Why to NOT HIRE Gauntlet Crypto in 2025

Proposals
1

The renewal of Gauntlet as a risk provider and incentive distributor is coming up and need to make the community aware of key issues. Over the past 18 months, I have worked directly with and engaged Gauntlet privately on multiple occasions to align on profitability targets and parameter changes with Compound’s best interest in mind.

TL;DR;

Recommendation: Do not rehire Gauntlet under the current model. Instead, run an open RFP with a 90-day dual-track pilot (2 providers) and adopt profit-linked SLAs.

4 Main Reasons on Why Another Vendor:

  1. Economic underperformance: negative net protocol profit after incentives in core markets, antiquated incentive distribution techniques, a fee structure not linked to outcomes.

  2. Conflicts of interest: Gauntlet is simultaneously a major Morpho curator and has received sizable MORPHO token grants tied to vault growth directly aligning them with a Compound competitor. (Morpho, Morpho Governance Forum)

  3. Operational gaps: no formal SLAs for parameter updates or listings (as confirmed in their own 2024 renewal), slow average forum turnaround, and vendor concentration risk. (comp.xyz)

  4. Experiments Vendor Focused Not DAO focused: poor payback on the Morpho-Polygon collaboration vs. public expectations, Aera vaults under perform market beta rates.

1: Economic Financial Performance & ROI

  1. Incentive deployment vs. revenue creation (internal): Over the last 3 years ~$43M in incentives produced only ~$22M in reserves revenue -$21M net (negative ROI).

  2. Protocol profit shortfall. Over the last three years of incentive driven losses (net of reserve revenue), and negative ROI across several markets. Meanwhile, Gauntlet’s 2024 renewal lists “Protocol Profit = reserves – incentive spend” as a target outcome, but no standing public, per-market profit scorecard exists. The Dao should require profit targets or change providers. (comp.xyz)

So what? fees are fixed + no profit-linked mechanics equals weak accountability. Looking at the largest market USDC on ETH mainnet. With 1.15 Billion in collaterals and $482 million in Borrows, Gauntlet maintains a consistent loss week after week(comp.xyz). Is this what the DAO wants? To consistently lose money on $482MM of utilization?. The DAO is paying for activity, not outcomes.

2: Conflicts of Interest & Strategic Misalignment

Over the last 18 months Gauntlet has leaned into vault management as core activitity and direct competition against Compound. As a direct competitor Gauntlet gives worse risk recommendations to Compound than their own competing product.

  • Direct competitive alignment. Gauntlet left Aave and formally joined Morpho as a “Risk Curator,” then became a top recipient in Morpho’s Olympics program, which awards curators MORPHO tokens based on vault TVL thresholds (Gauntlet reached cumulative grant levels up to 2.5M MORPHO by early 2025; later updates maintain a multi-million MORPHO grant footprint). This creates a structural incentive to prioritize Morpho’s success. (Blockworks, Morpho Governance Forum)

  • Governance risk. A single vendor simultaneously advising Compound and curating on Morpho blurs “player/referee” lines and raises questions about neutral guidance on listings, rates, and incentives. Community members have already asked for a second risk provider. (comp.xyz)

  • Lack of Urgency & Double Standard. In December 2024, a conversation began on how the LTVs and CFs were uncompetitive vs. the competition in the market, to this day no change has been made 8 months later.
    https://www.comp.xyz/t/collateral-factors-how-to-win-the-lending-race/6055

  • While this is a bit in the weeds, One of the most abhorrent examples is how Gauntlet on their own Morpho vaults allows for 96.5% LTVs while limiting it to 90% Compound:

vs:

287×106 4.46 KB

https://app.morpho.org/ethereum/vault/0x2371e134e3455e0593363cBF89d3b6cf53740618/gauntlet-weth-prime

So what? Even if no malice is intended, the incentives are wrong. Gauntlet is directly responsible for nerfing the Compound Protocol while making their own product more competitive and profitable. This risk hypocrisy is the difference between Compound losing money and making a profit. The DAO should not pay a fixed $2.3M/yr to a provider whose external upside can grow faster from a direct competitor’s success. (comp.xyz)

3: Operating Model Gaps & Vendor Lock-In

  • No formal SLAs. Gauntlet’s own renewal states “market conditions will determine the frequency of updates; no SLA will be preset.” That’s unacceptable for a nine-figure protocol with time-sensitive listings and IR curve changes. (comp.xyz)

  • Slow forum cadence. Internal review shows avg. 22 days (range of 5–55) to substantive responses on asset listings, which is lost opportunity cost during fast moving rise of new assets.

  • Concentration risk. A single vendor has effective control over risk parameters, incentive recommendations, and narrative. Community voices have already called for a secondary provider to reduce key-person/vendor risk. (comp.xyz)

4: Experiments Vendor Focused & Under Performing

  • Compound-Morpho-Polygon deal optics. The collaboration launched with $3M in incentives split $1.5M POL (Polygon) and $1.5M COMP (Compound). While Compound is positioned as the Owner and Gauntlet as Curator, brand credit on Morpho-side surfaces primarily accrues to the curator role. There is ZERO Compound branding now. Part of the value for the spend was increased branding for the Compound Protocol which is now non-existent. (Polygon, comp.xyz)

  • Morpho-Polygon payback gap. Public comms and commitment set expectations for a ~120-day incentive window and efficiency improvements. An quick analysis shows only ~$83k in realized revenue to date against $1.5M of COMP, implying an ~8.1-year payback period, when a commitment of 12 Month ROI was stated. (Polygon)

  • Treasury Management vs. Market Rates. Aera vaults (treasury cash management) have produced ~$1.42M realized yield on ~$37.4M since Oct-2024 sub par return to market return rates. An argument can be made that the strategy uses the compound protocol, this cannot mask underperformance. Similar experiments show 5x results ( Extension of the COMP Yield Strategy Pilot )

So what? Gauntlet continually uses the Compound treasury to expand it’s brand and relationships, while losing money on the core job, underperforming market rates and not following thru on key promises in experimental campaigns.

