We’re excited to announce the mainnet release of KeeperDAO. KeeperDAO is a protocol that economically incentivizes pooled participation in keeper strategies which manage liquidations, rebalances and arbitrage on DeFi applications spanning trading, exchange, and lending.
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The growth of DeFi applications brings increased dependence on arbitrageurs and liquidators to ensure orderly liquidations, provide liquidity backstop, and facilitate good market health. However, until now, this has been an opaque market with multiple challenges faced by traders:
Opportunity cost of capital. Market participants need to have funds set aside in order to capture opportunities when they arise, and large liquidation opportunities are capital intensive in nature. Without a predictable and consistent liquidity pool to draw upon, the DeFi space is subject to gap risk, such as on March 12th.
High entry barrier. Maintaining infrastructure to continuously scan and execute liquidation and arbitrage transactions are operationally and financially costly, making it hard for the average investor to partake in these activities.
Gas costs. Executing profitable trades are mainly dependent on bidding up transaction fees in order to obtain priority queuing for the next Ethereum block (Priority Gas Auctions, ‘PGAs’). Large sums of money are spent in PGAs in order to win trades, increasing costs and reducing profit for all. Before today, keepers have been locked in a “race to the bottom” for profits.
KeeperDAO presents a new way to solve these problems. At the heart of KeeperDAO is a communal liquidity pool. Anyone can borrow from the pool to leverage on-chain opportunities (eg. liquidating a position in Compound, taking over a Maker CDP, rebalancing a SET basket, or taking advantage of arbitrage between Kyber and Uniswap). Profits from the on-chain opportunity are guaranteed to be returned to the pool (through a mechanism similar to flash loans). In this way, the KeeperDAO Liquidity Pool acts as an insurance fund for DeFi.
There are significant economic advantages to joining the keeper liquidity pool.
Shared Capital and Profit. By utilizing the liquidity pool, keepers are able to capture opportunities that are larger than what they could capture individually.
Reduced Competition. The second function of the liquidity pool is to reduce competition in PGAs. Consider two uncooperative keepers that are trying to capture the same on-chain opportunity. Profits are not shared, so the keepers will participate in PGAs that ultimately minimize their profit. By pooling capital, profits are shared proportionally, and the keepers no longer have to engage in gas wars that will consume their profit.
In order to align the incentives for the 2 stakeholders in the KeeperDAO system (keepers and LPs), we aim to introduce a native governance token. The token will allow token-holders to propose and vote on all protocol upgrades, as well as administering the profit share between LPs and keepers, alongside new system proposals.
We will be releasing more information on this over the forthcoming weeks; stay tuned for more!
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