karpatkey: 2022 Year in Review for Gnosis
Executive Summary
2022 was a demanding year for our industry. Extreme market volatility events have put our infrastructure and processes to a test. Overall, we think the outcome has been positive: we’ve withstood the stress test, and worked alongside with Gnosis to build a stronger foundation for the future. During the last year, karpatkey has invested significant resources into developing the Gnosis Chain (GC) and GnosisDAO’s treasury, improving the long-term value of GNO. Here’s our 2022 YOY Report for Gnosis for further details.
Our team became a power user of GC’s protocols, providing them with usage feedback, bug reporting, improvement suggestions, and liquidity provision to help them thrive and become more attractive to users. We’ve been collaborating with the Gnosis Builders to attract new protocols to GC and foster its growth towards mass adoption.
On top of business development, our contribution to GC extended to infrastructure and risk management development. karpatkey’s Tech team worked on bridge infrastructure, liquidity balancing, and router maintenance. We also set up 3500+ GBC validators, positioning ourselves among the top five depositors. Our Risk Management team has developed risk models related to bridges and execution operations, as well as liquidation thresholds and supply and borrowing caps for lending protocols on GC.
During the last year, we kept professionalising the processes around the GnosisDAO treasury development. We streamlined our internal processes and risk management capability, developing early alert bots and improved risk mitigation models. We further strengthened security measures by auditing our internal OPSEC and having 2 external auditors review the Zodiac Roles Modifier.
We kept improving our reports and dashboards to increase transparency to the community. Our investment in automation allowed for a better planning and control, and was a valuable contribution in ensuring liquidity was made available in a timely manner to fund all GIPs and financial obligations of the DAO.
We also collaborated with the thorough analysis of the GNO valuation model which backs the bullish statement that supports the Gnosis vision and builds trust.
Overall, 2022 was a year of expansion and improvement in processes and efficiency, with a greater focus on risk management. In the coming year, we’ll work towards migrating Gnosis DAO’s treasury to the GC, increasing its TVL, and leading the way for other players in the ecosystem.
Also, we’ll work on strengthening bridges and fostering the creation of more native and independent assets. We’ll be increasing the borrowing opportunities in GC, having more collateral options to choose from, such as stETH.
We’ll further increase the transparency of our operation through better reporting and extended automation to take on greater workload and improve capital efficiency. In the coming months, we’ll keep up our contribution to GC’s decentralisation through our validators and further consolidate our risk management ability by designing and implementing industry-leading practices.
Gnosis Chain
Bridges
karpatkey Made $100K transfers possible to Polygon, BSC, Arbitrum, Optimism, Fantom, and Avalanche. We built DevOps infrastructure for GC, Hop and Connext (Xpollinate). \
The bridge was used to invest part of GnosisDAO’s funds, and we took care of halting it for the Ethereum merge:
- Configured Connext bridge (formerly Xpollinate) servers with $7M in stablecoins, with a rigorous monitoring and alerting system. We’ve been responsible for maintaining and ensuring liquidity on the various blockchains by tracking balances and making the necessary transactions when needed:
- Supported chains: Gnosis, Avalanche, Binance and Fantom;
- Liquidity Tokens: XDAI, USDT, USDC;
- Developed the Omnibridge and XDAI Bridge investment strategy by analysing the daily transfers and the different holdings, providing input for defining bridge limits (pending implementation).
- Managed the halting of investments for Ethereum’s Merge by disabling the “invest” method on the bridge contract and sending the funds back to the bridge.
- Elevated the xDaiBridge and OmniBridge limit recommendations to improve UX and risk exposure based on our Analysis of Gnosis Chain Bridges Daily Limits.
Lending Protocols
Worked to strengthen money markets, the largest improvement opportunity of GC’s DeFi ecosystem:
- Negotiated the acquisition of AGVE tokens by the GnosisDAO.
- Started using Hedgey with the Agave token swap (12.5k AGVE <> 3,875 GNO).
- GIP-34 and GIP-40: Agave and Hundred Finance hack. Negotiated with parties, prepared the strategies and defined the parameters in the best interest of Gnosisdao. Executed the proposals.
