Becoming a Backd Keeper
Keepers are an integral part of Backd’s reactive liquidity. A keeper is an off-chain bot that monitors registered Action positions and reports eligible Actions to the Backd smart contract. The Backd smart contract handles users’ funds and executes Actions when needed. Keepers collect a percent of the generated protocol fee every time they report an eligible Action. In addition to this, keepers are also distributed Backd governance tokens in proportion to the amount of Actions they have executed.
An open source Backd keeper implementation can be found here. Any individual can deploy this provided version, modify it, or create their own.
Liquidity providers (LPs) on Backd can register Actions to their Backd LP tokens. An Action is a set of market triggers that automatically delegates user liquidity to where it is needed. Liquidity that is registered to an Action continues to earn yield until an Action is triggered. The first Action that Backd will support is collateral top-ups. The following breaks down exactly how top-ups work along with the advantages of becoming a Backd keeper.
Refer to the docs for extensive information on Actions
Action 001: Collateral top-ups💜
Becoming a Backd keeper can be a very lucrative venture for several reasons. Before we break down exactly what makes running a keeper bot so attractive, it is important to understand DeFi liquidations. When a liquidation occurs a liquidator repays the debt of an under collateralized or risky loan. In exchange for this the liquidator is rewarded a portion of the loan’s collateral at a discount. This discount is referred to as the liquidation bonus for liquidators and the liquidation penalty for borrowers. For example, if a liquidator repays $50,000 worth of debt that has a 5% liquidation bonus they would be rewarded with $52,500 of collateral or $2,500 in profit. Although, some protocols do allow manual liquidations, this process is almost always automated through bots.
As protocols for loanable funds (PLFs) have increased in total value locked, so has the total value of liquidations. The above graphs display the cumulative bought collateral for Aave and Compound (the two largest PLFs). When collateral is bought it signifies that a liquidation has occurred. Between Aave and Compound around $905 million in cumulative liquidations have occurred at the time of this writing.
Over this period the competition among liquidators has also become fierce. Operating a profitable liquidation bot successfully is unachievable for the majority of individuals. It is also important to consider that these liquidations occurred during a time of market emergence. PLFs are a very new type of financial instrument and the cryptocurrency market is still very volatile. This lead to many new PLF users not fully understanding how PLFs work which most likely caused an abnormal number of liquidations. As liquidators and PLF users become more sophisticated, profit for liquidators could possibly decline. Additionally, collateral top-up activity could have an inverse affect on the total profit collected by liquidators.
Keepers vs liquidators🤼♂️
One of the key advantages that keepers have over liquidators is that their transaction happens first. Every time a keeper executes a collateral top-up they are effectively front running the liquidator by preventing the outstanding loan from reaching the liquidation threshold. Also, individuals will most likely have greater success completing transactions running a keeper bot than a liquidation bot. This is simply due to their being far less competition between keepers than liquidators.
It is worth noting that while liquidators take from borrowers, keepers serve them. Both play an important role in the market. However, running a Backd keeper bot allows individuals to help their fellow DeFi investors and the Backd community as a whole. When a keeper helps execute a top-up they are generating profit for themselves and the rest of the Backd protocol.
Due to this, a percent of the total Backd governance token supply is distributed to keepers on a weekly basis to provide additional compensation for their service. Placing Backd governance tokens in the hands of keepers also ensures fair protocol governance and empowers protocol expansion. Being on the front line of reactive liquidity, keepers will have a strong outlook on optimal areas for protocol expansion (new Actions and integrations). Of which, will ultimately be controlled through governance via the Backd DAO.