Just to be clear, they did nothing wrong. Just my perception. I will rephrase to remove any unintended interpretations.
if you like some particular project but think their fees are too high, choosing “none” above that project is arguably a good way to signal such a thing.
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@elisafly and I were chatting and realized that there seems to be some confusion about the value props of each proposal. This is understandable, the proposals are long (we had to get an exception on the post length to post ours!). To help delegates understand the implications of their vote, we’ve put together a quick spreadsheet that compares the three on what we consider to be the main points. It’s available here.
Importantly this is a working document. We’ve tried to be as impartial as possible and request that @llama and @karpatkey comment in the doc and DM me here (or @Moss if it’s before 9am EST tomorrow) and we’ll update in as close to real time as possible. I posted the same on twitter.
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Smart Contracts vs Finance Strategy
fwiw, I’m with @nick.eth and @AvsA on this, the on-chain custody mechanics are my #1 concern with any of the proposals. The finance stuff is all relatively theoretical in comparison, and is easier to adjust later. I appreciated the way @nick.eth and @AvsA broke it down.
Thoughts on proposals
The only group of the 3 I know personally is the Llama crew. That said, I think requiring a DAO-wide vote for each execution is missing the intention behind the RFP, and is simply impractical for a DAO this size.
I’d much rather we do this using a smart custody solution that gives the fund manager the ability to make quick decisions, but keeps the DAO in full control of funds at all times. This is the power a smart-contract blockchain gives us, and we should avail ourselves of that ability!
Finance stuff
I can’t offer smart comment on the finance particulars. The only thing I can say there is I think it’s good that Nick continues to point out that the goal is not to net a “return” for the DAO, but to have a sustainable pool of funds in the future to extend the runway of the public goods mission of the DAO.
Think university endowment, not business.
Advance, advance, stop at nothing to advance
On a personal note, I’d like to see the DAO execute on one of the Gnosis + X solutions, if for no other reason than it will be a very interesting experiment in pushing the envelope of what DAOs can do.
It’s not a break from the “values of web3” or DAOs, as others have suggested, this is how DAOs scale up operations over time: delegating meaningful authority to specialized groups/individuals while still retaining full authority and control of funds, enforced by the unbreakable covenant that is the Ethereum blockchain 
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Caney Fork voted:
- Karpatkey
- Avantgarde
- Llama
- None of the above
with its and DXdao’s (46k) ENS tokens.
The three most important items we considered were 1. Fees 2. Financial reporting 3. non-custodial management.
Llama’s fees are too high without a clear understanding of what additional value the extra costs bring.
Karpatkey and Avantgarde both seem like the type of professional manager who can evaluate risk and communicate it to the DAO. We have a slight preference for Karpatkey because their work with Gnosis DAO has overlapped with DXdao a lot, and so we can attest to their work and execution ability.
We are encouraged by the discussion around non-custodial financial infrastructure. Both Avantgarde & Karpatkey have made this a key part of their proposal. ENS should be at the forefront of sovereign treasury management. Again, we have a small preference for the Zodiac module over Enzyme’s. Even though Enzyme infrastructure has been around longer, the Safe ecosystem is a better foundation for DeFi and governance integrations because of its widespread adoption.
Regardless of the selected manager, we think the deployment strategies should be more focused on yield generated through fees (like Uniswap v3) as opposed to token incentives.
Thanks to all who submitted and the stewards for shepherding through the proposals.
I’ve written up a primer on how Ranked Choice voting works, which should help explain how to fill out your vote, and why the results for runners-up are sometimes counterintuitive.
Look I have been trading for almost 30 years now as well as managing my own personal portfolio of assets. While one might invest in an ETF or such that trades in and out of positions (which in the US would incur taxable gains btw) a long term investment portfolio should not be dominated by trading.
IF trading is the way you are going to offer returns I consider this a very high risk investment. It is one reason I was turned off by the ADAM options as they also relied on trading to generate return.
I am going to say this again. It is something I have shared with many DAOs hazarding them taking me up on putting liquidity there decreasing my own personal returns.
