KeeperDAO: Tackling the MEV Challenge

Protocols such as decentralized exchanges (DEX’s) have dramatically improved the DeFi user experience. As an example, users can visit the Uniswap app, and with a couple clicks submit a transaction to swap one token for any other token on Ethereum. At this point a user patiently waits (or frantically refreshes etherscan) for transaction confirmation, but the curious user may ask themselves what’s really going on within the deeper layers of the blockchain during this time?

A DeFi app may present the user with a seemingly innocuous message, something to the effect of “Please Wait While Your Transaction is Confirmed…” but, in reality, the transaction has now entered what has been termed the “Dark Forest”, where entities seek to extract profits using various methods to exploit transactions as they helplessly wait to be included in an upcoming block.

The aforementioned entities generally are bots, often called keepers, which are configured to sniff out profit based on transactions broadcast to the network. Due to the nature of open and permissionless blockchains, anyone is free to take on the keeper role by parsing transactions and acting on detected profit opportunities. As an example, price arbitrage across exchanges present keepers with potential profits, assuming their transactions are executed as required. Blockspace is then auctioned off to both users and keepers, placing user-generated transactions in the same competitive arena as keeper transactions. This results in network congestion and pushes gas prices higher as keepers engage in bidding wars for blockspace (a specific example of this phenomena are PGA’s, or priority gas auctions).

Generally, the value that can be captured by managing which transactions make up a block and in which order is termed Miner Extractable Value (MEV), though there’s a push to rephrase MEV as Maximum Extractable Value (for a deep dive into MEV, refer to this recent Messari article). The value described here is inextricably linked to the ability to order and censor which transactions fill up any given block, thereby widening the scope to include, for example, block producers in proof of stake networks. While there has been much research focused on MEV, there still remains the pragmatic question of determining how MEV is captured and distributed across all involved parties including users of the network (which could include other protocols), keepers, and miners.

KeeperDAO aims to tackle this challenge, taking the position that MEV should be shared back with users as they are the genesis of MEV. Here we seek to further explore the mechanisms the protocol has enlisted to achieve their objective.

Combating Competitive Keepers