KeeperDAO: An On-chain Liquidator, Re-balancer and Arbitrage-seizing & High-frequency Trading DAO for the DeFi Ecosystem
KeeperDAO: An On-chain Liquidator, Re-balancer and Arbitrage-seizing & High-frequency Trading DAO for the DeFi Ecosystem

By rhyzom | rhyzom | 8 Feb 2020


That's a really interesting concept I just came across in a Medium post by Taiyang Zhang (better known for his Ren project). Posted late December last year, so fairly recent. What he's proposing is a DeFi-oriented DAO where participants pool their capital and resources together (assets, tokens, etc., same how you contribute them in liquidity pools and loan reserves across DeFi protocols and apps) and program the DAO to actively monitor what happens across the various lending protocols and exchanges and margin trading services, etc. (like Compound liquidation tracking data, Uniswap liquidity pools, Maker CDPs and their health, etc.) and to efficiently manage and take advantage of liquidations, re-balances across DeFi protocols and apps, rapidly seize arbitrage opportunities as they arise, etc. Thus, both collectively making profits (which may sometimes not be possible for individuals alone) and making sure decentralized finance applications remain liquid, orderly and healthy.

At the same time, any capital that lays underutilized in the DAO itself is also loaned out to Compound, Uniswap, etc. continuously generating profits. KeeperDAO is said to be maintained by a network of off-chain bots who constantly monitor the Ethereum mempool for opportunities and whenever picking up on such, initiating an Ethereum transaction for participating in a Priority Gas Auction (PGA), competitively bidding up transaction fees so as to get ahead of the ordering of transactions in the blocks (obtaining earlier block position and execution). When KeeperDAO wins a PGA, funds are re-balanced through an on-chain re-balancer network. That pretty much changes the dynamics of that side of the market in important ways.

Also, being able to make use of a large liquidity pool at any time makes it possible to capture sizable opportunities that could be quite larger than what any individual alone could handle. Thus likely making KeeperDAO the main operating liquidator agency in the DeFi ecosystem which also really lowers the technical barrier to entry while distributing and allocating profits from operations in proportion to the participating DAO members' contributions. 

The concept is said to have been inspired by the paper "Flash Boys 2.0: Front-running, Transaction Re-ordering, and Consensus Instability in Decentralized Exchanges" that had been submitted in April of 2019 by Ari Juels, Xueyuah Zhao, Steven Goldfeder, Iddo Bentov and others. The paper examines and investigates the phenomena of how controversial techniques and approaches characteristic to the traditional finance world (high-frequency trading and algorithmic automation bots, etc.) have entered the cryptosphere and the kinds of risks they pose. KeeperDAO is meant to resolve the competitive nature of it all by integrating and utilizing the same technologies and methods within a single highly efficient cooperative DAO.

"In this work, we explain that DEX design flaws threaten underlying blockchain security. We study a community of arbitrage bots that has arisen to exploit DEX flaws. We show that these bots exhibit many similar market-exploiting behaviors — frontrunning, aggressive latency optimization, etc.— common on Wall Street, as revealed in the popular Michael Lewis expose´ Flash Boys. We explore the DEX design flaws that spawned arbitrage bots, measure and model these bots’ behavior, and illuminate systemic smart-contract ecosystem risks implied by our observations."

     (from the above mentioned paper)

And lastly, I must say that Taiyang Zhang strikes me as quite the innovative dude in the originality of his ideas. Not sure how many of you are familiar with Ren and the Ren VM (previously known as the Republic Protocol IIRC)...

Here's the official web site (of KeeperDAO), but there's not much there right now.

And the Twitter account.


rhyzom
rhyzom

Verum ipsum factum. Chaotic neutral.


rhyzom
rhyzom

Ad hoc heuristics for approaching complex systems and the "unknown unknowns". Techne & episteme. Verum ipsum factum. In the words of Archimedes: "Give me a lever and a place to rest it... or I shall kill a hostage every hour." Rants, share-worthy pieces and occasional insights and revelations.

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