On The Other Side ep 55 - Staffing for bureaucracy + lessons from a DAO service provider w/ Nick Cannon
Primer: What does Gauntlet, a financial modelling and crypto risk management firm, do? How do they offer their services to DAOs? In this episode of On The Other Side, host Chase Chapman speaks with Nick Cannon, VP of Growth at Gauntlet, on all things risk and DAOs.
Background
Played poker professionally for 11 years
Worked at a tech startup, followed by a DeFi startup
VP of Growth at Gauntlet
Poker And Risk Management
Bankroll management is important in poker
There’s always a metagame and a game within a game
If you don’t zoom out, you will get sucked in pretty badly. This is similar for crypto as well
Gauntlet
What Does Gauntlet Do?
It provides solutions to protocols using using financial modeling and simulation for risk management
This means maximizing capital efficiency while minimizing risk to the protocol
How Does Their Models Work?
They make sure that the aggregate risk is within the tolerance of the DAO/community
Their data is pulled from everywhere. Not just on-chain sources, but from CEXes as well
Model different people (e.g. borrowers/lenders) and their interactions and their outputs need to fall within the bounds of what is acceptable to the DAO
If it’s out of bounds, they will push for a governance proposal change
Working with DAOs
Look for DAOs that they can drive impact to
Start participating in their communities
Have to find out what the DAO wants before they can drive an impact
Navigating Bureaucracies In DAOs
Have protocol program managers that are specifically assigned to DAOs
The default is to post it on the forum then share it with everyone privately to ensure that they see the post
Getting Lobbied To List FTT Or UST On Protocols
Have pushed back against the listing of FTT or UST when Gauntlet was lobbied
Thinks that other large stakeholders may get lobbied as well
Having open frameworks of how you list assets and general guidelines would help
Earning And Wielding Power In A DAO
There’s a risk that the incentives become perverted as it is the service provider’s source of revenue
Over the long-term, they will have to diversify and pay their employees in USD
They vote using their own money on parameter changes
They abstain from:
Contract renewals being paid in governance tokens
Other people delegating to them
Different Classes Of Votes In The Future
Thinks that it will eventually split by the different groups (e.g. service providers, investors, operators, etc.)
In treasury management, people diversify a treasury by selling off their governance token
In the past 8 months, treasuries have declined and are unable to cover their operating expenditures because they only have one type of asset to vote with
Reinventing The Wheel Or Creating New Systems
Difficult to find the balance
Just have to keep the conversation open and fluid and try things out
Payment To Service Providers
Seeing a trend where service providers are not completely paid in governance tokens
After DeFi summer, token emissions and distributions have died down a bit
The top protocols that are generating revenue are thinking more about a path to sustainability. They understand that services could be paid in a stablecoin
Majority of the payouts are in a 70/30 ratio
Service Providers Working With Younger DAOs
It becomes more like a venture bet
Gauntlet turns down 90% of projects that want to work with them because they are focused on the long-term
Projects need to have a clear plan and some sort of vision to work with Gauntlet
Death Of The Forks
Forking season is over
The myth that someone can fork Compound and Uniswap and bring it to a new chain is over
The originals will have brand recognition, a risk manager, audit their smart contracts, and incentivize it well. They will get traction quickly
“It has sort of been King of the Hill, especially in a bear cycle. Now, will that change come another Bull Run? Probably. But I don't imagine a straight fork of any of those protocols will be successful long-term.”
- Nick Cannon
Acquisition Of Open Protocols
Uniswap is on an acquisition spree
For open protocols, this is pretty tough
Communities join for the ethos. If the ethos change, they could disband and start over because the switching costs are too low
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