At this time, Compound DAO lacks the tools, structures and the dedicated resources necessary to evaluate vendor performance in a rigorous fashion, and hold them accountable. Community members, by and large, put on their best cheering hats, and make only superficial efforts to look through vendors’ deliverables closely. The concern here is that this has created a permissive environment in which vendors are not sufficiently challenged to be accountable to the community, or be diligent in vetting their work product / deliverables.
My gut sense tells me that this is an industry-wide problem across many vendors, and perhaps, across many DAOs. Because, as I see it, only a few DAOs are undertaking a systematic and thoughtful approach towards creating a scalable and sustainable DAO ecosystem (see, for example, MakerDAO’s SES initiative).
In this post, however, I will focus on examples pertaining to Gauntlet as a vendor of Compound DAO, because I have followed their work more closely relative to that of other vendors.
This post has been hard to write for several reasons. First, I truly believe that Gauntlet has some very smart people and that they also hold some unique intellectual property. Second, while I believe that they can do better in terms of accountability, their current performance is partly a result of the permissive DAO environment and culture, as I noted above. So, in writing this post, my purpose is not to engage in blame game, but to use specific examples as case studies to initiate a discussion within the community and elicit constructive change going forward.
Some examples to draw lessons from
Last November, Gauntlet’s initial Risk Dashboard was showing a counterintuitive decrease in VAR while there was an increase in Collateral Factor. While they fixed a bug after it was pointed out, a basic commonsense due diligence should’ve caught the error upfront. The dashboard also contained several typos and references to Aave, which showed that there was not much of a quality control from their side, and it looked like they were just being lackadaisical about it. See this discussion here.
As another example, they were repeatedly urged to enhance the quality of their documentation and explain certain aspects of VAR better, to make it more relatable to an average user. Specifically, certain ideas deserve a greater degree of attention: One being that VAR represents the minimum amount of loss that the protocol can incur (during tail events), not the maximum. They are yet to enhance their dashboard or Medium posts to contain these basic admonitions.
Gauntlet’s response has often been too slow or lacked accountability. (Note: At times, I was the only one interacting with their posts, so this is a personal observation). See this example. In the traditional risk management world, if a large or notable event occurs (such as the $12.8M liquidation sustained by one account cited in the post, a significant outlier compared to others), it’s very common for the report producers to make an effort to provide explanation. It would be considered an utter lack of accountability if they say to their audience “go look it up yourself”.
There are two issues here:
Unlike, say, Dune Analytics reports, the logic behind Gauntlet’s “Market Risk Monthly” reports is not publicly available. The community can’t tweak or play around with reports. If there is an error or inadvertent mistake, the community can’t catch it. We simply have to take them at their word, or verify the accuracy from scratch using block explorers.
Second, if Gauntlet truly believes that their job is done once they publish the reports at a high-level, and that they are not obligated to drill down and explain to the community members, then they need to spell-out their commitments and obligations in a great detail (something similar to vendor contracts). Then the community can make an educated decision if the compensation is commensurate with the value being delivered. Compound DAO currently pays a very significant amount of fee (about $1.9 Million/ quarter at the current rate). I would submit that Compound DAO deserves a lot more value and accountability from Gauntlet than what we see today.
Recommendations to Gauntlet
I urge them to consider enhancing their service on two fronts:
Transparency : In business, there’s an adage: “Trust but verify”. Crypto industry superbly follows this motto, by and large. All code is opensource and verifiable. Gauntlet is an exception. Their models are black box, and their reports’ logic is not accessible, and their internal quality control / assurance mechanisms are opaque. On almost all fronts, they are simply saying “trust us”, but there’s no avenue for the community to verify anything. Even if their math is accurate, there could be some unresolved bugs (see Example 1 above). Enterprise software companies, such as Oracle, have a great deal of intellectual property, but their products’ functionality and performance is verifiable. But, that’s not the case with Gauntlet. Their operating model essentially is: “Trust but not Verify”. I urge them to radically move towards the “Trust but Verify” model, even while safeguarding their intellectual property.
Without such transparency, it’s hard to judge if the community is deriving value that’s commensurate with the compensation being paid. How does anyone know if their models are correct and error-free?
Accountability: I have provided several examples above. They can take a closer look and improve the way they interact with the community.
Recommendations to the Community
Despite being an industry pioneer, Compound DAO hasn’t done much to strengthen the DAO ecosystem and make it scalable and sustainable. I urge the community to take a closer look at MakerDAO SES initiative / Core Unit structures, and start first with enhancing Compound DAO’s vendor management capability.