Introducing kCompound

Introducing kCompound

kCompound will go live in early May.

In February, KeeperDAO launched the Hiding Game: a unique system that allows users and keepers to cooperatively hide and re-distribute MEV when using the Ethereum network.

The first phase of the Hiding Game introduced a virtual mempool called the Hiding Book that allows KeeperDAO to provide the most advanced limit orders in DeFi. KeeperDAO limit orders cost zero gas, have minimal slippage, are protected from frontrunning and sandwich attacks, and yield users ROOK rewards when their trade is executed.

Today, we’re introducing the second phase of the Hiding Game, a new kind of DeFi borrowing experience called kCompound.

Hiding in Plain Sight

kCompound is a wrapper for the Compound lending platform that lets users deposit collateral and borrow assets as they normally would. However, kCompound loans are constantly monitored and protected by the KeeperDAO Just-In-Time Underwriter (JITU), which helps protect borrowers from liquidation.

Here’s how it works: if a loan opened through kCompound falls below the health threshold, KeeperDAO’s JITU will spring into action, automatically putting up additional collateral as a buffer to keep your position solvent. During this time, if the health of the loan recovers, or you add more of your own collateral, the JITU can withdraw the provided buffer, and you just avoided a costly liquidation.

On the other hand, if the health of your loan continues to fall after the JITU has intervened, liquidation will begin. But your position won’t be hunted on the open market. In fact, outside of the Hiding Game, your loan will appear to be in perfect health, “hiding in plain sight,” thanks to the buffer provided by the JITU. Instead, a KeeperDAO keeper will get to work finding the best price for your collateral, targeting a 5% profit margin (equal to Compound’s liquidation incentive). This profit will then be split between you, the keeper, and the KeeperDAO treasury, meaning that kCompound borrowers actually receive a portion of the profits from their own liquidation!

JITU’s interaction with kCompound positions

Introducing JITU: the Just-in-Time Underwriter

Let’s talk a little more about the Just-In-Time Underwriter itself, and how it accesses the funds used to underwrite kCompound loans. JITU is the next evolution of the KeeperDAO liquidity pool, combining the current flash lending functionality with new methods for safe underwriting. This gives keepers one-stop access to liquidity and distributes rewards back to liquidity providers.

JITU is designed so that funds used to underwrite a kCompound position are protected regardless of what happens to the underlying loan. Funds will remain 100% safe for up to two liquidations of the same collateral, even if liquidation were done by an external keeper. Along with flash lending, this continues our focus on protecting liquidity providers’ funds while allowing them to be deployed by keepers in active strategies.

JITU is a standalone contract that plugs into the kCompound system, or any other lending platform we decide to support in the future. We’re looking forward to iterating on JITU and developing new ways for liquidity providers to earn yield while providing vital resources for our keepers.

The kCompound NFT

By leveraging KeeperDAO’s Hiding Game and JITU, kCompound provides a premium experience for DeFi borrowers. But we wanted to improve not only how DeFi borrowing is executed, but also how it is packaged. kCompound is, in fact, a first-of-its-kind instrument that encapsulates an entire Compound position in an NFT, the ERC-721 compatible kCompound token.

Interactions with kCompound

We designed kCompound as an NFT because, despite its many innovations, DeFi borrowing can still be cumbersome. For instance, when using the native Compound protocol, it’s impossible to have multiple positions be isolated from each other but tied to the same Ethereum address. As another example, simply moving a Compound position between addresses requires the use of a smart contract and a flash loan, since cTokens can only be transferred if all the loans are cleared.

By contrast, when you mint a kCompound NFT, you get a unique contract that can be transferred between different Ethereum addresses and easily composed with other DeFi protocols. No matter where it goes, or how it’s used, the positions inside the NFT will be protected by KeeperDAO’s JITU and Hiding Game, giving kCompound owners the safest and most composable borrowing experience in DeFi.

The forest is dark, but the future is bright.