Introduction:
Gauntlet is a purpose-built risk management solution provider for Decentralized Finance (DeFi). Since 2018, we’ve helped protocols navigate volatile market cycles, stress events, and black swan risks by continuously optimizing risk parameters based on real-time market data. Our approach is active and data-driven — we monitor on-chain liquidity, asset volatility, user positions, and many other parameters to make regular, targeted parameter adjustments that align risk with overall market conditions.
Gauntlet’s platform quantifies risk, runs economic stress tests, and dynamically calibrates parameters through an optimization framework tuned to both historical and real-time market data. Using statistical techniques and agent-based simulations, we model how users interact with DeFi protocols under different market scenarios. As new risks emerge, we iterate and adapt, refining our methodologies to integrate the latest risk mitigation mechanisms developed by our clients and the broader DeFi ecosystem.
Key Risk & Capital Efficiency Metrics
Gauntlet’s simulations stress-test worst-case market conditions by modeling rational agent behavior under extreme scenarios. To assess protocol resilience, these models incorporate real-time market conditions, user behavior, and liquidity dynamics.
After running simulations, our optimization framework evaluates end-state risk and efficiency metrics to determine parameter recommendations. The three core concepts we analyze are:
- Insolvencies – Ensuring the protocol minimizes bad debt and remains solvent across stress scenarios.
- Liquidations – Measuring capital lost to liquidators, balancing risk mitigation with capital efficiency.
- Borrow Usage – A proxy for protocol revenue, tracking how capital is utilized within the system.
Risk parameters are not static—they must dynamically adjust to shifting market volatility, liquidity conditions, and user behavior. These metrics, by nature, are probabilistic—our models generate forward-looking “what-if” scenarios to quantify potential risk exposure and maximize capital efficiency while protecting protocol stability.
Parameters Under Management
- Borrowing LTV: The maximum borrowing power of a specific collateral/borrow pair.
- Liquidation LTV: The threshold at which a collateral/borrow position will be considered undercollateralized and subject to liquidation.
- Borrow Cap: The maximum total value of a given asset that users can borrow.
- Supply Cap: The maximum total value of a given asset that users can supply.
- LTV Ramp Duration: The ramp duration when changing the liquidation LTV.
- Interest Rate Curve: The interest rate model parameters.
Rapid Response & Timelocked Risk Steward Access Controls
Per eIP 62: Optimistic risk management via timelocked risk stewards and limited rapid response, we are noting the new GovernorAccessControlEmergency contract on all Euler DAO-governed vaults. Gauntlet will be granted to the following roles to enable rapid response to time-sensitive situations without compromising the overall access control structure of the governor:
- LTV_EMERGENCY_ROLE
- CAPS_EMERGENCY_ROLE
- HOOK_EMERGENCY_ROLE
- PROPOSER_ROLE
- CANCELLER_ROLE
Communication Plan:
Effective risk management requires clear, ongoing communication with the community. We will provide structured updates on risk parameter changes, market trends, and protocol health to ensure governance participants have the necessary context to make informed decisions. Our communication plan includes:
- Parameter Recommendations & Guardian proposals: forum post, community discussion, and on-chain voting as applicable.
- Active participation in Euler community calls across platforms (Discord, X, etc) with explanations of risk parameter changes and any observed anomalies.
- Dynamic Risk Dashboard: monitor relevant market health metrics including:
Value at Risk (VaR), Liquidations at Risk (LaR), and Borrowing Power.
Conclusion
We encourage Euler DAO members and governance participants to actively engage with our proposals and provide feedback on risk recommendations. Community input is essential to ensuring our approach remains aligned with Euler’s priorities and evolving market conditions. We look forward to collaborating with the Euler DAO to drive sustainable risk management and strengthen the protocol’s long-term resilience.