Gauntlet Q2 2022 Sablier Update

Proposals
1

Simple Summary

As outlined in the original Dynamic Risk Parameters proposal, update the Sablier stream at the beginning of every quarter.

Background

Gauntlet’s Risk Management platform quantifies risk, optimizes risk parameters, runs economic stress tests, and calibrates parameters as required. Our agent-based simulations are constructed analogously to how transaction-level backtesting is done in high-frequency and algorithmic trading. These types of actuarial analyses manage over $1 trillion US dollars of assets in traditional finance. By modifying these techniques to handle the idiosyncrasies of cryptocurrencies, Gauntlet’s platform provides similar statistical power in these actuarial analyses. Our Risk Dashboard provides insight into capital efficiency and the risk of insolvency and liquidations during adverse market shocks.

This past quarter, Gauntlet has delivered the following:

  • Provide four sets of parameter recommendations to manage risk and optimize capital efficiency
  • Publish a Risk Review to summarize market risk developments in Compound during the January market crash
  • Publish February Monthly Risk Review
  • Contribute to crucial community initiatives that involve market risk, including providing analysis on lowering MKR’s borrow cap, working on listing new assets, and providing a market risk analysis on TUSD

During the months preceding the January market crash, Gauntlet has mainly been increasing capital efficiency for Compound. Compound experienced no meaningful insolvencies during the downturn, even though some assets crashed by more than 50%. This is how our platform makes robust tradeoffs between risk and capital efficiency.

Specification

As outlined in the original proposal, at the start of every quarter Gauntlet will create a proposal to update the service fee payment (higher or lower) by the formula outlined in the full proposal.

The formula to calculate Gauntlet’s service fee has four components:

  1. An asset multiplier to track risk management complexity
  2. A proxy for capital efficiency
  3. A marginal base fee
  4. VWAP (Volume Weighted Average Price) of COMP

The asset multiplier calculation is log(Number of Assets, 10).

The proxy for capital efficiency is the total borrowed for risk-managed assets. Capital efficiency is realized by borrowing demand. The total borrowed amount is calculated as the 30-day average and rounded down to the nearest $1B.

Gauntlet’s risk management marginal base fee is below:

Below shows Gauntlet’s quarterly service fee denominated in COMP (table calculated at $127.47 30-Day VWAP)

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As of 03-31-2022, the 30-Day COMP VWAP is $127.47, the 30-day average borrow is $3.76B, and the number of assets on Compound is 17. With these inputs, Gauntlet’s quarterly fee for the next quarter is 7,239 COMP, representing $1.1M (using 03-31-2022 COMP pricing). This pricing is ~30% less in USD terms compared to last quarter’s pricing update, but to honor the terms of the agreement, we will be modifying our Sablier stream.

For reference, the current Sablier stream is 7,933 COMP per quarter, so we will be adjusting that downward to 7,239 COMP.

Next Steps

  • Gauntlet will publish an on-chain proposal on April 16th, 2022.
1 Like
2

$1M a quarter seems expensive

2 Likes
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As mentioned above, Gauntlet’s quarterly fee (April 2022 - June 2022) is 7,239 COMP. The current Sablier stream is 7,933 COMP per quarter. Thus, Gauntlet’s quarterly fee for this quarter is 694 COMP tokens less than the current Sablier stream.

There is no simple way to adjust a Sablier stream. One solution is to cancel the existing stream and set up a new one. This solution is not ideal and is prone to errors (stranding funds, losing funds due to rounding or grace periods, etc.).

Thus, to “adjust” our quarterly Sablier stream, Gauntlet will simply pay the protocol reserve the difference upfront. Next week, Gauntlet will send 694 COMP to the protocol. Specifically, we’ll send the COMP back to the timelock address at 0x6d903f6003cca6255d85cca4d3b5e5146dc33925 where the COMP was streamed from using Sablier in the first place. We will provide a link to the transaction after it has been executed.

Of course, Gauntlet would be sacrificing the time value of 694 COMP. However, this solution is the most straightforward and efficient for the Community, so we hope that the Community appreciates this approach.

As this will be a transaction where Gauntlet simply sends COMP tokens worth ~$100,000 USD to the protocol, we will not put up a governance vote to approve this transaction. This will save Compound voters the effort and gas costs of voting.

We will return to the Community at the end of June for our next quarterly update. At that point in time, we will update the service fee payment (higher or lower) again by the formula outlined in our original proposal.

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Gauntlet has now executed the transactions as outlined above.

To summarize, Gauntlet executed 2 transactions on 4/20/2022 to send 694 COMP tokens to the protocol.

Transaction 1 sends 4 COMP tokens to the protocol. Transaction 2 sends 690 COMP tokens to the protocol.

Transaction 1: Ethereum Transaction Hash (Txhash) Details | Etherscan
Transaction 2: Ethereum Transaction Hash (Txhash) Details | Etherscan

With these 2 transactions, Gauntlet has completed its Q1 2022 Sablier update. We will return to the Community at the end of June for our next quarterly update.