Real Time DeFI Risk Metrics

Risk
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Executive Summary

Exponent extends a proposal to GRO DAO by offering market risk analytic products and on-going services in order to increase resiliency of Gro Vault’s AUM

Problem

Gro DAO has started planing a long term strategic direction to increase the resiliency of the protocol.
We believe the steps taken so far, such as:

  1. Implementation of stop loss and reduce maximum exposure.
  2. Allowing for the community to vote for whitelisted yield strategies.

These are prudent initial steps towards keeping assets safe and mitigate risks.

Exponent team believes that the DAO can further benefit from our contribution in the form of real time risk analysis and active risk systems.

Namely, the priority for Exponent will be on Strategy / Market Risk, according to the GRO’s Risk Management Scope specs

The solution

DeFi markets are continuously evolving with high degree of volatility, while passive diversification via Curve pools (main yield strategy on the Gro Vault) and tranches has helped with risk management, we believe that:

  • There are live DeFi indicators that further signifies the health of the underlying assets, which is different from the time of the asset inclusion into the protocol.
  • Health of an asset, after exceeding a certain threshold, should be flagged for risk mitigation, whether through automated alerts or prompts to the DAO strategists to take next actions.

Exponent’s proposal comes in two parts:

  1. Risk framework
  2. Risk Solutions

Part 1: Risk Framework

We will assist Gro DAO in identifying the following within the Market/Strategy risk profile:

  1. Break down the overall portfolio market risks into different risk parameters
    a. including but not limited to: depeg risks, slippage and price impact, and TVL fluctuations
  2. Identify leading metrics and indicators for each risk parameters as well as trigger thresholds
    a. for example with lower cap stable coins, we can observe Curve’s pool imbalance as an early indicator for a price depeg event
  3. Work with the DAO to outline path to process implementation that is compatible with current Governance process.
    a. drafting alert templates and incident management plans, outline degrees of incident severity for each market risks parameters

Part 2: Risk Solutions

Real time risk monitoring system

analytics and alerts for the Risk Team

Exponent team will create a bespoke, user authenticated dashboards that will monitor real time risks for Gro Vault with the necessary on-chain risk indicators. The risk systems would be able to detect and submit alert messages to Gro DAO’s Discord (or any target communication platforms) in a condition where risk metrics have reached an agreed upon threshold.

Exponent team will manage the service with up-time expectation and high degree of data integrity as a mission critical health observability tool for the Risk Team.

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:point_up: Example of an access to soft-real time dashboards with DeFi protocol related indicators, alert messages are triggered from the metrics

Public Dune Analytics Dashboard

for public & transparent community assessment to protocol health
We believe in the spirit of open source and building community first products. Which is why, in addition to the above, we will publish a Dune dashboard for the Gro community to inspect health of the protocol in ways that are more insightful than what is being offered on the dApp

metrics on monitoring tools will be updated to reflect current asset inclusions on an on-going basis

Governance supports

in reviewing whitelist proposals and portfolio analysis

Risks management is a never ending effort. Thus, analytic products won’t be sufficient. As more Curve Pools are added to the protocol, Exponent team will also take the time to review new asset inclusion, evaluate risks and commit to active participation within the DAO governance forum and Snapshot vote. We will take part in war-room incident management scenarios when market risk hits a critical threshold inside the risk channel

We believe in order to grow Gro Vaults AUM responsibly, having inputs from the value aligned strategists outside of Gro core team will offer higher redundancy, fresh perspectives and be instrumental to the decentralization of the protocol, especially as the Risk sub-DAO continues to grow.

About Exponent

Exponent is on a mission to unlock treasury deployments at scale for Web3 organizations. We enable DAOs to unlock, preserve and grow their capital. We are a team of ex-finance, web3 engineers and data nerds who are as excited as you about the future of work.

We have come across Gro before and are excited about the benefit of DeFi yield tranches as a potential consumer but also as a solution to offer in our ever growing tool suites to support the health of DAO treasuries.

You can find out more about us:

https://twitter.com/Exponent_cx
exponent.cx

Service Agreement

We are asking for the below as remunerations for the work proposed:

  1. 14K in USDC paid up-front after the proposal approval in order to start product development and risk framework analysis concurrently
  2. 6.5K USDC monthly recurring payment for the services operations, maintenance and continued participation in risk sub-DAO. The recurring payment only starts after risk monitoring systems and dashboard is live
  3. 350K GRO linearly vested over the entire duration of the service

The scope of the monthly recurring payment will continue over a period of 6 months, renewal at the end of the period. The software will be actively maintained with full development and strategist support.

