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On-chain DCA Bot

Goals

A noncustodial mechanism to DCA any ERC20 to another ERC20.

Requirements

  1. The fund should always sit in a ledger ( $EOA_1$ ).
  2. $EOA_1$ signs one (maximum) transcation at the beginning and nothing in between.
  3. $EOA_1$'s fund cannot be touched by other $EOA$.

High level design

Smart Contract

One smart contract ($SC$) that can execute only one function swap().

function swap() {
    require(block.timestap >= lastSwapTimestap + interval) // check if the interval between swaps have been reached.
    ERC20_1.transferFrom(from = Ledger, dst = SC, amt = n); //transfer ERC20_1 from ledger to SC
    Uniswap.swap(); // swap ERC20_1 to ERC20_2, and send to ledger.
}

Automation

I will store the key pair for $EOA_2$ on the cloud server. I will use $EOA_2$ to call the swap() function in $SC$.

I will also deposit some ETH into $EOA_2$ for gas.

A js script would automate this with ethers.js.

Cost Analysis

Cost can be split into two categories: LP fee and gas cost.

LP fee is easy to calculate. $300*0.05% = $0.15.

Gas cost consists of one ERC20 transferFrom, one Uniswap swap, and one ETH transfer.

Action Gas Cost
ERC20 transferFrom 50,000 gas
Uniswap swap 150,000 gas
ETH transfer 2,300 gas
Total 202,300 gas

Currently, mainnet gas cost is around 10 gwei, if we execute this swap on an L2, which costs around 1/20 of mainnet. It would be 0.5 gwei per gas. If we assume ETH is $1200, total cost would be"

202,300 * 0.5 * 1200 / 1000000000 = $0.12138

Total onchain DCA cost = 0.15 + 0.121 = $0.271 % of amount transacted = 0.271 / 300 = 0.090333%

On Binance, a DCA bot would cost 0.2% in comparison.

MEV Considerations

Most DCA amounts are small; therefore, it is not cost-effective do any kinds of MEV on top of these swaps.

If the swap amount is large, then one workaround is adding a modifier to the swap() function, so that only $EOA_2$, which sits in my cloud server, can call the swap function. I will relay the transaction through Flashbot-RPC.

Future Directions

Generalized keepers

If we can build some economic incentive into swap(), so that msg.sender can earn a piece of pie. This would replace the cloud server with individual keepers. This mechanism is similar to liquidators and other automated workers that currently lives on Ethereum. See examples: Sommelier, Gelato, Gamma.