General-purpose blockchains, like Ethereum, unlock truly limitless potential for individuals throughout the world. They function in a way where a sequence of transactions is written into irreversible blocks with no central authority. But just as Web 3 offers great power, it also brings great temptation for nefarious actors.
On Ethereum, there is what is known as a Memory Pool, which is a locale that stores pending transactions. These transactions are in a queue, waiting to be written into permanence inside a block. However, unlike Bitcoin transactions, which simply transfer value, the order of these transactions matter - a lot. By observing these pending transactions, bots can identify ways they could potentially profit by performing certain actions before or after others. As it turns out, there is huge financial opportunity via sequencing the order of transactions in a certain way.
For everyday users, these blockchains should be a pleasant experience - but instead these users have to endure a confusing, difficult, and frustrating ecosystem. They have to carefully tiptoe a Dark Forest.
There are countless ways bots exploit the publicity of pending transactions. For instance, a bot may observe the blockchain and see that a user,
0xa , is intending to purchase an asset and is willing to incur up to 2% of slippage on the price. The bot may then purchase the asset before
0xa, pushing the price up to
0xa's maximum price. Then the bot can immediately, in the same block, sell after
0xa. While this is profitable for the bot, this is a terrible experience for
The problem becomes even more troubling. When multiple Keeper bots identify the above scenario, they typically have to compete for the opportunity. This is done through Priority Gas Auctions (PGAs), where they bid against one another for the opportunity. The result is the price of gas is raised and nearly all of the opportunity ends up being captured by miners.
This is the nature of generalized usage - when a financial event occurs, it often creates opportunity and there is a race to take advantage. These opportunities are referred to as Miner Extractable Value; this dynamic creates an ecosystem where users of generalized blockchains can be financially exploited. The Keepers who find opportunities hand off most of their profits to miners. But, it is possible to turn these opportunities into a mutually beneficial experience for users and Keepers. This can be done if we replace competition with collaboration.
KeeperDAO utilizes game theory to rework these inefficiencies into benefits for those creating the opportunities in the first place. Shaped by an ethos of mutual collaboration of users and Keepers, this problem is being turned on its head. In the darkness of the Dark Forest, a light shines.
KeeperDAO is a decentralised and coordinated Keeper commonwealth making the Ethereum network more egalitarian, profitable, and secure for all the actors involved. Keepers are bots that observe Ethereum, and other general-purpose blockchains, to facilitate all sorts of transactions, such as arbitrage, liquidations, system upkeep, and auctions. Keepers have quickly become necessary actors in the Ethereum ecosystem as risk off-loaders. The introduction of these actors has created a complex situation, as they were never accounted for in Ethereum’s incentive structure. Currently, Keepers compete with each other in a zero-sum game, and, as a result, Ethereum has transformed into a highly adversarial environment where Keepers and miners fight to claim on-chain profits at the expense of DeFi users and protocols.
Inside the KeeperDAO walls, however, Keepers no longer compete with each other - instead, they work together to coordinate and capture the on-chain profits efficiently. DeFi users, protocols, and market makers can bring their activity to KeeperDAO and gain a portion of the profit as a reward. By using specialized on-chain contracts to hide the profit extracting opportunities, KeeperDAO realigns the incentives of network actors to encourage coordination instead of competition. The goal here is to strike the best benefit for all.
If you are a developer looking to advance your bots and protocols, here are the necessary steps to integrate KeeperDAO's stack into your own projects.
If you are here to learn about the nuanced world of MEV and how KeeperDAO turns it into a positive part of decentralized ecosystems, you'll find educational reading below.
The Hiding Game is a gasless limit order system that sources liquidity from all means supported by KeeperDAO Keepers.
If a user's order creates a MEV opportunity, the user will be rewarded with a share of the MEV profits in the form of ROOK.
The Hiding Vault is a generalized liquidation-mitigating lending and borrowing NFT product. The first platform supported by Hiding Vaults is Compound Finance. Using a Hiding Vault mitigates both the risks and impacts of the liquidation of users using Compound Finance.
If a user's position is liquidated, the user will be reimbursed with a share of the liquidation profits in the form of ROOK.
KeeperDAO offers five single-asset Liquidity Pools (LP) that yield ROOK tokens: ETH, WETH, USDC, renBTC, and DAI. By depositing assets in the LP, users earn ROOK rewards based on the number of ROOK rewards allocated to the pool each quarter. Users will also earn fees in the form of the corresponding pool asset paid by subsequent depositing liquidity providers and liquidity-utilizing keepers.
The rest of the documentation will guide you through the mechanisms at work within KeeperDAO, describing the role and incentives of various actors. We hope these documents help you understand where you fit in within the KeeperDAO ecosystem.