Closing

We would like to request the Gro DAO for feedback and possible revisions to be made on the proposal.

In closing, we would like to highlight that Gro protocol has an obvious points of alignment with Exponent. We hope to continue explore future collaboration beyond the scope of the work stated here, as both active sub-DAO members and advocate of Gro vault products.

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Thanks @exa256.eth for sharing this proposal! Would you be able to share any public dashboard you’ve done for other protocols before for reference? It’d be very helpful to see what you’ve implemented before for the community to visualise the output :pray:

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Yes, happy to share :slightly_smiling_face:

Here is a link to the Dune Dashboard for our yield bearing treasury vault

an example live metrics and alerts we are currently tracking for Aave and Compound, this one is public so you wouldn’t see the configured alerting rules

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Update to the proposal :point_up:

Risk metrics and escalation plans

below is the initial list of risk metrics that the Exponent team will start to measure and work with Gro DAO to be implemented into the analytics suite. Note that the risks metrics are subject to change with newer metrics to be rolled out over time.

Gro Protocol specific risks

  1. Slippage and price impact risk

    1. risk of individual token types in a pool on a swap to a base asset, ie. FRAX → USDC
    2. quantify potential loss on assets currently held by the protocol when executing a swap
    3. triggers an alert when aggregate slippage hits a certain dollar value on a portfolio

  2. Reserve illiquidity risk:

    1. ratio of reserves to total amount withdrawn in a given window for a protocol
    2. quantify risk of insufficient reserves/floats to be withdrawn when a period of withdrawal demand is higher, hence necessitates the need for strategy withdrawals
    3. triggers an alert when total withdrawals over a period is higher than the expected reserves amount

Asset risks

  1. De-pegg risk:

    1. risk of assets depeg against a dollar in a liquidity pool
    2. captures range volatility and determine standard deviation over an allocated number of months
    3. triggers an alert when asset price falls below a lower or upper bound, ie. asset trading below $0.98 or above $1.02
    4. triggers an alert when standard deviation of asset price over a period of time moves above or below a threshold
    5. triggers an alert when assets within a Curve pool approaches an imbalance state

  2. Portfolio asset exposure risk:

    1. risk of over-exposure to an asset type within the protocol
    2. dynamically capture real portfolio exposure within the liquidity pool itself, ie. for LUSD-3Pool: real exposure is- 20% LUSD, 30% USDC, 30% DAI and 20% USDT
    3. triggers an alert when system exposure for a certain asset is above a certain % threshold

  3. Liquidity risk:

    1. risk of assets illiquidity in the Curve pool
    2. cumulative sum of marketcap changes, total liquidity changes within curve pools within a period, ie. reduction in liquidity size or % of asset balance inside the pool
    3. triggers an alert when a quantifiable amount of liquidity is removed from Curve over a defined period
    4. triggers an alert when a proportion of LP tokens held by the protocol relative to total supply reaches a certain percentage

Exponent will work within the framework of the risk team to define a health threshold for each metrics, once metric hits a certain threshold, we will submit an alert to the team.

Alerting/ Reporting/ Response

Exponent team will set up a reporting bot that sends an update to the risk team Discord every weekly/ monthly interval, report will show summary of health metrics for the protocol.

Alerts to be submitted on a pager duty- or equivalent platform to assist the risk team members in incident management. Alerts may have different classification, ranging from . Exponent team will coordinate with the rest of the risk team to configure the alerts within the incident management framework

Response: automated transaction response is applicable. We will consult with the GRO engineering team on the existing infrastructure, but the existing risk infrastructure will be able to support a web-hook message via a Http/POST request on any breach of risk metric threshold that is agreed upon.

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Thanks for the update on this proposal @exa256.eth. Will there be further inclusions to
the current risk parameters during the course of this process?

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Yes @beckley, there will be further inclusions and revisions. The overarching goals for these risks parameters is to become a risk library that would be open sourced and iterated upon in public, not one and done- these costs are also factored into the recurring fee.

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Thanks again for the detailed proposal @exa256.eth! Wanted to clarify on the remuneration timeline:

  1. 6.5K USDC monthly recurring payment for the services operations, maintenance and continued participation in risk sub-DAO. The recurring payment only starts after risk monitoring systems and dashboard is live

The scope of the monthly recurring payment will continue over a period of 6 months, renewal at the end of the period. The software will be actively maintained with full development and strategist support.

