries. If they want to get out of this forest alive, they can only cooperate.

Note: This article combines KeeperDAO’s original white paper and recently updated GitHub and Medium articles, and the project party may adjust the mechanism later.

There are too many arbitrage opportunities in the DeFi world, whether it is DEX cross-platform arbitrage or lending platform liquidation arbitrage.

As long as there are arbitrage opportunities, they cannot escape the eyes of arbitrageurs. These arbitrageurs are called Keepers, and arbitrageurs Before making a profit, you must first cross the dark forest of mempool (transaction pool).

This forest is managed by miners, who control the rules and even everything in this forest. In this forest, there are also various hunters (arbitrage robots) that rely on arbitrage. High-level hunters devour the prey of low-level hunters, and no matter how the hunters fight, the ultimate beneficiaries are miners. The value generated by all arbitrage opportunities is MEV (Miner-Extractable Value) miners can extract the value. Miners don't need to lift a finger, and the harder the hunters fight, the more miners get.

You are trying to disrupt an arbitrage transaction through confusion, complicating a simple transaction, trying to muddle through and let The hunter could not trace the transaction intention, and the transaction that originally only required 100,000 Gas was written as 1 million Gas. But the hunter is still able to disassemble the transaction piece by piece, and finally find out which one is the real arbitrage transaction. Even if the hunters failed to find the target arbitrage transaction, the miners got an extra 900,000 Gas.

Later, you learned to start a Gas war with the hunters, trying to get your transactions into the block and on the chain first. You give out 10Gwei, the hunter gives out 20Gwei, you give out 30Gwei, the hunter gives out 40Gwei, and finally you find that there is no room for this arbitrage opportunity, so you give up and cancel the unconfirmed transaction with 31Gwei.

You find that users and arbitrageurs bear all the risks, no matter who wins after fighting each other, miners will always are beneficiaries. If you want to get out of this forest alive, you can only cooperate.

KeeperDAO, a decentralized autonomous organization composed of users and arbitrageurs, may be able to take you out of this bloody dark forest.

Three contracts in KeeperDAO

There will be three contracts in KeeperDAO, they are: liquidity pool contract, underwriting contract and smart pool contract.

In the liquidity pool, liquidity providers will provide Keeper (arbitrageur) with enough funds to carry out On-chain arbitrage, and arbitrageurs will borrow funds in the pool in the form of flash loans, and return the principal back to the liquidity pool after the arbitrage is successful. The income from arbitrage will be deposited into the KeeperDAO community pool, and users who provide liquidity will also be rewarded with KeeperDAO’s native token ROOK. Arbitrageurs will charge a certain amount of ROOK as the arbitrageur fee (keeper_fee), and the fee parameters will be determined by the KeeperDAO community, but in the end, the ROOK income obtained by arbitrageurs in the community will definitely be higher than the income of arbitrageurs outside the community who engage in Gas Wars.

Another lucrative arbitrage opportunity is the on-chain lending market. Since all loans on the chain use the over-collateralization model, when the value of the underlying mortgage assets is too low, the liquidation of the mortgage assets will be triggered.

For example, in Compound, when the mortgage rate drops to the liquidation point due to the depreciation of the mortgage assets, the mortgage assets will be Liquidated at a discounted price, arbitrageurs buy discounted assets for arbitrage, and liquidated users will suffer discounted losses.

However, if the user uses KeeperDAO for lending, the user can authorize the arbitrageur in KeeperDAO to close the position early through the underwriting contract , so as to avoid the asset discount loss caused by liquidation. The user needs to pay the arbitrageur a part of the ROOK less than the liquidation loss as the arbitrageur's fee.

Arbitrageurs are more willing to cooperate with KeeperDAO because the fees of arbitrageurs will definitely be higher than the income of arbitrageurs after the Gas war The community cooperates instead of "playing wild" in the dark forest and fighting with other arbitrageurs.

For arbitrageurs, it is difficult to achieve 100% utilization of funds in the liquidity pool. The return rate of funds in the pool is maximized, and those funds that are not used for arbitrage by arbitrageurs will be placed in KeeperDAO's smart pool contract. The contract will allocate funds to the DeFi agreement with the highest yield, whether it is a lending agreement, an exchange agreement, or a portfolio agreement...

Arbitrage Cooperation between arbitrageurs

For arbitrageurs, the common goal among arbitrageurs is to avoid Gas War together, and cooperation is the best good choice. KeeperDAO provides arbitrageurs with the resources and order of arbitrage transactions. When arbitrageurs share resources for arbitrage in an orderly environment, the profits of arbitrageurs will be maximized. Without the Gas War, miners will not be able to obtain more MEV, and this part of the proceeds will be rewarded to all ROOK token holders in the KeeperDAO community.

As the KeeperDAO community expands and develops, the community will eventually follow:

1. The income of individual arbitrageurs who cooperate is always higher than that of individual arbitrageurs who do not cooperate.

2. The total income of all arbitrageurs who participate in cooperation is always higher than the total income of all arbitrageurs who do not participate in cooperation.

3. The relative income ratio between arbitrageurs participating in cooperation and the relative income ratio among arbitrageurs not participating in cooperation Same (to ensure fairness in the distribution of benefits).

The ranking among arbitrageurs will be determined by the amount of ROOK tokens locked by arbitrageurs. When arbitrageurs complete the arbitrage in order, they can continue to look for arbitrage opportunities on the chain for arbitrage, but they cannot compete with community arbitrageurs who have not yet completed arbitrage. This not only guarantees the rights and interests of each arbitrageur, but also helps the community discover more Many arbitrage sessions. The community can vote to kick arbitrageurs who do not follow the rules out of the community.

The performance of the arbitrageur will be calculated based on the arbitrage income contributed by the arbitrageur plus the gas consumption value under the square root. Using Gas consumption as a performance criterion can ensure that arbitrageurs will form effective competition with arbitrageurs who do not participate in cooperation, and the square root algorithm ensures that arbitrageurs can arbitrage at the lowest cost.

Finally, the performance of the arbitrageur will be compared with the amount of locked ROOK tokens of the arbitrageur. When the performance is lower than its relative pledge amount, it means that the arbitrageur did not try his best to complete the work, and he will be punished by confiscating his locked ROOK tokens, while the excellent arbitrageur who is higher than the relative pledge amount will get those confiscated ROOK tokens as award.

Incentives and Governance of the Protocol

ROOK Tokens are the core of incentives. Whether it is incentivizing users to provide liquidity support or incentivizing arbitrageurs to participate in community arbitrage, all activities in the community are related to ROOK tokens.

For the KeeperDAO community, governance is extremely critical, because all arbitrage proceeds will be put into the community pool , while the community pool will be managed by the KeeperDAO community (ROOK token holders). ROOK token holders will have the right to control the use of these funds through voting. In the future, the community can use this fund for later research and construction to help the later development of the community. Of course, if the vote is passed, the community can distribute the proceeds from the fund pool To ROOK token holders.

The ROOK token holder also has control over the KeeperDAO contract parameters. As mentioned above, the token holder Arbitrageur fee parameters can be voted on, along with other parameters.

ROOK token details

ROOK token The initial supply of coins is 1,000,000 pieces, and all initial coins are not locked and will all enter the circulation state. However, after the normal operation of the protocol, ROOK tokens will be issued additionally, and all additional issuance parameters will be determined by community voting.

< p line="mffm">Of the initial 1,000,000 tokens, 21% will be reserved for the team and advisory group, 20% will be used for ecological incentives (liquidity mining and arbitrage mining), and 30% will be used for For future ecological incentives, 2% will be rewarded to early liquidity providers, 5% will be used for the cold start of ROOK token liquidity, 10% will be reserved for partners, and 12% will be reserved for early investors.

The initial ROOK tokens will be distributed to the community through liquidity mining and arbitrage mining, as described above, The mining contract will contain 200,000 ROOK tokens, of which 60,000 are used for liquidity mining and 140,000 are used for arbitrage mining.

Liquidity mining rewards will be distributed in proportion to the amount of liquid pledges provided by users. Liquidity mining will provide the choice of five currencies including ETH, WETH, USDC, renBTC and DAI. The rate of return of each currency mining pool will be different. For details, please refer to https://app.keeperdao.com.

In order to encourage arbitrageurs to participate in the agreement at an early stage, KeeperDAO also started arbitrage mining. The rewards for arbitrage mining will be distributed according to the proportion of arbitrage profits contributed by arbitrageurs.

KeeperDAO will also use the deposit fee (Deposite Fee) mechanism to increase the stickiness of liquidity to the protocol and resist high-frequency deposits In and out behavior. The user will be charged a deposit fee of 0.64% when staking, and the user will receive less liquidity tokens (kToken, which is our common LP token) of the corresponding value, and this deposit fee will be delivered to the previous pledge user hands.

Something else about KeeperDAO

KeeperDAO is powered by Talo, a distributed system development agency, and Amber Group, a digital asset management platform, jointly built it. The CEO of Talo is also the founder of Ren Protocol. On July 31 this year, KeeperDAO completed a seed round of investment involving Polychain Capital and Three Arrows Capital.