Uniswap v2 ETH-USDC LP is earning 8%. The LP value volatility goes as sqrt(ETH_PRICE). Since ENS wants to hold both ETH and USDC this is a no-brainer type of DEX investment that doesn’t require trading, managing or anything. It is a set and forget. This contract auto-compounds and hence DCAs into ETH via fees over time. It earns a high rate of return with a significantly reduced risk profile to ETH. This contract buys ETH when price goes down, and sells it when price goes up provides liquidity for everyone. win-win for the entire ecosystem. This return isn’t based on any farming rewards but is entirely sustained by trading fees. Uniswap v2 contracts I consider to be the most bullet proof and well tested contracts on chain.
But lets be clear there is risk, even if reduced. The above I believe to be the current best way to hold ETH. The beauty of the above btw ‘should Maker keep the ETH-USDC v2 LP as a collateral type’ is that the ENS DAO could borrow DAI (at 1.5%)
should it need cash for any reason. This is true of ETH btw but as one who has used this LP to borrow I can safely say I get more bang for my buck with this collateral than ETH or USDC alone.
This is something else completely ignored in these Treasury Management proposals - the ability to borrow against collateral (must less the collateral earning return). Not saying ENS needs to borrow at all, but every organization when it comes to finances should consider access to capital.
This achieves more or less the opposite of the goal of the endowment. If ETH goes down in price for a prolonged period, the DAO is left with more ETH and less USD, with no choice but to sell ETH at low prices in order to fund operations.
Again, the primary goal of the endowment is to ensure ENS’s long term viability. That’s achieved with a portfolio that is stable in USD terms, takes minimal risks, and offers returns sufficient to fund operations.
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The above is simply one suggestion for a long term investment that easily can generate significant return without a manager, or fees, that supports the ETH ecosystem in a way that reduces portfolio volatility risk. One could easily have a few of these. My point is that ENS DAO doesn’t need to have a manager, or pay fees, or even hazard any form of centralization risk(s) to achieve its basic long term goals.
I guess we shall have to wait and see if ENS holders are willing to give up much of the current treasury as well as the next 1-3 years of revenues to be put into a single manager. I wouldn’t do this personally and find the more successful investors and businesses to be well diversified on all fronts, both from asset management (and managers) to debt obligations and access to capital via debt.
I think another factor to consider is this. Typically the one who gets the job, is the one who most want it (all other things being equal).
From what I’ve seen Avantgarde team been hugging the issue pretty closely, monitoring social media and forum, tackling all the questions, actively debating and defending own position.
Llama was also good at that, but that’s not “all other things being equal” because there were some concerns about operational approach - fee and voting, which is causing some pushback from the community.
I can see, that Karpatkey is also somewhat involved in the discussion but it feels not to the extent the other two. This also tells me something about how the work will be prioritised within Karpatkey. That’s not to say, that K is not a good service, clearly one of the powerhouses in the industry, but it certainly is a good idea to have provider which is monitoring your specific case very closely.
Let’s say if you were to choose between two lawyers, to represent your case, which may be not that big in the grand scheme of things, but very sensitive to you personally. One choice is large well established firm, with proven track record, but the chances are that you’ll never get any attention from senior partner, second choice would be smaller / niche / boutique firm (whichever way you want to call it) which will provide to you undivided attention.
This is very subjective choice, some people might go for a larger firm just because. Delagates please make up your mind 
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Again, we have a small preference for the Zodiac module over Enzyme’s. Even though Enzyme infrastructure has been around longer, the Safe ecosystem is a better foundation for DeFi and governance integrations because of its widespread adoption.
I can’t emphasize enough how different the Zodiac module approach is compared to Enzyme. I haven’t seen audits on the Zodiac contract KK plans to use, no code, no docs or any thinking around how it prevents misappropriation of funds with the various protocols they want to use. There are different ways of ‘hacking’ funds from a SAFE depending on which protocol you’re interacting with.
Some recommended reading (short twitter thread)
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Hi Spike,
I’m Defi Foodie from Karpatkey. I understand your point around focus. If we are elected, we will have a dedicated team of full-time collaborators only on ENS. This has been part of our proposal from the beginning:
- 1 FT Endowment Manager (Overseeing the treasury and its alignment with the ENS DAO)
- 1 FT Financial Engineer (Responsible for financial modelling, and reporting)
- 1 FT Operations Engineer (Taking care of strategy maintenance and transaction execution)
They will work hand in hand with our other teams: Research & Strategy, Risk Management, Tech and Reporting. We will also have a frequently maintained emergency protocol in place, and we’ll be available to act quickly in case of a contingency like a sudden market downturn.
