Go Bitcoin go! With all the great news rolling out after the Microstrategy conference late last week. Bitcoin has been on an absolute tear with the extra Tesla news announced earlier this week. I mean, who can focus on altcoins at a time like this? Me, that’s who… So get ready for this week’s deep dive into a new arbitraging opportunity called KeeperDAO.
Introduction
KeeperDAO is a game-theory protocol designed to capture the greatest possible on-chain profit via arbitrage, liquidation, or other methods. KeeperDAO is built to operate with three game-theory principles in mind; Hiding, Coordination, and Incentives. These three processes are the foundation of KeeperDAO and dictate all actions within its ecosystem. For a long time now Miner Extractable Value (MEV), has been a hotbed for bad actors to destroy the ability to operate on the Ethereum network in a fair manner. With open ledger technology, there’s nothing left to the imagination. This allows miners to exploit the network’s ledger and form attacks like front-running, tailgating, sandwiching, exploiting gas and other generic predator plays. At their disposal are advanced weapons, able to trace every transaction, every internal contract call, and every instruction. These miners can discover which parts of any transaction are extracting profit, copy those exact parts and interject themselves between you and the Ethereum network. This happens by exploiting knowledge from Ethereum transactions that have been broadcasted to the network but are still waiting to be mined into a block. Known as the Mempool, transactions will either be mined into a block, replaced by another transaction, or completely dropped by the network. While I’m certain most of you have already encountered hang-ups or failed transactions when GWEI fees suddenly jump. What we’re discussing is less of an unhappy accident and more of intentional exploitation by miners. KeeperDAO refers to this as “The Dark Forest” and is a pretty spot on euphemism for how this shady side of the Ethereum network operates. Subsequently, the solution to this presented by KeeperDAO is to enact a process that thwarts these attempts to game this system. Accomplished by enabling users and entities called “Keepers” to wrap transactions with smart contracts, effectively blocking any extractable knowledge that can be used by miners against the transaction initiator and removing their opportunity for MEV.
The first game-theory that enables the operation of KeeperDAO is known as “The Hiding Game”. This refers to the cooperation between users and keepers to “hide” MEV by wrapping trades/debt in specialized on-chain contracts. Users instead route their trades and loans through KeeperDAO, which attempts to extract any arbitrage or liquidation profit available. Those profits are then returned back to the user in ROOK tokens, and profits go into a pool controlled by ROOK holders. By giving KeeperDAO priority access to arbitrage and liquidations, The Hiding Game maximises the possible profits available from these opportunities. It is also good for Ethereum because it reduces the risk that miners would compromise transaction ordering (or create deep block reorganizations) to extract profit for themselves. The rewards can additionally be altered by governance so that the value loss to keepers via inflation, is less than…
Hi! My name is Lark Davis!
I’m a cryptocurrency investor with years of experience and I’ve been making consistent profits in the crypto space.
I’m passionate about helping others do the same, so I run multiple educational channels on crypto investing.
