Understand ArcherDAO in Three Minutes: An MEV Solution Benefiting Both Arbitrageurs and Miners

Written by: First Class Cabin

With the large-scale application innovation of DeFi businesses on the Ethereum application layer, block space has begun to be filled with complex transaction logic. The transparency and openness of block space and the unconfirmed transaction pool bring new opportunities and challenges to participants in the price discovery process, and MEV is a product of this characteristic.

MEV often appears in the form of high gas fees and arbitrage profits obtained by miners, so it is also commonly referred to as miner extractable value. It mainly occurs in the areas of arbitrage trading and liquidation within the DeFi sector.

The emergence of MEV is not necessarily a negative impact, but when arbitrageurs or bots chase MEV, due to Ethereum's PGA trading mechanism (miners prioritize packing transactions with high gas), a large amount of gas fees flows to miners to complete front-running transactions, which also causes network congestion and high gas prices, thus negatively affecting the Ethereum ecosystem.

Currently, there are two solutions to the negative impact of MEV: one is to allow arbitrageurs and miners to cooperate to avoid malicious competition among arbitrageurs; the other is to hide arbitrage opportunities, placing transactions in a black box and providing tips (additional profits) to allow miners to selectively package them.

ArcherDAO is a network protocol that enables direct cooperation between arbitrageurs and miners. It adopts a solution different from PGA, optimizing the interests of arbitrageurs and miners, and avoiding wasted gas fees for achieving arbitrage. Currently, its launched ArcherSwap is a solution that differs from other DEXs and is more aligned with the future development of Ethereum.

Basic Introduction

Team

The core team officially displayed consists of 3 members. The project leader and operations leader previously worked at The Stars Group, a gambling entertainment company, while the technical leader has certain experience in data analysis and related development fields. Overall, the team's strength in blockchain technology experience is not extensive.

Funding

On October 6, 2020, seed round investment was completed by Ascensive Assets, with an unknown amount. At the same time, ArcherDAO sold 11 million ARCH tokens at a price of 1.3 million USD during its ICO (with an average price of 0.13 USD per token).

Business Mechanism

There are 2 roles in ArcherDAO:

Supplier: Discovers high-value (arbitrage opportunity) transactions on-chain, which are then sent to miners by ArcherDAO for priority execution.

Miner: ArcherDAO will prioritize sending high-value transactions to miners participating in ArcherDAO, and after the miner packages the transaction, they can share the additional profits obtained from that transaction with the Supplier.

In the operation of ArcherDAO, the Supplier acts like a miner of arbitrage and liquidation opportunities, discovering various potential profit opportunities everywhere. Once a possible opportunity is found, it is sent to ArcherDAO, which routes it to miners for priority packaging. When the arbitrage is successfully completed, the profits from the arbitrage will be distributed proportionally between the Supplier and the miner.

This part of the operation is aimed at the B-end, namely the Supplier and miners, and is not specifically displayed on the official website. Currently, the C-end application is ArcherSwap, with the interface as follows:

ArcherSwap Interface

The functionality provided by ArcherSwap allows DEX users to trade with 0 slippage and 0 cancellation fees. The 0 slippage mechanism avoids sandwich attacks, meaning transactions will only be executed when successful, thus preventing price fluctuations from causing transaction failures and incurring large fees.

At the same time, the application scenario of ArcherSwap is: if there is an arbitrage opportunity during trading, for example, a large transaction causes the price of a certain token on Uniswap to rise temporarily, the Supplier will arbitrage this opportunity.

By moving from Sushiswap and allowing miners to prioritize packaging these two transactions, after completing the arbitrage, a portion of the profits will be returned to users as compensation. Behind all this operation is completed by Archer Relay. Archer Relay can accept, coordinate, and route all transactions, coordinating signed transactions to various projects, users, and miners.

Economic Model

The total supply of ARCH tokens in ArcherDAO is 100 million, with the specific distribution plan as follows:

ARCH Token Distribution

ArcherDAO is a self-governing community, and ARCH currently has no specific application scenarios within the ArcherDAO ecosystem, serving only as a governance token for the community. Among them:

• Staking more than 20,000 ARCH allows proposing new proposals to ArcherDAO;
• Staking more than 10,000 ARCH allows participation in a private Discord group;
• Staking ARCH allows voting on proposals made to ArcherDAO.

Through self-governing ARCH proposals and voting, the ecosystem and procedures of ArcherDAO may continue to expand and improve.

The release of ARCH is as follows:

Token Unlocking

The current circulating supply of ARCH is 10,072,761 tokens, with a circulating market value of 21.73 million USD. It is expected that by July 1, 2021, the circulating supply will be 25,572,761 tokens, with a market value of 54.98 million USD at a price of 2.15 USD. By December 31, 2021, the circulating supply will be 41,072,761 tokens, with a market value of 88.31 million USD at a price of 2.15 USD.

Comprehensive Evaluation

1) ArcherDAO adopts a method different from PGA, allowing Suppliers and miners to cooperate directly, optimizing the interests of all parties in MEV. It avoids the waste of profits caused by competition among arbitrageurs, while miners can also obtain corresponding MEV profits.

2) Compared to its competitor KeeperDAO, which uses a whitelisting form of hiding order book, i.e., hiding arbitrage transactions, allowing traders and arbitrage bots to be on the same side, thus avoiding high fees incurred by arbitrage bots for front-running transactions. However, KeeperDAO has not changed the mechanism where arbitrage bots need to perform PGA in the mempool (transaction pool). Although there is a whitelist, miners will choose transactions to package based on the size of the tip, and arbitrage opportunities are time-sensitive. To complete transactions quickly, arbitrageurs still need a high tip to incentivize miners to package.

3) Both ArcherDAO and KeeperDAO essentially address the negative issues of MEV, but in different ways. KeeperDAO currently lacks liquidity and effectiveness because only miners on the whitelist can package transactions. It can increase collaboration with other projects in the future to alleviate this issue. In contrast, ArcherDAO's direct cooperation between Suppliers and miners is more efficient, potentially allowing for higher achievable MEV.

4) MEV is a supplement to the DeFi sector and is not an adverse development for Ethereum. Currently, KeeperDAO is relatively leading in market value and business, occupying a first-mover advantage. ArcherDAO is just getting started, and how the two evolve in the future will depend more on the project's implementation and the control of DAO governance.