- Worked with Agave and Balancer to deploy token wrappers for Agave’s interest-bearing tokens. This was identified as a key prerequisite in the Balancer dApp deployment roadmap.
- Deployed $6MM in Agave and increased liquidity in GNO, stablecoins, and WETH (more funds contingent to a SC audit).
- Improved loan health by fully repaying the debt on Agave.
- Collaborated with the Agave team in deploying USDT for borrowing and lending, being USDT one of the main stablecoins in DeFi, with risk parameters, such as liquidation thresholds defined jointly with RiskDAO. The USDT money market was also kick-started with funds allocated by Karpakey.
Liquidity
Providing liquidity for the GC is a top priority for the Strategy team. We focused on non-profitable and strategic positions for the GC DeFi ecosystem, making GNO the most liquid token in the ecosystem:
- We’ve increased overall liquidity of different tokens on GC:
- GNO/ETH
- GNO/xDAI
- sGNO/GNO
- rGNO/sGNO
- GNO/COW
- GNO/GIV
- WBTC/WETH
- GNO/WETH
- Improved GC’s TVL and liquidity by disassembling many farming-driven positions on Mainnet and migrating to GC.
- Supported Azuro with liquidity negotiations as it expanded to new betting markets (a new DeFi vertical) in GC, while improving the GnosisDAO participation on the project’s growth.
- As part of the strategy to bring Balancer to GC, we provided liquidity to 8 pools on Aura. The optimisation was related to maximising yield while managing risk, in order to increase our AURA holdings and our control over emissions through added voting power.
- Created a new GNO/WATER pool in collaboration with Honeyswap to provide more GNO availability.
- Met with ICHI to analyse the possibility of using their pools to improve GNO liquidity. An ICHI vault was constituted with 16,980 GNO, but this initiative didn’t prosper after the ICHI token price drop, which resulted in an 8K GNO loss.
- Long-term deposits of Curve and Convex tokens to have pools grant greater rewards in Curve in GC.
DeFi User Experience
We’ve become the heaviest user of the GC’s dApps, such as SushiSwap, Curve, Azuro, Agave, Swapr, Elk Finance, Symmetric (v1 and v2), HoneySwap, RealT Market and QiDAO; laying the path for future users.
Overall, we:
- Deployed a team of 4 people in direct contact with most protocols on GC.
- Reported bugs, like fixing the APR that showed in the UI for SushiSwap and Curve, and flagging unplanned interruption of CRV emissions in GC.
- Created pools for DAO tokens, like QI and CRV.
- Helped Elk & Symmetric fix pool creation bugs.
- Suggested adding a Claim button to the Agave team.
- Suggested the addition of Wallet Connect to the Curve team.
- Made it possible to swap rewards in Sushiswap and Curve, by increasing liquidity to a level where price impact was not an impediment.
Business Development
We focused on different business development activities, incentivising the usage of the protocols recently launched in GC by granting them GNO to be distributed among their users.
Overall, we:
- Got support from the Debank and Zerion teams to integrate communications of GC protocols with their platforms.
- Published the Medium Article: Analysis of GnosisDAO Treasury.
- Drafted the Balancer-GnosisDAO Partnership Proposal (GIP-22), including technical collaboration and marketing joint efforts, which was successfully carried out and resulted in the Balancer-CoW Partnership (BCP).
- Participated in Coinshift’s AMA Session on karpatkey DAO’s approach to transparency and risk management for Gnosis DAO.
- Posted a proposal to start working with the CoWDAO treasury, of which Gnosisdao is a significant stakeholder (currently passed).
- Supported, and will keep working, in enabling a successful Monerium and EURe integration in GC. We created and seeded the first pool in GC for EURe/USD in Curve, which required deploying new smart contracts and working with Curve to update protocol’s front end, improved the token’s exposure in web3 space by including it in additional token lists in Coingecko and DeBank, and offer technical and security guidance to the team.
- We’ve worked with Stakewise to enable the farms and for the constitution of a SGNO/RGNO liquidity pool. The staked GNO is used for GC validators:
- Staked $2M GNO at 17.5% APR
- Deposited GNO in exchange for sGNO, with rewards in rGNO
- Worked with Circles and helped with their participation in DeFi by creating a GNO/BER pool on Honeyswap (GC) as well as defining the roadmap for new products (perishable shares).
