ARCHER DAO Analyzed by the Suits

TL;DR

• ARCH is a governance token in early stages of development
• Totally undervalued as people don’t understand what ARCH is doing and what it is for
• EIP-1559 is a huge catalyst for the protocol
• Miners can execute the protocol by just adding a simple line of code
• Price Target: $37 for 2023 (implying 31x from current levels)

Written by @SoyYolo3 and @Malbec_ar

Background

In order to fully understand ARCH, first we need to understand two important concepts

1) Arbitrage

It is the simultaneous purchase and sale of the same asset in different markets in order to profit from tiny differences in the asset’s listed price. It exploits short-lived variations in the price of identical or similar financial instruments in different markets or in different forms.

2) MEV (Miner Extractable Value).

In April of 2019 the MEV concept was introduced in a paper called “Flash boys 2.0”, in reference to the original Michael Lewis book. The paper mentioned “high fees paid for priority transaction ordering pose a systemic risk to consensus-layer security”. The paper also highlights “the large, complex risks created by transaction-ordering dependencies in smart contracts and the ways in which traditional forms of financial-market exploitation are adapting to and penetrating blockchain economies.”

Miner Extractable Value (MEV) is the amount of profit that a miner can make through reordering, including or excluding transactions within a block produced. Today, the the miners are who have the power since we are in a proof of work (PoW), but in the future will be stakers when we switch to proof of stake (PoS).

Source and more info:

• MEV and Me by Charlie Noyes.
• Flash Boys 2.0: Frontrunning, Transaction Reordering, and Consensus Instability in Decentralized Exchanges

What is ARCH?

ARCH is a governance token of a protocol that looks to generate additional revenues for miners/stakers.

Today, miners are the backbone of crypto. They store every Ethereum transaction into the ledger and are paid by block reward subsidies and transaction fees (as if you didn’t know that transactions pay gas…). Despite current prices, mining carries risk because revenue is variable. Ethereum block reward subsidies are subject to significant change on short notice and electricity and equipment are fixed costs usually paid in fiat.

Archer wants to give miners more certainty by boosting and diversifying revenue streams through dex arbitrage, lending liquidations and other zero-risk or risk-minimized ways to add value to mined blocks.

A miner (or a staker) in order to work with ARCH they just need to add one simple line of code:

— txpool.locals “0xa2cD5b9D50d19fDFd2F37CbaE0e880F9ce327837”

Token info

Address: 0x1f3f9d3068568f8040775be2e8c03c103c61f3af
Total Supply: 100mm
Holders: >3,400
Telegram users: >1,700
Discord users: > 1,000
Current Mkt Cap: 8.9mm / FD 112mm
More info

The different Parties

There are 2 main participants:
1) Miners: from the Ethereum network (in ETH 2.0 will be Proof of Stake validators). Through a simple code line, miners can benefit from increasing revenue.

2) Suppliers: typically bots who are looking for arbitrage opportunities. Can also be blockchain analysts looking for market dislocations / trading opportunities. They are paid by sharing the revenues (profits) with miners.

How ARCH works. Explanation of a successful transaction

ARCH Client is an important contract and you are going to see that every few seconds new transactions appear. This contract/client is in charge of routing possible transactions from the suppliers to the miners. Archer could have multiple clients this is only one.

How does it work?

1. A supplier (like a bot) identifies a possible transaction. Let’s do an arbitrage
2. This supplier sent the possible arbitrage to the ARCH client who routes it to a miner
3. If the arbitrage is still available they will execute the transaction and split the revenue between miner and supplier. The transaction appears as “OUT”. This was a successful transaction
4. If the arbitrage is not longer available, nothing happens and the transaction appears as “SELF”

Let’s go with real example. Let’s analyze one of the latest successful transactions:

From the image below you can tell that it was an arbitrage transaction between Uniswap and SushiSwap

Where our ARCH contract bought in Uniswap 706.43 SRM and sold them on SushiSwap.

Full details you can find in the next section:

Here you can see that the contract started with 2.44 WETH and ends with 2.46 WETH making a profit of 0.02 WETH (or ~$35). That small amount would not have sufficed to cover the associated gas fee for a regular user. However, since we are using MEV take a look at the total gas paid:

$0. Almost nada, nothing. Huge return Amazing right? Now imagine doing these transactions thousand times per day. The more volatility in the markets the better the arbitrage opportunities because prices move more. In fact you can see that the profits of the contracts increase when there is more volatility.

Important: ARCH can process other transactions, not only arbitrage. As you can imagine arbitrage is one of the most common that you are going to find. For example, below @banteg did a Keep3r job:

In this transaction, a miner executed a Keeper Job by placing his transaction first in the block and basically paid no gas fee which translated into a higher fee for the miner.

Could you imagine the impact of that tweet on the price? It doubled in just a few minutes as you can see below:

Team

This team is technically unique. They give anyone the opportunity to have a call with them.

The telegram group is the best way to contact them and ask questions, the team is very responsive.

Valuation of ARCH

To value ARCH we have taken two approaches: (a) sizing against total MEV market and (b) sizing against total transaction.

Some basic figures for sizing: we have discussed MEV before but it is great to put some numbers. The total revenues paid in DeFi are… staggering. Below some data from Token Terminal:

And MEV is not any less impressive in growth and size. Check this site.

On ETH transaction numbers are not less impressive. Currently ETH 1.0 supports around 30 transactions per second or 2,592k per day, and it is currently processing half of that amount.

A) Sizing the MEV
To project MEV we have based our assumptions on our projections on crypto and by assuming MEV stays flat as a percentage of how it looked during the last year.

B) Sizing through the amount of transactions
As per MEV papers discussed before we have assumed that not only MEV is 3% in size but that the transactions are also 3%. With currently ~2,250k transactions per day (54k per hour) that means that potential transactions are 1,620 though probably 10% could be done by ARCH.

Doing an average on the four valuation models we get to a price of ARCH of $37 implying a 31x return from current levels.

Lastly it is good to compare the price of this protocol to the competition (Keeper DAO) which has a value of 10x ARCH, a clear mismatch. We must say that we don’t like Keeper and we do keep away from it (please see next section).

Competition

Keeper DAO: we analyzed this project but the transactions that they are claiming to be MEV are unclear. For example in this transaction they claim they made $2k, which seems too good to be true for us and not to mention the $63 paid in gas fee.

We also reached out to Keeper holders and they could not explain how it works. If you are a Keeper investor, please reach out to us and we will certainly update this report with a full explanation on Keeper.

Potential Catalysts

• EIP-1559: will significantly reduce the fees that miners are generating. The vote for the proposal is June. Miners would have to find new ways to make more money and we believe this can cause many miners to join the ARCHER DAO
• As adoption growths, new miners and suppliers will joined the DAO encouraging new miners to join (flying wheel)
• Better marketing: if LPs could fully understand what ARCH does, it could also trigger substantial growth in users and holders
• New alliances with other projects

How/Where can you buy it?

ARCH can be purchased in Uniswap and SushiSwap (links)

Risks

The biggest risk is adoption

Disclosure

We bought/hold ARCH tokens
This is not Investment advice
ARCH didn’t pay us or ask us to write this