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Glossary
Below you will find definitions of specialized terms relevant to the KeeperDAO and MEV Ecosystems.

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Arbitrage

Arbitrage refers to the simultaneous buying and selling of tokens in different markets in order to take advantage of price discrepancies of that asset.
Example: Bob is an arbitrageur. Bob notices that the price for 1 Ether is $4000 on Uniswap and $3990 on Sushiswap. Bob correctly identifies that there’s an opportunity to make $10 profit per coin by buying Ether on Sushiswap and selling it on Uniswap.
On-chain arbitrage opportunities such as these start a competition game between arbitrage bots, leading to Priority Gas Auctions. This causes, amongst other things, higher gas fees and network congestion. The Coordination Game fixes this problem by disincentivizing arbitrage bots to compete with each other in these gas wars. Instead, they'll cooperate to collectively earn more profit.

DAO

A Decentralized Autonomous Organization (DAO) is an organization represented by a software protocol and governed by the members of the organization instead of a centralized entity (like a corporation). It is a new framework of organizing human collaboration, powered by a blockchain.
KeeperDAO will be gradually switching to a DAO governance structure, wherein ROOK will function as the governance token.

Game Theory

Game theory is the process of modeling the strategic interaction between two or more players in a situation containing set rules and outcomes. The current Ethereum blockchain isn't game theory optimized, because miner and bot greed aren’t disincentivized, resulting in bad behavior that externalizes itself as high gas fees, bidding wars, slippage, network congestion and slower transactions.
To combat this, KeeperDAO has designed a game theory optimized protocol that incentivizes network participants to cooperate with each other on-chain, as well as disincentivizing bad actors in the network. By changing the incentives we’re changing the game, for the benefit of the broader Ethereum ecosystem and all its participants.

Grim Trigger

A grim trigger is essentially a trading technique where one party pushes the trade all the way to breakeven or even beyond. For example, in the context of on-chain arbitrage, when one keeper pushes the gas bidding war to such a price that no one will be able to profit anymore from a certain on-chain profit opportunity, we call that a grim trigger. Example: On Uniswap 1 Eth costs $4000, but on Sushiswap 1 Eth costs $3900. This constitutes a $100 profit opportunity. If one of the arbitrageurs is willing to spent $100 or more on gas fees to capture that profit, they just grim triggered the on-chain profit opportunity because they've made it a losing trade for every profit seeker involved (except or the miner who collects all the gas fees). For KeeperDAO, grim triggers are one strategy to disincentivize bad actors (e.g. a keeper) from participating in Priority Gas Auctions (see below for an explanation) that drive up gas prices and causes network congestion. KeeperDAO wants to incentivize Keepers to work together in its trading pool, instead of competing with each other or with other trading pools on-chain. When anyone tries to frontrun the protocol, KeeperDAO can instantly overbid and kill the MEV so that the profit opportunity instantly disappears and the bad actors are left with a loss (the cost of their gas fees). KeeperDAO's philosophy is very simple: Either the MEV gets shared fairly among all the network participants, or there wont be any MEV at all.
This creates the dynamic where Keepers or miners are never incentivized to try to beat KeeperDAO, but instead are incentivized to cooperate with other Keepers inside KeeperDAO's trading pol and acts as a unified entity to take turns and share the on-chain profits.

Keepers

Keepers are bots that look for arbitrage, liquidation, and other opportunities on generalized platform blockchains. They are a complicated stakeholder and in fact have their own page:

Liquidation

Liquidation refers to the selling of a position for cash or cash equivalents (such as stablecoins). When the underlying collateral behind a loan gets too low, a liquidation gets triggered: the assets which someone used as collateral will get auctioned off to the highest bidder, resulting in a loss for the user: their position gets liquidated because their underlying asset gets sold for cash.

Liquidity Underwriter

An underwriter is a financial institution (or in the case of DeFI, a protocol) that takes on risk in exchange for potential profit.
KeeperDAO is a liquidity underwriter, meaning that it provides liquidity to Keepers in exchange for a share of the profit. When one of KeeperDAO's Keepers spots an MEV opportunity on-chain, it can use the liquidity in the trading pools to extract the MEV. In return for the provided liquidity the keeper shares the MEV profits with KeeperDAO (and indirectly with the other Keepers, other protocols, the users, the Liquidity Providers and in the future potentially also with ROOK holders).

MEV

Miner Extractable Value (MEV) is the on-chain profit that can be captured by miners or Keepers on the Ethereum blockchain, and it is a cause of high gas fees, failed transactions, slippage and network congestion.
The MEV problem exists because while most of Ethereum’s current Proof of Work (POW) protocol is very decentralized, it has one structural weakness: miner block centralization. The mining of a block is centralized as each block is mined by a single miner.
This single miner has complete control over the ordering of transactions within that single block. They can insert their own transactions, rearrange those of users, or even censor them completely.
Because the main purpose of miners is to maximize yield (profit), miners typically choose the transactions with the highest gas fees. They are able to do so because the Mempool (the memory database in which all the pending transactions are stored) is publicly visible and thus able to be exploited. And because miners are able to prioritize transactions with higher gas fees, a bidding war between bots (who either try to arbitrage or frontrun) can occur. This hurts ordinary users and DeFi platforms, because these bidding wars drive gas fees and cause slippage and failed transactions. MEV poses risks not only to the user but also the consensus layer itself. The reorganisation of blocks, the reordering of transactions, and — even momentarily — the censorship of transactions can have profound impacts on the blockchain, and breaks the assumptions of many applications. This is where KeeperDAO comes in. By hiding the MEV, KeeperDAO incentivizes Keepers and miners to coordinate instead of compete. This results in a more equal on-chain profit distribution, benefitting all participants involved. The end result is lower gas fees, faster transactions and less slippage on trades for Ethereum users.

Mempool

A mempool is a waiting queue for pending transactions that have not been added to a block.
For example, when an Ethereum node receives a transaction, it communicates the information to peer nodes. Until a miner approves the transaction and adds it in a new block, the transaction is stored in a waiting area along with other pending transactions. This is called a mempool or a txpool.

Network Participants

Network participants are all the actors involved in on-chain transactions: users (ex. a trader), liquidity providers, DeFi protocols (e.g. a DEX), miners and Keepers.

NFT

NFT stands for non-fungible tokens. Tokens such as ROOK and USDC are fungible because the token owned by one user is indistinguishable from the token owned by another - they have the same intrinsic value. This is not the case for NFT. Each NFT is unique and therefore can be used to represent ownership over digital or physical assets.

Priority Gas Auctions

Priority Gas Auctions (PGA) happen when multiple Keepers discover an on-chain profit opportunity, like in the case of a price imbalance between two DEXs or an unhealthy position on a lending protocol. This is a zero sum game, as only one keeper will walk away with the on-chain profit.
To capture the profit the Keepers compete with each other. The keeper that gets their transaction to appear before the other transactions wins. Generally speaking, the mechanism to do so is through paying a higher gas fee because that improves the odds of their transactions being picked up by a miner as fast as possible. The result is a bidding war between Keepers, with each raising their gas prices higher and higher in the hopes of outbidding their competition.
The driving up of these gas prices results in most of the available on-chain profit actually being taken up by the gas fees themselves. This competitive bidding process is what we call PGA, because priority is being auctioned off for gas.
Last modified 1mo ago