Episode 47 Risk Management in DeFi

Episode 47: Risk Management in DeFi

Episode 47

Risk Management in DeFi

Nick Cannon is the Head of Growth at Gauntlet. We cover the financial attack on Mango, how better DeFi governance mitigates risk, and why governance is a bottleneck in most protocols.

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[00:02:38] - [First question] - His take on FTX selling itself to Binance 

[00:03:24] - Categorizing at a high level the different sectors of DeFi

[00:04:11] - How DeFi handles the subjective parts of credit financing

[00:05:11] - What Mango is and what happened to them in their recent attack

[00:10:03] - Whether or not a decision was made to settle with the attacker  

[00:10:39] - How the insurance funds are structured for DeFi protocols

[00:12:22] - Getting through the cold start problem of launching a new exchange

[00:14:04] - What Gauntlet is and what they do 

[00:14:54] - His view on DeFi attacks in general 

[00:15:52] - The story of how Gauntlet came to be 

[00:16:44] - Thoughts about safety and experimenting as early adopters 

[00:17:51] - Working with protocols to help them navigate risk management

[00:18:53] - Being a key player in risk management in the crypto space can be a dangerous and thankless job

[00:20:17] - Thinking about alignment being third party players on a contract 

[00:21:12] - What it’s like to simulate and present risk to clients and how they receive it 

[00:23:05] - Whether or not the Mango Squeeze can be done anywhere with enough money

[00:24:05] - What position limiting and supply caps are and how they work   

[00:25:12] - Going about implementing risk parameters into a protocol

[00:26:06] - Whether or not Gauntlet is running an API and involved on an ongoing basis 

[00:26:51] - How hard it is to get a voting consensus in risk management  

[00:27:30] - Pitching fine tuning risk parameters to a protocol 

[00:28:32] - Gauntlet’s liability and being held accountable if something bad happens

[00:29:30] - What he was doing before joining Gauntlet 

[00:30:24] - Bullish and bearish factors for the future growth of Gauntlet 

[00:31:21] - Whether or not this space will ever self-govern or require outside regulation

[00:32:01] - The mechanism for incentive optimization and how it works

[00:34:02] - Inherent flaws of third party staking to get liquidity without collateral requirements and risk parameters 

[00:37:44] - How Gauntlet has such a widespread impact over an exchange like Sushi

[00:39:45] - Whether or not they use their data for other applications or advantages 

[00:40:17] - What he’s most excited to see built over the next six months and six years 

Risk Management in DeFi

Introduction

Eric
This is Eric Golden. Before we jump to the episode, I thought it was important to acknowledge the ongoing fallout from FTX's bankruptcy. It's a situation we are watching closely and something we plan to discuss in depth in the future. Having been through a long list of financial fallouts in my career, I have seen macro cycles, financial crises and outright frauds. There's a lot to learn in these moments and after the fact. Our goal with Web3 Breakdowns has been on exploring this industry through a builder's lens. While we will always tend to favor the optimistic angle, we won't shy away for acknowledging bad actors, bad outcomes and what we can learn from them. I hope you stick with me on this journey, one episode at a time.

My guest today is Nick Cannon. Nick is the Head of Growth at Gauntlet, a simulation and financial modeling platform for DeFi protocols. In our conversation, we'll break down the financial attack on Mango, how better DeFi governance mitigates risk and why governance is a bottleneck for most protocols. Please enjoy this conversation with Nick Cannon.

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