Contracts Over Councils: A Path Toward Autonomous Treasury Management

Transcript

[Music] all right um you get two two cover slides today uh all right I'm I'm Traver um also known as torm I'm the governance lead at Gauntlet uh I was previously at Boost protocol which is an incentives protocol um before that I was on the Masari team at misari Governor um I've been involved in a lot of Dow stuff I also enjoy being outside uh but to tell you a little bit about Gauntlet governance um Gauntlet is a pretty large delegate in the space um Gauntlet is a defi quantitative research firm um we do risk management uh we do

treasury management uh do incentive optimization and and kind of all things defi right and as part of that um Gauntlet has traditionally and and really since the beginning been very in involved with Dows uh and decentralization right so I joined the team in July um I joined as governance lead and basically have inherited uh the fun of work that comes with being a delegate in all of these uh and more communities um so contracts are greater than councils uh this is a I have lots of thesis thesis and theories about Dows that um I btif about this is one of them uh I think it's particularly relevant to

to what we're doing at um Gauntlet so I'm excited to to walk through it with you all um I want to start by by kind of going back to the stone ages in the beginning uh in 2019 when vitalic said uh in a piece about Dax actually uh decentralized autonomous corporations um exploring the idea of dows that they're really about automation at the center um and humans at the edges and I think as the space has evolved um and we've seen more and more Dows pop up uh we've kind of forgotten that most of this is supposed to not involve us right these are

supposed to be autonomous protocols operating on their own uh and really vitalic pontificated at the time that Dow should be focused on kind of two main things one is funding public goods uh and that would be public goods to build upon the structures that the Dows are are uh governing right like the protocols so ethereum arbitrum Unis Swap and the second piece would be essentially to oversee protocol maintenance and upgrades and that the stakeholders should be investing in each of these tracks uh their time and their energy and their expertise to ensure that the right decisions are being made um the path that the space has chosen to ad op to do this is basically

a legislative process right um and we've borrowed a lot from democracies and Democratic republics and um previous kind of democratic processes to do this where essentially we have an ideation phase uh if you want to affect change in a DA or on a protocol that has a DA uh you need an idea over time it becomes formalized to a proposal um people argue about it myself uh many of you in the room here uh Deb about it and then it's put to a vote and the community tries to find consensus right and the most important part of this uh or one of the most important parts of this is when consensus is reached that proposal is executed um and really we find ourselves

in a terribly awkward position uh where it's basically one half corporate governance and one half democracy right so we have these kind of Notions of of token weighted governance uh similar in some respects to to stakeholders and a company um you have incentive alignment theoretically um but really you're building or you're overseeing a product or a service these Protocols are are products and services um and on the other side we've elected to choose a completely Democratic governance legislative process to make those changes happen um there's a public forum there's transparency and openness uh and it's it's kind of an awkward match

but uh that isn't to say important Innovations haven't been made so I think it's helpful here and and kind of it with the backdrop of the election it's it's probably a good time to make this comparison but um there's really three steps uh in a legislative process um and in an in an entity that is overseeing legislation and that's one is to create rules right you need to create the rules that you want to govern by you need to enact those rules R um and someone needs to interpret those rules and in government uh we do that in the US at least with with three branches right the legislative branch Congress it comes it does those first four steps of the

process I showed earlier with the ideation the debate um the consensus and then it needs to be enacted and in government we have the executive branch to do that and then it needs to be interpreted and the judicial branch is there to to interpret the rules um when they're created and and also all the way down the line if they're being followed essentially at Dows uh delegates fill the role of Congress um but it gets really interesting because we now can actually enact rules without having humans involved we can actually have Smart contracts execute the changes on chain immediately and that's actually I think a important innovation and then even more importantly which is why

blockchains are valuable in the first place is the judicial branch can can actually be replaced by validators who we trust to enforce those rules on chain um and that's that's pretty cool this conference or today has been pretty bearish in terms of people saying that governance is stalled and all this but I think this is actually really interesting um the problem is that we haven't fully executed that Vision in my opinion so for protocol maintenance and upgrades uh kind of this like part one of what vitalic said uh Dows were originally created to do we we actually do all right right I think the most mature Dows have entirely onchain execution um smart contracts uh enforce this codified governance there's there's