Several protocols were analysed and invited to launch in GC as well:
- 1inch (joined)
- Published a proposal for AAVE governance to add GNO as collateral.
- Worked with Azuro to align incentives with the GnosisDAO and enable protocol growth
- Curve (joined)
- Dehive
- DXdao (joined)
- Elk Finance (joined)
- Hop (joined)
- Knit Finance
- MakerDAO
- RealT
- Staked
- Sushiswap (joined)
- Symmetric (joined)
We’ve also worked on the Partnership with MakerDAO:
- Proposed a strategic partnership between Maker DAO and Gnosis DAO in both Maker DAO and Gnosis DAO’s forums. The Gnosis Snapshot (GIP-49) was approved almost unanimously. The signalling proposal included the following items:
- A GNO-MKR token swap of around $70 million to the Maker community.
- Explore the use of an institutional MakerDAO vault with the GnosisDAO treasury using GNO + stETH and mint DAI to be used for the development of GC (which was successfully implemented).
- Explore a GNO grant with MakerDAO growth core unit to expand global adoption and brand awareness of GC.
- Rebranding XDAI to DAI.
- Worked jointly with Maker Growth to publish a strategy to drive DAI usage in GC in Maker and Gnosis forums. We have put together a document with current XDAI uses and proposed future DAI usages (including the rebranding of XDAI to DAI).
- Met with the Maker Growth team at Devcon Bogotá to determine the technical support required for the XDAI to DAI rebranding effort and coordinated with the Gnosis Builders team. We’ll keep working to support available DAI ramps in GC.
- Held several meetings with the Growth and Risk Maker DAO core units to discuss all aspects related to onboarding GNO as collateral e.g. minting caps, stability fee, available liquidity. We negotiated a substantial improvement of the stability fee from 5% to 2.5% and then posted a proposal to have GNO accepted as collateral to mint DAI @ MakerDAO. The proposal was approved with over 91% in favour.
- Started working with the Maker GNO vault the day it was deployed (Dec 13th).
- Partially repaid the debt on MakerDAO to reduce liquidation risk. MakerDAO CR = 376%.
Validators
We’re running a GC Nethermind node, a GBC Prysm node, and maintain currently 3548 GBC validators using our own server infrastructure, positioning ourselves among the top five depositors.
Overall, we:
- Built routers, improved liquidity on Xpollinate bridge.
- Researched assets in need of improved liquidity in terms of bridging.
- Analysed the performance of the different bridges to and from the GC.
- Deployed Connext Routers with several token pools.
Bridge Validators
karpatkey became an official bridge validator, running XDAI and AMB bridge validators (mainnet-gc). Overall, we:
- Successfully tested the chiado-bridge-validators (goerli-chiado).
- Coordinated with Gnosis’ core devs and helped the Bootnode team test the bridge operations thoroughly on the Chiado network.
- Documented chiado-bridge-validator deployment + monitoring + alerting.
Incentives Program
With the addition of a full-time resource, the following are the accomplished highlights of 2022:
- Drafted GIP-24: 1st phase 50K GNO Incentives Program for Gnosis Chain as proposed in GIP-16, resuming the work done in GIP-16 to launch it after its approval, making sure its rules were not gameable:
- Improved rewards for high-priority protocols, optimising GNO rewards to improve GC network effects and financially aligning the incentivised protocols and the GnosisDAO treasury.
- The program included the following protocols: Sushiswap, Agave, Balancer, Symmetric, Elk, Curve, StakeDAO, Swapr, Dehive, Hop, Avado and Dappnode.
- The Incentives Dashboard was created to monitor incentives allocation and manage available funds.
- Carried out a Liquidity and Incentives Segregation analysis to minimise the overlapping of liquidity-providing positions and GNO incentives captured by the Gnosis DAO and enable a cleaner analysis of the effectiveness of incentives.