Regarding our participation in this forum and social media, we have been answering questions and technical specifics and adding our two cents when we thought it was necessary. We’ve also published a summary including a short video. This is an important and highly technical process that should be weighed on the merits of each proposal. We don’t believe ENS should be investing in risky, undercollateralized strategies. We don’t believe there is a substantial technical difference between plug-in X and Y as Mona describes. We believe our risk management framework is the main differentiator of our proposal.
We’re trying to find a balance between being responsive and not generating noise in the forum, including not voting ourselves. The community should make a sober decision based on merits and facts. If there are any comments you think we should address, please describe them and we’d be happy to go into more detail.
Howdy folks 
I’m Auryn, lead dev at Gnosis Guild, the creators of Zodiac.
Just wanted to chime in to clarify a few things about the Zodiac Roles Modifier that Karpatkey is proposing to use as part of their treasury management strategy.
The roles module:
- Has been audited. You can see the report on GitHub
- Has a $2M bug bounty
- Is a simple codebase, with a relatively small attack surface.
- Has been used for thousands of transactions in production by Karpatkey as part of their treasury management strategy for the GnosisDAO.
Happy to answer any questions here.
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Here are the results so far:
Each column represents a voting round; after each round the option with the fewest votes is eliminated and those votes are reassigned to the voters’ next choices. The final round shows the runoff between the remaining choices.
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Hi all, based on each proposition’s info and discussions, I’ll be voting for the following:
- Avantgarde
- Karpatkey
- None of the Above
- Llama
While each proposal involves a sufficient level of trust-minimization, where funds are held in a non-custodial manner, Avantgarde and Karpatkey provide the flexibility/role delegation that’s required when allocating capital to yield strategies with a non-zero risk profile. The ability to pull funds from a strategy may have to occur on the order of hours or minutes (known unknowns + unknown unknowns), so while requiring an ENS DAO vote for strategy is an idealistic goal, it is not a realistic one. Therefore Llama’s proposal is a non-starter for me personally.
Avantgarde and Karpatkey are close calls, but I am generally more aligned with the former’s inclusion of institutional lending as a sustainable source of yield (without going all-in on such strategies). To be clear, both institutional and pure DeFi focusing lending have risks (albeit different kinds of risk; compounded composability risk vs default risk), but a balanced approach that straddles both without going overboard on either can best serve the DAO’s goals.
Farm and dumping subsidy tokens for yield has defined DeFi over the past 2+ years, but I don’t believe an all-in focus on this approach meets the requirements of long-term sustainable yield. As a parallel we’re already seeing other DAOs step into the world of institutional lending like MakerDAO, though is not a 1:1 comparison by any means.
I appreciate the thoughtful input that’s been given by various parties.
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Thank you for the thoughtful post and reasoning!
Here’s the updated state-of-the-vote after CLG’s vote:
Tech does not end in non-custodial fund management but instead extends to risk management. We’ve learnt no DEFI strategy is passive, so a simple risk management policy is insufficient. We need processes, protocols, infrastructure and many war rooms to act in a hack, market manipulation attack or many other unexpected market situations.
I’m surprised nobody else even mentioned this in their proposals, likely because of inexperience.
Another core function of a fund manager is the criteria, skill and experience in decision-making and economic/incentives modelling.
For example, we would never agree to lend DAO funds to Maple or Goldfinch in the current state.
Maple, as a lending platform, should be neutral from pool delegates. Instead, they support them, likely because they are also investors. This aspect is risky and I hope Maple will change it.
Some red flags:
-
Lending funds to Alameda in July 2022, after the Luna collapse, when it was likely already insolvent. The payment was due for January 2023, but for some reason, it was repaid fully in advance.
-
Open loans on crypto hedge fund Wintermute which was hacked and had funds on FTX
-
Open loans with crypto hedge fund Folkvang, partly owned by FTX
-
Recently liquidated Crypto hedge fund Babel was using customer funds to trade.