checks and balances if need be um you know Lido's been exploring uh dual governance they have um optimistic governance uh all this is happening on chain um and then the blockchain basically serves the judicial branch to enforce now when we get to the other side which I put in parentheses treasury because I think most of the space has basically dropped the idea of public goods funding for uh the pursuit of Revenue models and and kind of a longer form sustainability uh maybe to support public goods maybe to redistribute Revenue that's kind of a Sidetrack that I'll try not to get on but my point here is there's only partially onchain

execution and most cases when we talk about public goods funding and and treasury type proposals uh you usually what happens is the en enactment the execution happens on chain and then they're sent to a bunch of multisig right uh they're sent to a bunch of people who are probably in this room who are sitting there signing transactions uh and there's zero To None actual blockchain enforcement we're basically losing the entire judicial branch as soon as we pass something through the treasury um and that creates the council problem and the council problem is a human problem uh this is kind of like stealing off AI podcasters but talking about when there's nothing left for humans to do but they they make a good

point that humans are really good at strategic thinking we're really good at creativity and we're good at debating and challenging ideas um we're really bad at Perfection we're actually horrible at Perfection um we're really bad at coordination and we're pretty terribly inefficient when it comes to operational things um and a lot of times the most I would argue the most like creative people are even worse at uh operational efficiency but the council problem uh kind of highlights all of that right we get terrible redundancy on the operational side I mean multisig are literally I don't trust uh Kristoff himself to manage this transaction so

I'm going to have five people basically do that transaction as well and we're just going to say 5x people doing the transaction limits the chance that the transaction will be done wrong is kind of what that says right it's extremely redundant and we're brute forcing Perfection by instilling redundancy then there's governance capture this is a meme that was in the arbitrum delegate chat that I thought was pretty funny they they pasted some people's profile pictures over these heads but I didn't want to carry that over but it says uh it's mongal saying why is it when something happens it's always use you3 and Unis swap arbitrum optimism you'll notice a lot of the same people are sitting on these councils and it does kind of lead to how decentralized

this the system actually is and lastly it's just costly right like we get into uh similar to governance capture um people want to pay themselves uh you need to pay people to do the work um there's only a small group of people who are even interested in this uh so yeah councils are are pretty obnoxious and bad um and all this to say protocols really struggle with kind of efficient treasury operations in general right uh they use manual processes they use multiple vendors um onchain coordination is slow kind of all these points I've been hammering home about uh so how can we close the gap between protocol upgrades and which are

pretty onchain pretty efficient and kind of these Dow funding proposals um and really how can we bring autonomous execution while maintaining transparency taking advantage of composability and making sure it's all affordable um this is where era steps in if you thought it was all G to be just uh General pontificating without a little bit of product you were wrong um that's a legal disclaimer we'll also skip that uh introducing the era protocol autonomous datadriven treasury operations and management so what is the era era protocol um era is a protocol that is essentially evolved

right uh but it's a non-custodial Vault um and that means that whoever deposits their funds uh can withdraw our deposit and actually set entire parameters for what that Vault can do um and you can put strategies that are fully automated it's completely transparent and auditable um and that's sounds kind of boring and that's because it is and much like governance contracts um contracts are are inherently boring but what's interesting is what you can do with it um and I think this is where we start to get into the idea that treasury operations and treasury management and treasury proposals should start to inherit these um execution capabilities

and kind of like judicial blockchain capabilities that I talked about earlier um and you can have treasury management strategies right you can have stable coin strategies where the Dow actually selects certain assets or certain protocols that they want to integrate with and then you can have third parties uh come in you can have your your favorite councils if you still want to keep councils come in and execute those or you can have them completely automated what's even more interesting and I know we had a treasury management panel earlier uh but I'm actually way more interested in treasury operations and what I mean by that is tokens uh are multi-dimensional um treasury management is much more than managing your

financials and your Runway we have so many Dows in the space delegating tokens to delegates we have protocol owned liquidity um basically like token liquidity is your Silk Road you can only do business where your token is in a lot of ways right and now with composability with defi lending markets um you need to bootstrap an entire Marketplace for your token and there's ways to do this with era that are uh maintaining and extending that onchain infrastructure in a way that actually free up the Dow and the delegates working in the Dow to have more strategic goals and strategic thinking rather than spending their time on on council elections and so it all kind of revolves