Does this mean this vote (if passed) will approve a 6-month recurring payment that starts after the risk monitoring systems and dashboard is live i.e. another vote is required for continuation?

  1. 350K GRO linearly vested over the entire duration of the service

Would this be over six months or a longer period of time (if DAO votes to continue the service)?

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Does this mean this vote (if passed) will approve a 6-month recurring payment that starts after the risk monitoring systems and dashboard is live i.e. another vote is required for continuation?

yes, that is correct. Once another vote is triggered at the end of 6 months, then service fee is again continued at 6.5K

Would this be over six months or a longer period of time (if DAO votes to continue the service)?

great question! the language on the agreement isn’t clear but the 350K GRO is linearly vested* for the 6 months- duration of the service after it is live

if DAO votes to continue the service, I think we can put out another proposal for vesting amount that goes into the service continuation, or extends a longer vesting contract after continuation.

*Note that the objective for GRO vesting is for the Exponent team to be able to effectively take part in active governance of the protocol. Happy to discuss the different vesting terms that the team thinks is suitable this type of arrangement @joyce

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Thanks for sharing that!

All-in compensation
To summarise, the all-in compensation to be approved, for a 6-month period, in this vote is:
$14,000 upfront
$6,500 per month for 6 months = $39,000
350,000 GRO tokens with vesting - at its current market value equals about $45,000

Total = $98,000 over 6 months (at current market value)
If the contract is to be renewed for another 6 months, the second and third portion will recur.

Would you have any benchmarks to these pricing estimates? Say the number of hours you intend to spend on this project so we could arrive at a benchmark of sorts?

Vesting schedule
In general it would work better with a 12-month vesting as we can use our existing rewards vesting contract rather than a new one. Here’s more details about the 12-month rewards vesting we currently do: Vesting mechanism - gro Docs

You can use those tokens to vote while they are vesting without having to exit the vest.

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Re: Vesting Schedule
In that case, we are willing to make amendment the proposal and opt for:
350K GRO with 12 months vesting through Gro's existing reward vesting contract, with vesting started after the service is live

As for token rewards for service continuation, this can be up for the next governance vote after the 6 months period

Benchmarks
You can find below the breakdown of the proposal:

$14,000 up front: goes into initial setup

  • Development of a public Dune dashboard for Gro DAO
  • Setup and deployment of the risk monitoring system
  • project management: gathering initial requirements from the core team

$6,500 monthly recurring:

  • Data Engineering work: ensure private metrics maintains expected up-time and metrics are healthy. Update the data pipeline with asset and protocol inclusions, new datasets & change requested by the Risk team.
    • Dune Dashboard maintenance & on-going development
    • Private Risk Monitoring maintenance & on-going development
    • Cloud Provider costs

350K GRO vesting
GRO vesting remuneration will be much more difficult to benchmark due to volatility and nature of token vesting illiquidity, however below is how we expect the vesting amounts to be priced in:

  • Data Analyst work:
    • constant evaluations of Gro protocol’s market risks and the protocol and the crypto stable coin market evolves
    • Governance reviews: review discussions within Risk team discord, and vote on Snapshot proposals
    • Community engagement: engaging with Gro’s existing community through Exponent’s social presence to ascertain safety of Gro’s protocol
  • Long term alignment with Exponent’s team as part of Gro community as the tokens are vested and utilized for governance contributions

Man hours, weekly estimates for recurring costs after the service is live

  • Data Analyst: 25 hours / week
  • Data Engineering: 25 hours / week
  • including adhoc costs: operations, marketing and community support
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So the proposal is offering to make a methodology and a dashboard in 6 months for $98k. Maker’s RIsk CU (aka Blockanalitica) made a methodology and a dashboard for Aave (a far more complex system than Gro) in 3 months for $90k leveraging a battle-tested framework.

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Appreciate the comment @pavel

Do you happen to have a proposal description for Maker’s Risk CU or other analytics proposals? We are actively looking to benchmark our scope of work against what’s available. A fair comparison and cost amendments is welcome.

Note that the scope of work includes: a methodology, 2 dashboards (public Dune analytics and a private one for risk team access) as well as software infrastructure required for Gro team to set up automated triggers. We are putting in efforts for active governance contributions as well.

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Given the status on Gro’s on-going DAO restructure: https://community.gro.xyz/t/get-involved-in-gro-dao-s-new-collaboration-structure/

I would like to put this proposal on pause, It would be for the benefit of Gro DAO to wait for Risk and Treasury pods to be finalized with solidified facilitator and budget prior to the DAO moving forward with individual grants proposals

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