-
Orthogonal Trading borrowed $36MM from Maven 11
-
Most other borrowers are not googlable; many are likely part of an opaque legal engineering structure from other crypto hedge funds.
Goldfinch lends funds to consumers in developing countries. There is the question of not if, but when these countries are going to default on their debts dragging down the whole market. Again.
We agree the rationale of decision-making and risk management are super important too. For example, Luna and FTX failed due to poor financial modelling and risk management, not smart contracts.
I think we failed to convey the goals of a proper Finance Working Group. A Finance department in any organisation has a much broader scope than just creating reports; there is analysis, proposals, and execution.
The report is the visible output. Without a team working with the data, a report only contributes to visibility, not much more.
The goal here was to achieve self-sufficiency asap. It seemed an essential purpose of the RFP.
I wish we had your feedback sooner; this is a parameter we could easily change.
I apologise for giving this impression; we’re technical people not used to public speech. I can assure you we’re 100% committed to ENS. Our commitment shows in the full-time team dedicated to the Finance Working Group, supported by teams composed of 17 full-time DAO treasury professionals.
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Twitter Space
Twitter Space happening later today (2pm ET) with the three finalists + @nick.eth and @AvsA.
The Space will also be recorded for those who aren’t able to join live.
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Hey, I didn’t mean to put a negative spin on this, it was just an observation and I also try to be as objective as possible. I’m a bit of social media manic myself, today most of the cool stuff on CT and such, otherwise how do you stay informed. So I just noticed how Avantgarde was hugging every twit and every relevant post they saw, providing feedback and defending their position. I felt like they are very “present”. Also keep in mind that this is my subjective opinion, everyone is different.
Good morning!
No investment is risk-free. If it were, it would yield nothing.
Our approach to portfolio management is not to avoid risk entirely, but to focus on making sure we thoroughly understand the risks (and rewards) of a given investment through extensive research and diligence. We look to understand for example, how these protocols work, where, how often, and to what extent can things go wrong and what does the protocol stand to gain if things go according to plan? I spoke about this at length in @Griff 's Twitter space on Saturday.
Allocating an appropriately-sized portion of a portfolio to strong risk-adjusted opportunities is how an investment strategy generates returns. Sizing riskier positions appropriately also means if things don’t go to plan, the overall portfolio can still survive and even thrive. Maple and Goldfinch do indeed represent relatively higher risks than e.g. Compound and Aave, but we believe the proposed sizing in our model portfolio is appropriate for the return potential
Now, on to specific claims made:
Lending funds to Alameda in July 2022, after the Luna collapse, when it was likely already insolvent. The payment was due for January 2023, but for some reason, it was repaid fully in advance.
This is a red herring. Maple as a protocol had no outstanding direct exposure to Alameda at the time of its bankruptcy and lenders suffered no losses due to an Alameda default. Indeed, the pace of lending to Alameda had slowed, and lending was stopped from their single-borrower pool based on delegates’ concerns over the degradation of Alameda’s financial statements prior to the Luna collapse.
For those that are interested in listening to Maven11 and Orthogonal’s credit managers describe the process, there was a great webinar last week that walked through the Alameda collapse from their perspective.
- The last loan to Alameda from the Orthogonal USDC pool was a 90-day maturity issued on 17 Feb 2022 that was repaid in its entirety. This can be viewed in the Maple app here and verified on chain.
- The last loan to Alameda from the Alameda Single Borrower pool was a 90-day maturity issued on 21 May 2022 that was repaid in its entirety. This can be viewed in the Maple app here and verified on chain.
- The last Maple loan to Alameda was issued from the Maven 11 pool. It was a 90-day maturity issued on 4 June 2022 that was repaid in its entirety. This can be viewed on the Maple app here and verified on chain.
Open loans on crypto hedge fund Wintermute which was hacked and had funds on FTX
Open loans with crypto hedge fund Folkvang, partly owned by FTX
Two points here.
