Contributors Need To Be More Accountable to the DAOs They Serve – Blockworks

Webinar: Compliant Crypto Trading for Institutions. Register.
webinars
From the rapid growth of crypto to the dramatic volatility of the asset class, governments around the world are responding through regulatory and legislative actions. Some jurisdictions have announced clear and accommodating frameworks in the hope to create the crypto hubs […]
Gauntlet manages market risk for many top DeFi protocols and argues that DAOs can benefit by ensuring their service providers have skin in the game
It’s truly exciting that changing one line of solidity code — the language of Ethereum smart contracts — can create an entirely new financial product.
But how can we understand whether these new instruments work as intended? The risks are poorly understood, and the scale of losses is staggering — the system is broken! We can improve, if not fix, this with better incentive alignment — putting our money where our mouth is.
Professional code audits and the transparency that comes with using only open source code are not enough — we’ve seen protocols that suffer losses even though they have undergone three audits!
DAOs have been formed around new protocols that allow them to incentivize and coordinate contribution. Protocol DAOs need to address the risks their products create — token holders are often left holding the bag when things go awry, and one solution we’re optimistic about is based on a simple guiding principle.
If users get rugged by a protocol hack, auditors should too. If the market tanks and a protocol becomes insolvent, the risk manager shouldn’t get paid either.
In this spirit, we will move all Gauntlet engagements to a new payment structure where we are held accountable for the quality of this service.
How?
Service fees will be held in an escrow contract until it’s crystal clear that the work was successful.
A strong ecosystem of independent organizations contributing to protocol development and operation is essential to a successful decentralized protocol. Since the proliferation of DAOs in 2020 and 2021, we have seen a few core services emerge:
Add to that services such as tooling and analytics (e.g. Chaos, Flipside). While these service providers have taken the first step into the new decentralized economy by working with DAOs, the structure of these engagements has lacked innovation.
One exception here is Bored Ghost Development, which tied their payment terms to achieving their development roadmap.
We’d like to see more initiatives that link the fate of service providers to the success of protocols. 
As a first step, we recently posted our proposal to renew our service agreement with Compound and added a clause around the concept of a “first tranche insolvency refund.”
There remain many details to figure out as we move forward, but let us be clear — this isn’t a protocol-funded backstop like the stkAAVE pool, which is intended to maintain protocol solvency.
Instead, what it means is simply that 30% of the contract will be put up against our work. It’s an idea to provide true alignment with our customers, to hold ourselves accountable for what matters to them — driving growth at safe risk levels.
Governance allows the community to weigh in on every change we make, and if the community wants to take on more risk than we propose, they can, but they would forfeit this alignment.
Many of us came from quantitative trading. We dream of markets and live for risk. At trading firms, your compensation is almost entirely variable, and we’re applying this ethos to our work in crypto.
Merely aligning incentives via escrow barely scratches the surface of how we could leverage this incredible technology not just to decentralize finance, but innovate on it as well.
Get the day’s top crypto news and insights delivered to your inbox every evening. Subscribe to Blockworks’ free newsletter now.
DATE
Monday & Tuesday, October 17 & 18, 2022
LOCATION
The Royal Lancaster Hotel, London
Celsius currently holds 11 types of stablecoins worth $23 million, much needed fuel for its ‘absolute zero trust’ revival plan
South Korea’s Ministry of Foreign Affairs ordered the return of passports held by five former Terraform staff members, including Do Kwon and finance officer Han Mo
While the SEC continues to fight for jurisdiction over crypto, Ethereum may have just painted a target on its back following the Merge
SBI Digital Markets joins a handful of firms offering institutional clients custody services for crypto securities across Singapore
Price of ETHW tokens from a proof-of-work fork drastically soared moments after the Merge, only to plummet right back down.

source

Note that any programming tips and code writing requires some knowledge of computer programming. Please, be careful if you do not know what you are doing…

Leave a Reply

Next Post

How our principles helped define AlphaFold's release - DeepMind

Fri Sep 16 , 2022
Putting our mission of solving intelligence to advance science and benefit humanity into practice comes with crucial responsibilities. To help create a positive impact for society, we must proactively evaluate the ethical implications of our research and its applications in a rigorous and careful way. We also know that every […]
%d bloggers like this: