Rook (ROOK) calls itself an open Maximal Extractable Value (MEV) marketplace for Ethereum (ETH). They also describe Rook as a “dedicated application-layer mempool” you can use without changing a blockchain protocol.
To elaborate, a memory pool, or mempool, is a cryptocurrency node’s mechanism for storing information on unconfirmed transactions. Essentially, a mempool is a waiting room for unverified transactions or transactions they have not included in a block.
They claim Rook creates financial infrastructure that allows decentralized (DeFi) protocols to compete with TradeFi. Hence Rook lets DeFi apps compete with automatic market makers (AMMs) and other trading mechanisms.
Maximal Extractable Value
The MEV is revenue miners can extract from users when they move transactions to build a build a block on a blockchain network. Critics call MEV, an “invisible tax,” because you have to pay it if you want a block.
Effectively, MEV is the price difference between a buy order and the price a bot sells a token to a pool at. Most MEV extraction methods use bots that buy tokens and resell them to liquidity pools.
Ethereum uses MEV to pay network miners and validators for building blocks. The Ethereum Foundation (the organization that operates Ethereum) criticizes some MEV marketplaces as unethical for diverting revenue to speculators.
The Foundation criticizes MEV because it can raise token prices. Plus, MEV bots allow speculators to raise prices.
MEV can be big business. Rook estimates bots have extracted $690 million in MEV. Plus, Rook estimates the Cumulated Extracted MEV’s Gross profit grew from $3.42 million in January 2021 to $673.73 million in January 2022.
Can Rook (ROOK) cash in on MEV?
They claim Rook (ROOK) makes MEV into a sustainable solution by fairly redistributing it at the application layer.
They claim Rook allows users to capture MEV they’re already generating on Ethereum. Additionally, they claim, Rook operates with zero gas fees, hence it costs nothing to place, cancel and route orders.
To explain, they charge gas fees to use the Ethereum Virtual Machine (EVM). The EVM is the digital computer that operates Ethereum. Without EVM access, you cannot use Ethereum.
How Rook Extracts MEV
Rook lets users capture MEV in three ways. A Trading App, a Transaction Relay, and a Smart Contract. The Transaction Relay sends transactions through the Rook RPC (Remote Procedure Call).
An RPC is a lightweight software communication protocol, which allows a program (the client), to communicate with a remote program (the server) hosted on a different network without needing details about the server’s network.
Hence, Rook can extract MEV without details of the network it extracts value from.
The basis of Rook (ROOK) is Keepers. Keepers are bots that facilitate arbitrage, liquidation, system upkeep, arbitrage, auction, and other transactions on Ethereum and similar blockchains.
Essentially, Keepers off-load risk. Moreover, Keepers battle miners for on-chain profits at the expense of DeFi users and Protocols.
The Rook Protocol lets Keepers work together to coordinate and capture on-chain profits efficiently. DeFi users, protocols, and market makers use Rook to gain a portion of the profits as a reward. Keepers use specialized on-chain contracts to hide extraction opportunities.
ROOK is an ERC-20 token that serves as the governance and utility token of the Rook Protocol and decentralized autonomous organization (DAO). xROOK is another token that lets ROOK owners stake ownership of revenues and accrue it to the Rook Protocol.
How Keepers Profit from MEV
Keepers operate by buying Rook (ROOK) and staking in a Coordinator smart contract. The Keeper uses the staked ROOK to bid on the right to execute transactions in the Rook Protocol.
Keepers watch incoming transactions and search for the most profitable ways to execute them. When a Keeper discovers an opportunity, it initiates a sub-second just-in-time auction to decide which Keeper executes the transaction. Keepers place bids with xROOK.
The Coordinator Auction Module controls the auctions and balances bids to ensure fair value. This coordinator greenlights auction winners.
What Value Does Rook (ROOK) offer?
Mr. Market thinks Rook (ROOK) has some value. CoinMarketCap ranked Rook 880th and gave it a $12.17 Coin Price on 6 March 2023.
CoinMarketCap gave Rook a $7.519 million Market Capitalization, an $18.257 million Fully Diluted Market Cap, a 24-Hour Market Volume of $31,166, a Centralized Exchange (CEX) Volume of $2,804, and a Decentralized Exchange Volume of $28,360 on 6 March 2023. They base those numbers on a Circulating Supply fo 617,636 ROOK, a Maximum supply of 1.5 million ROOK, and a Total Supply of 1.226 million ROOK.
In contrast, CoinGecko ranked Rook 977th and gave it a $12.15 Coin Price on 6 March 2023. CoinGecko gave Rook a $9.909 billion Market Cap, a $51,737 million 24-Hour Trading Volume, a $15.410 million Fully Diluted Valuation, and a Total Value Locked of $4.880 million on 6 March 2023. They base numbers on an 815,503 ROOK Circulating Supply, and a Maximum Supply of 1.268 million ROOK.
I consider Rook (ROOK) a niche product that profits off a flaw in Ethereum and other blockchains (mempools). Hence, Rook can make money as long as the flaw exists.
Obviously, if they fix the flaw, Rook loses its value. Therefore, I think smart speculators need to avoid Rook because its source of value could disappear.