Gauntlet Quarterly ContributorCompSpeed Update

Simple Summary

  1. Provide a retrospective of Gauntlet’s partnership with Compound in Q4 2021
  2. As outlined in the original proposal, update the ContributorCompSpeed at the beginning of every quarter

Retrospective of Gauntlet <> Compound Partnership

Over the past several months, Gauntlet has been executing on its Dynamic Risk Parameters engagement. In just a quarter, Gauntlet has delivered the following:

  • Launched the Compound Risk Dashboard to help the community understand Gauntlet’s methodology and risk in the Compound protocol
  • Implemented 5 sets of parameter recommendations to manage risk and optimize capital efficiency
  • As a result of Gauntlet’s parameter recommendations, Gauntlet has safely unlocked $832.5M of additional borrow, leading to $33.8M additional borrow interest paid and leading to $2.54M increase in annual income to the Compound protocol (assuming elasticity of borrow with collateral factor increases), all while maintaining protocol risk at safe levels
  • Published 2 Monthly Risk Reviews to keep the community informed of market risk pertaining to Compound


Assumes elasticity of borrow in relation with collateral factor increases.

Dollars shown in $USD millions. Gauntlet quarterly fee calculated using current COMP price.

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) in accordance with 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 shown below:

Below shows Gauntlet’s quarterly service fee denominated in COMP (table calculated at $221.14 30-Day VWAP)

Currently (as of 12-27-2021), the 30-Day VWAP is $221.14, the 30-day average borrow is $7.31B, and the number of assets on Compound is 16. With these inputs, Gauntlet’s quarterly fee for the next quarter is 8,168 COMP tokens. We plan on making an on-chain proposal next week. At that point in time, we will also update the pricing inputs so that the proposal is fresh. We want to provide the community ample time to respond with any questions or comments.

Next Steps

  • Gauntlet will post an on-chain proposal next week for vote

Gauntlet Ongoing Developments

A substantial growth driver for Compound is supporting more assets to enable an increasingly diverse ecosystem. Importantly, Gauntlet will help safely onboard new assets onto the Compound protocol. As new assets launch on the protocol, Gauntlet will dynamically adjust parameters to drive safe, sustainable growth for Compound.

In early January, Gauntlet will publish a reserve factor recommendation methodology, which will drive even more impact to the protocol. This methodology will incorporate several important considerations including the tradeoffs between covering insolvencies and promoting protocol growth.

In addition, Gauntlet is thinking of ways to streamline the parameter recommendation process so that Gauntlet’s risk management product can be delivered more dynamically, as the current governance process requires around one week to implement risk parameter changes. We look forward to returning to the Community with more defined solutions and would welcome all thoughts and feedback.

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Following up here - we will be publishing this on-chain governance proposal on Monday, January 17th. As a reminder, there is a 2-day time lock, so voting will begin Wednesday, January 19th.

We value the Community’s feedback to migrate our COMP streams over to Sablier, found in this forum post. As such, our governance proposal will cancel Gauntlet’s existing COMP stream and replace it with a Sablier stream.

As mentioned above, we are updating the pricing inputs. The 30-Day VWAP is currently $208.71, the 30-day average borrow is $6.43B, and the number of assets on Compound is 16. With these inputs, Gauntlet’s quarterly fee for the next quarter is 7,933 COMP tokens. This is below the fee payment stated originally in this post (which was 8,168 COMP tokens).

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@pauljlei thanks for the nice summary of what Gauntlet has delivered for Compound last quarter.

In my view, Gauntlet has done a good job of keeping the community posted with Risk Parameter Updates and inner working of initiatives such as Reserve Factor Methodology.

Having said the above, there is room for considerable improvement in making the Dashboard a lot more intuitive (as I indicated in other posts too). Additionally, forum posts are not good enough documentation in several respects.

Risk Management in traditional organizations is a rigorous process consisting of several key documents:

a) Business Requirements: What are the key requirements to manage risks and the rationale for each such requirement. Gauntlet’s Market Risk Assessment is a nice overview document, but it is not specific and tailored as a Business (in this case DAO) Requirements Document.

b) Functional Requirements: This document elaborates on each business requirement. Even if computations themselves are black box, the details on inputs, outputs, parameters and precise definition (and math formula where applicable) of those term should be clearly laid out.

c) Requirements Traceability Matrix: A trace of functional requirements to business requirements.

d) Technical Design: Since Gauntlet is offering a black box methodology, this can be at a high-level.

e) A project plan / timeline of forthcoming deliverables: This is important so that the community knows what you guys are working on and can anticipate. It’s nice that you delivered a Reserve Factor Methodology, but it came out of the blue and seemed random. If you can also provide a list of all the initiatives that you are working on along with progress / timeline (essentially a project plan) on a monthly basis that would be fabulous.

I urge you to consider delivering and maintaining similar documents (as listed above) for Compound, and, in the meanwhile, provide the community with a timeline for accomplishing them.

There is no question that Compound is paying a very large sum of money each quarter to Gauntlet. It will all feel tangible and worthwhile if an average Compound user can intuitively understand Gauntlet’s methodology, and can optionally dive in deeper seamlessly. In this respect, I urge you to think of yourselves not just as Risk Services provider, but also as Risk Education provider. That would be of true value to the community.

4 Likes

Proposal 82 has been posted and seems to act as expected.

It creates a new stream to Gauntlet that will start at 1/26/22 8am and go until 9/27/22 8am. This is 244 days or ~2.674 quarters. Using 7,933 COMP per quarter, the total amount streamed should be 2.674*7,933 = 21,212.8 ≈ 21,213. The proposal correctly specifies the total stream amount as 21,213 COMP.

The proposal also cancels the existing COMP stream to Gauntlet.

4 Likes

Thanks @RogerS - we are making several developments to provide more clarity to users, including a split out between insolvencies and liquidations on our Dashboard. For business requirements and functional requirements, we are working on pushing out more content on our methodology (e.g. defining terms on the dashboard) but you can find information on our original engagement doc. In addition to the changes visible to users, we are internally making significant investments in our platform, for example adding intra-day DEX price updates, incorporating Uni-v3 into our liquidity models, and last quarter really focusing on launching the initial dashboard (which launched Nov 21, 2021). We value our position as a trusted steward of risk for Compound and are working to provide more education on risk to the community through our initiatives including the ones outlined above.