Decentralized Finance (DeFi) Lending Platform Compound

Decentralized finance (DeFi) lending platform Compound is facing calls to onboard additional risk managers in response to a recently approved governance proposal made by current manager Gauntlet.

Competition for Risk Management

Throwing its hat into the ring as a potential candidate, Chainrisk is calling for more transparency amongst COMP delegates and their negotiations. One reply pointed to an unlabeled address that may be linked to Gauntlet.

In what DeFi commentator Togbe describes as “some of the griftiest stuff I’ve ever seen from Gauntlet,” the proposal suggests that Compound should use competitor Morpho (for which Gauntlet is also a service provider) to launch new markets on the Polygon network.

Market Dynamics and Controversy

Gauntlet presents the move as beneficial for Compound, Morpho, and Polygon, capitalizing on a potential gap in the market due to cooling relations between Polygon and Aave, DeFi’s biggest lending platform. Aave, which comprises over a third of Polygon’s total value locked (TVL), threatened to leave in response to a controversial proposal involving yield farming.

Aave governance delegate Marc Zeller took to X to highlight perceived conflicts of interest, characterizing the proposal as “subsidizing a competitor’s growth that’s been eroding their market share every quarter.” He even offered a wager of $50,000 on whether this move would benefit COMP holders.

Defense of the Proposal

However, Gauntlet has defended its proposal, citing issues such as “ongoing lawsuits, Labs hands tied, [and] market share eroding.” They argue the proposal is not self-serving and highlight that Gauntlet’s Morpho earnings are capped.

While claiming that “Compound DAO will be the sole owner of the vaults” and will receive all generated revenue, the proposal suggests a potential future fee-splitter contract for Gauntlet’s services as Curator.

Gauntlet’s Vice President of Growth, Nick Cannon, rebuffed criticisms on X, suggesting they were “approved comms” from a “worried” Aave camp. Polygon Labs’ CEO claimed that Aave pressured teams during governance votes.

Historical Conflicts

This isn’t the first conflict between Gauntlet, Aave, and Morpho. Tensions flared when Gauntlet left Aave to collaborate with Morpho, leading to disagreements over risk management during a depeg incident involving Renzo’s ezETH. The focus on healthy DAO governance processes is crucial, as seen in previous issues like the $25 million governance “attack” on Compound.

DeFi’s Current State

The latest crypto sell-off adds pressure to the DeFi sector, with the Total Value Locked (TVL) plunging over a third from a peak of $138 billion to under $88 billion. Financial markets suffered, leading to approximately $900 million in liquidations, with one whale’s risky 65,000 ETH ($123 million) position drawing scrutiny amid fears of an on-chain cascade.