Key Takeaways

This week, Gauntlet announced a new engagement with the Uniswap Foundation to review and recommend incentive designs for the Uniswap protocol. As mentioned in our press release, this is the first initiative of Gauntlet Applied Research, which aims to tackle many complex economic problems within DeFi. This post lays out the vision of the new team and how we plan to accomplish it.

The Gauntlet Skillset

Gauntlet has an interdisciplinary approach to DeFi markets. The wide-ranging expertise of our team means our work often uses concepts from computer science, economics, algorithmic trading, statistics, game theory, and other fields. Our research has used these ideas to deliver cutting-edge views on varied topics such as on-chain derivatives, interest rate mechanisms, and auction design. Gauntlet always looks to approach problems with the right combination of tools to achieve the greatest positive impact for our customers. Over the years we have built an industry-leading knowledge of market dynamics and the rigorous optimization framework for applying these insights to deliver valuable services. The Applied Research team is the broadest application of this skillset to date, as we look to harness the understanding we have accumulated to solve a very open-ended set of protocol and network needs.

Building Defi Understanding

DeFi markets have specific design elements that make them a difficult territory for many research firms. A quantitative analyst in most other markets would have access to limited, but clearly-structured, public and proprietary data sets. In decentralized markets, all user accounts and transactions are visible in real-time, but not in a format that is easily intelligible by traditional analysis tools. Since there are few restrictions on participating in DeFi markets, users may also be more varied and unpredictable and require special considerations for edge cases. Finally, decentralization comes with a trade-off to controllability. While centralized markets can react immediately to unexpected events or emerging risks, DeFi governance involves a more gradual process that balances the views of many stakeholders. All these factors make it challenging for generalist research firms to apply their skills in DeFi. As a crypto-native firm, Gauntlet has an opportunity to meet the market need for specialized research services. Over the years, we have built the right tooling and institutional know-how to support a powerful research team. Gauntlet’s experience in on-chain markets and the strength of our platform allow us to now provide solutions well beyond our origins in risk management.

Applied Research Vision

Gauntlet Applied Research is a one-stop shop for all complex market optimization scenarios. We aim to take on the toughest economic tradeoffs and deliver quantitative solutions with the same rigor and impact as our risk management work for the biggest DeFi protocols. We see opportunities for Applied Research work in some of the following areas.

Incentive Optimization

Our engagement with Uniswap builds on our past incentive optimization work with Immutable and various DEX customers. By working with one of the leading decentralized exchanges, we look to bring incentive optimization to the mainstream and define best practices around DEX incentive management.

Besides protocol incentives, we also see opportunities to optimize incentives for emerging L1 and L2 chains. Though liquidity mining is a key growth strategy for many new chains, there has been relatively little work on measuring and optimizing these programs. Gauntlet Applied Research looks to apply quantitative optimization techniques to help new ecosystems grow efficiently.

Integration Rewards

Due to the network effect of DeFi composability, many protocols and chains seek to incentivize bridges and other third-party integrations that support strategic growth. While developer and integration reward programs have grown in popularity, the tools to quantify effectiveness are still in their infancy. In our kickoff post with Uniswap, we shared a proposed framework for evaluating an example integration program. In the coming months, we expect Gauntlet Applied Research will begin to assess integration programs and have more to share in this area.

Validator Rewards

A strong validator ecosystem is essential to the decentralization and robustness of new chains. The rewards earned when validators produce new blocks are a key factor in balancing ecosystem security with network costs. Gauntlet has studied validator economics extensively and published innovative research on possible design improvements. In the medium term, we see a significant opportunity to apply our quantitative methods to better optimize validator tradeoffs.

Mechanism Design

Further out, we see many ways to apply our quantitative skillset to emerging challenges. As new chains seek to deliver tradeoffs suitable for different use cases, there will be ways to optimize mechanisms for the desired user experience and ecosystem features. Here, our recent explorations of MEV optimization and cross-chain dynamics will be valuable foundations for further work.


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