- Replaced direct GNO incentives on stablecoin liquidity in Curve with a more efficient strategy based on bribes on CRV and CVX voting markets (Votium), reducing the overall amount of GNO required.
- Incentivized liquidity on Hop protocol ensuring connectivity to Polygon, Arbitrum and Optimism.
- Supported Cowswap project with incentives to COW pools in GC and Mainnet
- Based on our experience with the Curve bribing strategy, we made incentives on the GNO/COW pool in Balancer more efficient by leveraging on BAL and AURA voting markets in Hidden Hand, reducing GNO required by 33%.
- Added information in the GNO incentives section in our weekly report.
- In an effort to quickly adapt to dynamic GNO market conditions, we reduced GNO selling pressure by efficiently focusing incentives on key GC elements, i.e. Hop bridge liquidity, BTC liquidity, lending markets, and stablecoin liquidity.
Risk Management
2022 marked the beginning of our major long-term investment in implementing state-of-the-art risk management practices. Overall, we:
- Created and shared the first version of the Risk Map for the Gnosis DAO portfolio, where we identified risk parameters as well as prevention and mitigation actions. We have worked on additional risks related to bridges and execution operations to be included in the map soon, including GC AMB risks on daily transaction limits.
- Created a dashboard to monitor specific risk parameters for decision-making on portfolio optimisation and risk management, such as stablecoins depeg, ETH derivatives liquidity and price deviation. Developed alerts for CDP statuses, price drops for specific tokens, and thresholds for many risk parameters.
- Assessed options of risk management companies focused on lending protocols for improving Agave’s risk parameters. We hired RiskDAO as a service provider and worked jointly with the Agave team to provide preliminary recommendations for liquidation thresholds for Agave’s current status with no supply and borrowing caps in place. Also, we developed a live dashboard to help design the protocol’s risk parameters strategy (liquidation thresholds, supply and borrowing caps) for whenever they were deployed.
Testing & Deployments
Our Tech team has worked with GC’s core developers to support testing and deployments in multiple infrastructure areas.
Chiado testnet:
- Collaborated with pre-merge testing on the Chiado chain.
- Successfully ran the node and tested through the Chiado merge
- Coordinated with the Gnosis core-devs team during the merge.
Hop router:
- Deployed DAI Hop/Bonder (cross-chain bridge) with best infra practices.
- Supported chains: Mainnet, Polygon, Gnosis, Arbitrum, Optimism.
- Token: DAI
- Hop explorer
- Created the Hop/Bonder Kubernetes stack and contributed to the community
Curve pool deployments:
- Deployed the Tricrypto meta pool on Gnosis Chain, its deposit zap contract and its gauge:
- Deployed the EURe/3CRV crypto meta pool, its deposit zap contract and its gauge:
- Coordinated with Curve’s team for them to add these non-factory pools to their UI.
Erigon disbursement contract:
- Deployed and tested the disbursement contract to be used to pay Erigon.
GnosisDAO Treasury
Execution
- Reduced the DAO’s exposure to USDT and any potential depeg on that asset by deploying part of the stablecoins portfolio in DAI/USDC pool on Curve and lending positions on Compound.
- Diversified the liquid staking ETH positions by staking ETH on Rocket pool and getting rETH (used on Aura), and staking on Stakewise and getting sETH2 (used on UniswapV3).
- Locked ~1MM BAL equivalent of veBAL in Balancer, as part of the project to deploy Balancer in GC. This action contributed to the collection of fees, rewards, and indirect incentives:
- 272K BAL (~$2M)
- 762K AURA (~$1.5M)
- LDO, RPL, USDC, GNO from bribes (~$300K)
- Developed an economic model of Aura to optimise the locking of BAL.
- We became one of the main liquidity providers of Aura Finance (reaching $41MM) and managed the positions to maximise rewards. We also negotiated OTC deals to achieve $2.5M vlAURA locked (current voting power = 1.3M AURA).
- We have been working to provide liquidity for COW:
- GNO/COW on Balancer
- WETH/COW on Balancer
- COW/GNO on Honeyswap (GC)
- COW/GNO on Swapr (GC)
- COW/GNO on UniswapV3
- COW/ETH on UniswapV3
- Listed GNO/COW in Aura Finance and added indirect incentives to vlAura holders.