“Fool me once, shame on…shame on you. Fool me…you can’t get fooled again. We’ve got to understand the nature of the regime we’re dealing with.” –George W. Bush

Conclusion:

  • Pricing & Terms Don’t Align With Value, Fixed fee, limited downside sharing. 2024 renewal: $2.3M fixed fee, with a 30% refund cap, but only if new insolvencies occur incentivizes loss aversion not profitability or growth. Losses from poor ROI or slow growth don’t trigger refunds, nor do missed profit targets. (comp.xyz)

  • Better options exist. There’s a healthy market of risk providers (Chaos Labs,TokenDynamics, LlamaRisk, ChainRisk, Block Analitica/B.Protocol, Steakhouse) with proven work across major protocols. Use competition to secure aligned terms. (Chaos Labs, Token Dynamics, LlamaRisk, ChainRisk, blockanalitica.com, Kamino Governance)

Proposed Path Forward (Practical & Actionable)

1) Do not renew; launch an open RFP (4 weeks) with clear deliverables & SLAs.

  • Scope: risk parameters (CF/LF/caps), IR curve design, incentive design, asset-listing evaluations, multi-chain coverage, incident response.

  • SLAs:

    • Listings & parameter updates: turnaround ≤72 hours for priority assets; ≤7 days standard.

    • Weekly risk deltas; monthly profit scorecard per market (Reserves, Incentive spend, Net protocol profit, Payback).

    • Public change logs & dashboards.

2) Run a 90-day dual-track pilot (2 vendors).

  • Deliver identical test briefs: (a) profit-max IR curves for 3 mature markets,(b) incentive schedule with target payback ≤12 months

  • Pay-for-performance: 50–60% base; 40–50% bonus tied to net reserve growth minus incentives and time-to-ship SLAs.

3) Conflict-mitigation guardrails (effective immediately).

  • Mandatory disclosure of all third-party token grants, revenue shares, or curation rewards; recusal from recommendations where the provider is financially exposed elsewhere ( Morpho curator grants). (Morpho Governance Forum)

  • If the DAO insists on continuity: month-to-month extension only, pending RFP, with the above SLAs and profit scorecards enforced.

With the community’s recent decision to discontinue OpenZeppelin’s engagement, it became my view that a change in risk provider is obtainable to advance Compound’s presence.
Security recommendation result.

I’m grateful for what I’ve learned working on this project and for the community’s feedback throughout. In light of the economic and operational concerns outlined above, I respectfully ask the DAO to consider not renewing Gauntlet and to pursue an open RFP with a 90-day dual pilot and profit-linked SLAs.

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I’m glad someone pointed this out, I agree with a lot of it.

The Morpho deal this year was a big concern for me too. It never made sense for Compound and only benefited them.

I think something like what was done for OZ to keep coverage for 90 days while the process is going on would be smart. But from what I’ve seen, Gauntlet’s choices have mostly helped themselves, not Compound, and I don’t see that changing.

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Imagine getting paid $2.3M million a year, to steward a protocol in the team’s absence, and your highest conviction actions are to self-deal a $1.5M grant to a competitor in the name of ‘experimentation’.

I’m not actually certain that the DAO has the power to refuse payment. You would need to convince me that Gauntlet does not have governance capture through relationship soft power and delegation.

If the Foundation reads this, I’d suggest the following:

  1. Reconsider how Incentives are being distributed.

    Gauntlet’s method of simply dripping them everywhere is wasteful, and not creative. If anything this looks to me like Compound’s business model is slowly rugging token-holders in order to secure reserves to continue to pay Gauntlet’s service fee each year.

    Compound’s brand legacy was innovation, and creativity – what does the protocol inspire now?

  2. The AERO market has been paying people to deposit for the better part of a year now, and its still under-utilized.

    This is not because there is a lack of market demand for that leverage. It’s because the offer has awful collateral factors, and no structured products. A major fumble on part of Gauntlet. Collateral Factors are their domain, and the second hardest I’ve ever seen them work was to campaign against having a dedicated Growth Provider for Compound.

  3. Comet is entering Public Domain in 4 months.

    Gauntlet has been receiving $2.3m a year for the last three years. What have they done to keep Compound Competitive?

    Nothing. In fact, AlphaGrowth approached them over the course of several months, in public, about increasing collateral factors, and when we were finally given a response the response was approximately, “We cannot safely do that, and if we wanted to model ourselves after Aave’s e-mode, we would have needed to start development on that 1 year ago.”

    You can’t find any budget for developers in that $2.3M?

    ”It’s not our mandate.”

As far as I can tell, Gauntlet has no KPIs:

  1. What are their expectations for performance on reserves management?
  2. What are their expectations for response time for listing new assets?
  3. What are their expectations for returns on their Compound Blue deficit?
  4. What are their expectations for return on investment for incentives distribution?
  5. Who holds Gauntlet Accountable?
  6. Why hasn’t any of that $6.9m Gauntlet has received in the last 3 years gone toward upgrading our risk management infrastructure, so the protocol can handle higher collateral factors?
  7. What recourse does the DAO have for the failed launch of Compound Blue?

Even if your concept of Compound is, “We are aiming for institutional capital, and we are suited for this, because of our conservative risk management and history of smart contract integrity.”

That’s a great niche, and I would love to see Compound fully occupy that niche.

My question to the Compound Foundation is:

  • What is Gauntlet going to provide for that $2.3M in order to execute on that vision?

I’d like to see an open call for Risk Service Providers.

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