around uh this is pretty marketing but an all-in-one solution for for treasury operations uh and management um but it it it really is basically pretty simple um and I've kind of I've kind of beat this dead so I won't spend too much time on this but uh era works by making a deposit um setting a objective function and a list of assets and then we Implement something called a guardian right and a guardian is essentially someone who oversees uh the strategy that you want this Vault to do um and it's completely non-custodial

and the entire Community can view this vault performance and manage the funds that are in that Vault uh using a public dashboard right so it kind of works uh as this diagram shows as I've described before I don't know there's not really anything else to add here you can just uh if you're a visual learner that might help but Guardians have very very very specific roles and this is where um I think we we get the advantage of the onchain benefits here um because Guardians essentially sit at the Strategic layer whereas the entire operational layer here is actually taking place on chain so while Guardians

can't withdraw funds um they can't move funds and they can't mess around with fees without the owner's permission which in this case would could be the dowo governor contract um or it could be a a multisig elected um the Guardians can actually use all of their knowledge that they get from offchain um algorithms to inform recommendations to run extremely uh specific strategies whether it's protocol Lo liquidity whether it's incentive optimization or treasury management and so a lot of uh protocols have started to use era um and they've done a few different things and I'm I'm really excited about where this goes in the future uh but today um the

era protocols pretty new on the scene um and we've started to work with with a few a few dows uh specifically and I think arbitrum and compound are two Dows worth mentioning here um who are using era for token conversion so these Dows have elected to use Gauntlet as a guardian on the era protocol and essentially have created a vault that is non-custodial where their native token can go in and the Quan quantitative research team at Gauntlet can design strategies uh to set up one-sided liquidity in Unis swap V3 and create extremely efficient execution

whereas otherwise you would have to basically go through a foundation uh like the arbitrum foundation or the Unis swap Foundation into a blackbox where they would essentially go to a market maker uh and have this transition done you can now have it completely done on chain even more interestingly um we're talking with uh a few of the governance tooling providers to essentially abstract all this away to point where you could potentially put in a proposal right and say instead of ARB I want usdc for my program and all this could happen in the background and you have this entire operational efficiency abstracted away from the delegates so that they can focus on what really matters um with Moro actually just yesterday we passed a proposal for Moro

who is about to uh enable transferability to have their protocol owned liquidity uh on era Gauntlet is the guardian on that Vault so now you have a dow uh that is going to deposit Morpho and rdth and needs a really really really sophisticated strategy as the Dow launches transferability that can provide protocol on liquidity at an extremely wide range so that it can absorb all that volatility and then as uh volatility drops essentially tighten that liquidity range uh allowing without eting into other LP's fees there's a lot of like tactical stuff going on here um and

essentially set the stage for even more efficient incentive optimization when Morpho decides to eventually start doing token incentives right um and then treasury management uh this like I said I'm I'm much more interested in uh the treasury operations stuff some of the more abstract defi stuff but treasury management is is critical um era provides the opportunity to kind kind of set parameters for whatever the Dow is comfortable comfortable with for whatever um assets the Dow wants to pursue uh you can have third-party Guardians you can have multiple Guardians in different vaults utilizing different strategies to meet a dow specific goals um and it's all it's all kind of viewable uh on the

app currently uh errors charging no fees um no lockups and uh it is audited um and right now uh we're working across many partners um the tvl is knocking on a 100 million uh I think we just need a bit more love from the uh the Trump the Trump push here to get over 100 million so that'll be very exciting um there's five live strategies uh but yeah that's that's AA Finance so thank you guys any questions the tvl so air is being used by Dows and

it's also B you being used by um you know funds uh private investors all that so uh compound I think two out of the three largest vaults right now are compound um they just passed a proposal to do some treasury management type stuff there uh and then they also have all the compound vendor payments are actually sitting in a aav vault earning yield in usdc um being deposited in compound so compound is is I think I think there's eight million in that Vault um that that vendor payment Vault so it's it's substantial yeah any other questions you no not

you okay awesome okay thank you TOR