- Due to the large amount of funds required to execute the approved GIPs, the GnosisDAO started to get additional stablecoins through collateralised loans. Assets locked as collateral to get loans in stablecoins: 85,103 ETH value, 49.25% of the AUM.
- Carry traded stablecoins minted in MakerDAO with staked ETH in Lido as collateral, managing the risk with a healthy collateral ratio and payment plan based on DeFi rewards:
- Minted $70M DAI in MakerDAO, using stETH as collateral
- Continued increasing our position in stablecoins selling staking rewards to be ready to pay MakerDAO’s debt (25M DAI outstanding - CR = 370%)
- Increased MakerDAO’s collateral ratio, consistently maintaining a healthy ratio in order to be prepared in the event of a stETH depeg
- Improved GNO liquidity on Mainnet by increasing the Uniswap V3 GNO/ETH position. The slippage for swapping $10M GNO for DAI was increased to 34%, following MakerDAO’s requirements and achieving the approval of GNO as collateral (current slippage for $10M GNO = 24%).
- Strategic price tracking of GNO by analysing its pools’ TVL in the market, maintaining a healthy composition, and actioning with buybacks in order to reduce slippage and ensure liquidity.
- GNO has been deployed in Avalanche, Binance Smart Chain, and Fantom through Celer, bridging from Mainnet.
- Held Emergency Execution Meetings on the following dates:
- 12th May 2022 (stETH liquidation risk - improved collateral ratio)
- 13th June 2022 (stETH liquidation risk - improved collateral ratio)
- 15th June 2022 (stETH liquidation risk - improved collateral ratio)
- 27th June 2022 (stETH liquidation risk - improved collateral ratio)
- 29th October 2022 (Giveth/Node Pools - removed funds before crash)
- 10th November 2022 (USDT depeg risk - removed funds to reduce exposure)
- Wrote an operations procedure on how to set up the Zodiac Pilot Browser extension and how to trigger a transaction with this tool.
- Ensured an efficient treasury management to generate yield while providing liquidity for payments and incentives for Gnosis Ltd. (Cowswap, GmbH, Gnosis Employees) and consistently worked with the Finance Team to improve tracking and reporting…
GIP Execution
Reached out to the different teams and coordinated the funding of the 25 Gnosis Improvement Proposals which required it. Also, we published the following ones:
- GIP-20: to kickstart karpatkeyDAO’s work with GnosisDAO
- GIP-24: to launch the first phase of a 50K GNO Incentives Program for Gnosis Chain
- GIP-26: to partner with 1inch to increase the GNO:1INCH liquidity on Gnosis Chain.
- GIP-28: to allow GNO holders to vote even if their GNO were invested/staked/locked in Smart Contracts in different protocols/networks.
- GIP-58: to extend karpatkey DAO’s service
Reporting
- Worked on the 2022 YOY Report for Gnosis as we gathered, sorted and cleaned information related to the initial balances and positions and their evolution throughout the year.
- Created the GNO rewards dashboard.
- Consistently uploaded the Weekly Report: A week in GnosisDAO farms, and gathered feedback to continuously improve the transparency and reliability of the information presented.
- Adapted the design to follow the community’s feedback and worked on improving the readability of the information
- Added Positions’ purposes (the core of our strategy) in section 3
- Added Avg APR and Capital Utilisation evolution
- Calculated the Funds distribution between Mainnet and GC
- Added Lending and borrowing interest expense (requested by the community)
- Included a brief explanation about the strategy for the week
- Included the breakdown and a brief explanation for the incentives program
- Included the breakdown of the executed GIPs
- Calculated IL results for removed positions.
- Kept track of IL and took action on the strategy.
- Collaborated with the development of the first working version of the GNO valuation model, kicked off together with a GNO Holders analysis in collaboration with other Gnosis stakeholders, with the intent to understand the economics and to develop a data-based bullish narrative.
- Also, we provided updated information to Etherscan to have their systems reflect trustworthy, up-to-date information about the GnosisDAO.
- Automated report sections by developing functions to optimise the feed of data and the accuracy of the metrics.