First, Wintermute and Folkvang, like every other market maker in the space, have funds trapped on FTX. Wintermute did have their DeFi operations hacked. However, thanks to proper counterparty management, none of the above have a material impact on the companies’ balance sheets and none resulted in losses to lenders. Notably, Folkvang was the first market maker to repay all their outstanding debt to counterparties to alleviate any concerns.
Second, the equity investment you’re describing in Folkvang was made by Alameda, not FTX. Alameda made equity investments in dozens (hundreds?) of crypto-native companies. Their investment in Folkvang was small as a percentage of the company’s total equity and came with no strings attached in terms of volume requirements on FTX itself (see first point regarding counterparty risk management).
Recently liquidated Crypto hedge fund Babel was using customer funds to trade.
From the lender’s perspective, the total return in the Orthogonal USDC pool since inception is 5.96% inclusive of the Babel default loss (before recovery), and 2.1% YTD as of Sep 2022. These numbers are exclusive of MPL rewards.
Babel suffered a material loss caused by poor option hedging strategy that went against their book of assets and subsequently caused liquidity issues. This ultimately forced the firm to freeze assets and suspend normal operations. Orthogonal proactively issued a notice of default due to their inability to continue normal business operations, which was a breach of the Master Loan Agreement.
Upon default, Orthogonal bolstered the Pool Cover with an additional $1MM of capital to insure an adequate buffer for future and outstanding loans.The Maple Foundation, on behalf of the pool, has continued pursuing off-chain recovery with debtors and other creditors under New York Law.
Orthogonal Trading borrowed $36MM from Maven 11
Orthogonal Credit is a separate operational team from Orthogonal Trading. Orthogonal Trading is a well-established market making firm with robust financials and solid track record. Orthogonal Credit is a dedicated team to the credit operation on Maple Finance with deep experience in loan origination, risk management and capital markets. Orthogonal Credit is able to leverage Orthogonal Trading’s subject matter expertise in crypto market marking to enhance their risk management thesis. Importantly, Orthogonal Credit never lends to Orthogonal Trading from its Maple pool. And the beauty of the blockchain is that this is observable in real time.
Borrower prepayment of loans into the Maven11 pool means that Orthogonal currently makes up a large portion of the debt outstanding. To alleviate this imbalance, Orthogonal has started early prepayment of their loans with another 10m USDC to be repaid early over the coming weeks.
Most other borrowers are not googlable; many are likely part of an opaque legal engineering structure from other crypto hedge funds.
This is also a red herring and an unfounded speculation. Although delegates take reputational risk into consideration as part of their DD process, whether a borrower is discoverable by the general public has no impact on their credit-worthiness.
Goldfinch lends funds to consumers in developing countries. There is the question of not if, but when these countries are going to default on their debts dragging down the whole market. Again.
It is true that Goldfinch borrower pools have exposure to developing economies. This exposure is diversified across many countries and is fully collateralized at the individual loan level. Defaults at the loan level, the sovereign level, the pool level - all possible! But Goldfinch’s diversified nature, as well as our portfolio’s diversified nature, mean that none of those hypothetical defaults would have a material impact on the Endowment.
Maple, as a lending platform, should be neutral from pool delegates. Instead, they support them, likely because they are also investors. This aspect is risky and I hope Maple will change it.
I’m not sure I quite understand this point, but assuming you mean that Maple should function without pool delegates, I disagree entirely. Maple, at its core (in my opinion), is a coordination and incentive alignment platform. Lenders’ incentives align with delegates’ incentives align with the protocol’s incentives. Lenders provide capital, delegates provide first-loss capital and underwriting services, and the protocol provides the platform. Without the delegate’s underwriting services, there would be no way to meaningfully evaluate borrower risk and the platform would cease to function.
Implicit in the “we should get rid of pool delegates” argument is the idea that these types of risks can be managed purely by on-chain or algorithmic systems. I would argue that while this is a worthy goal, market structure complexity means that it’s currently not a feasible one. Tools such as Credora, which gives visibility into a borrower’s assets and credit worthiness in real time, are just that - tools (and good ones!). They enable and empower human decision-making. In the case of Maple’s current roster of pool delegates, that decision-making is also informed by decades of risk management experience, such that delegates are able to recognize “another one of those” (cribbing from Ray Dalio, apologies).
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