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DeFi Deep Dive #3: KeeperDAO
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DeFi Deep Dive #3: KeeperDAO

A Weekly Series Profiling Protocols Featured on DeFi Llama

DefiLlama
Apr 5, 2021
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DeFi Deep Dive #3: KeeperDAO
defillama.substack.com

🦙 DeFi Llama tracks over a hundred protocols. How well do you know them all? Each week our staff of llamas perform a deep dive on one of the protocols🦙


While many people in DeFi are busy playing tic-tac-toe, the team at KeeperDAO are clearly playing chess — as evidenced by their $ROOK token, overall chessboard theme, and protocol designed around game theory.

KeeperDAO describes itself as both a “proxy volatility fund, providing backstop liquidity for on-chain lending and synthetic asset protocols” and a “virtual mempool enabling DeFi users and keepers to coordinate, capture, and distribute profit.”

Sounds complicated, but it’s easiest to imagine it as profit sharing for arbitrageurs. Arbitrage opportunities often exist, but are difficult for a single user to exploit efficiently. KeeperDAO incentivizes the individual user (aka a “Keeper”) to capture this profit opportunity on-chain, take incentive, and distribute the remaining value to the community.

The team has set up a variety of mechanisms to promote this behavior. At a simple level, for example, a Keeper can request a flashloan from the KeeperDAO Liquidity Pool to attack the arbitrage opportunity. The mechanisms for how this works are a work in progress, with its evolution is guided towards incentivizing collaboration and returning value back to the DAO.

KeeperDAO is releasing three “games” to exemplify their model. The first, launched in February, is the “Hiding Game.”

Twitter avatar for @Keeper_DAOKeeperDAO @Keeper_DAO
The Hiding Game is the first of three games we are building, and refers to the cooperation between users and keepers to “hide” MEV by wrapping trades/debt in specialised on-chain contracts. These contracts restrict profit extracting opportunities to KeeperDAO itself.

November 21st 2020

10 Retweets82 Likes

In describing the Hiding Game, KeeperDAO diagnoses current attempts at capturing arbitrage as lose-lose opportunities. Slippage and gas wars can often times erase the value of any potential arbitrage. The Hiding Game aims to turn this into a win-win by submitting the trade to KeeperDAO, which analyzes the transaction to see if there is a profit opportunity by frontrunning or tailgating the transaction and avoid expensive gas fights.

Twitter avatar for @Keeper_DAOKeeperDAO @Keeper_DAO
1) Miners are capturing the majority of value that arise from on-chain arbitrage. In the past, this MEV has mostly been accruing to them via gas wars. Going forward, we will be seeing miners extract that profit directly.
Image

March 20th 2021

69 Retweets263 Likes

The money on the table is mostly extracted by miners. The Hiding Game aims to rebalance these profits to all participants, essentially “hiding” this sum from miners

.

The Hiding Game is already up and running, with the game proving popular enough that much of the KeeperDAO resources are going to integrating new paths and strategies. The team is also planning to release a Coordination Game and an Incentive Game in the future, all of which should theoretically increase the value of their $ROOK token, currently trading near $400.

Crowdsourcing intelligent trading strategies seems to have worked at least to some degree. The KeeperDAO has already run over $5B in flashloan volume since their launch in November 2020

Twitter avatar for @eliasimosElias Simos @eliasimos
@Keeper_DAO has done almost 5B USD in flash loan volume since v2 launched in November 2020. F I V E B I L L I O N This is a big number. For reference, @AaveAave’s lifetime flashloan volume stands at 2B.

March 21st 2021

63 Retweets384 Likes

We see KeeperDAO as something like a weaponized think tank. Instead of pumping out policy papers like a classic think tank, the big brains are pitted against each other in a friendly competition. The biggest brain wins the most, but everybody involved takes money home.

If you want to profit as big brains duke it out, KeeperDAO may be a good place to look. Check out their wiki, their blog, or their contracts to learn more.


Would you like us to profile any of the protocols listed on DeFi Llama? Send us a note in the comments!

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DeFi Deep Dive #3: KeeperDAO
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