Risk Management
- Evaluated a proposal to buy a significant part of AURA OTC to incentivise Balancer without direct GNO incentives. A part of the funds from GIP-24 were used to push the Aura OTC. These pools are 80GNO-20WETH, 50GNO-50COW and 50COW-50WETH. This action had a complementary strategy: to be an early liquidity provider in Aura Finance obtaining fast results. For instance, auraBAL lock had an APR of 480% during the first stage. This combination of actions was instrumental to obtain an important participation in Aura Finance, of around 10% of the current circulating supply.
- Developed critical scenarios and emergency plans, periodically updating our emergency protocol, in order to reduce vulnerabilities and shorten the response time for handling sudden or unexpected situations.
- Developed and started tracking the “Liquid assets to debt ratio” risk parameter, which helped us understand the GIPs’ impact (erogations of ~8M DAI and ~5M USDC) and redefine the strategy.
- After conducting due diligence, we started to work with Hypernative to improve our actions in 1) monitoring all assets, pools and contracts in Mainnet related to the GnosisDAO portfolio and 2) receiving additional alerts to those developed by our tech team related to the identified risks mentioned in the risk map.
- Created an internal scoring framework to identify the risk level of each strategy deployed or planned.
Monitoring & Alerts
We developed an automated early alert system that sends TG/Slack messages when there are sudden price changes which affect our farming positions, or when collateral ratios of loans hit critical thresholds. This allows us to work with greater capital efficiency. \
Monitoring and alerting stack:
- We use Prometheus, Grafana and Loki for monitoring, alerting through multiple channels on slack/TG, and feeding a central level logging system.
- The stack is being used to monitor our GBC validators, Connext router, Hop bonder, Harvesting Bot, etc. (we use docker + kubernetes for our infra practices).
- Our monitoring Github repo can be found here.
Bots & Data Warehouse
We have worked on automating repetitive tasks to reduce their workload to allow us to focus on more complex tasks, increasing our scalability. Also, we created our own data warehouse to use as a data source for our reports.
- Worked on improving bots to provide depegging and liquidity alerts (tracking pool shares, spot prices and tokens’ inflows/outflows).
- Modularisation of our Python code to display our different development projects in public repositories, e.g. Monitoring Bot and our one and only DeFi-Protocols package:
- karpatkey has created defi-protocols for well-known platforms, which is open source and can be used for various purposes such as the alerting system and harvesting bot.
- The new package was published and soon to be well-documented.
- Harvesting Bot:
- Developed the first application automating transactions by means of the Roles mod and a designed preset.
- It claims rewards automatically on behalf of the DAO safes on GC.
Developed a data warehouse to retrieve and store information from Mainnet and GC. The data ETL uses Web3 and the defi-protocol package.
- Data is posted hourly/daily according to needs, and would be used for reporting and risk analytics.
- Information available is organised according to these categories:
- Wallets & protocols investments balances
- Protocols & pools APR’s
- Protocols & pools Fee’s
- Protocols & pools Rewards
- Protocols & pools/wallets unclaimed rewards status
- Token price list
Zodiac Roles Modifier
We have dedicated a significant amount of hours to the Zodiac Roles Modifier, which will allow us to eventually operate without trusted signers.
- Collaborated with the Gnosis Guild team by testing and providing feedback of the Roles mod and the Pilot extension on GC and Mainnet.
- Collaborated with the team by developing presets and helper functions for the Roles mod’s SDK, pushing to Zodiac’s repo.
- Analysed multitudes of smart contracts regarding the applicability of the Roles mod’s permissions approach, providing scope and design directions for the Roles mod V2.
- Participated in Gnosis Guild’s last Commitment Ceremony providing input on the different prophecies.
Security
- OPSEC: Received operational security protocol audit from Cipherblade.
- Implemented Redefine’s proactive risk mitigation system, overseeing all transactions.
- Educated the execution team in the usage of Tenderly to better analyse transactions.
- Gnosis Guild: We hired two independent auditors to evaluate the Zodiac Roles Modifier. All audits can be found here:
- Sub7 audit
- Ackee audit
