Gauntlet <> Jupiter Partnership

Jupiter Products Perpetuals
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Gauntlet is excited to announce our partnership with Jupiter, with a focus on providing risk management and optimization recommendations for their perpetual exchange.

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Effective risk management and optimization strategies are pivotal for the long-term functionality and growth of perpetual protocols. Ensuring user safety and operational efficiency requires continuous adjustments across a spectrum of elements, including fine-tuning the weights in the JLP pool, margin and leverage requirements, borrowing rates, and trading fees.

Our objectives will support the Jupiter Perpetual Exchange’s mission through an examination of the protocol’s goals and key mechanisms. This includes:

  1. Conducting an in-depth analysis of protocol operations and settings,
  2. Evaluating the balance between capital efficiency and associated risks,
  3. Developing a strategy for fine-tuning protocol settings,
  4. Identifying metrics for oversight and notifications, and
  5. Offering ongoing suggestions for parameter adjustments.

The aim is to harmonize capital efficiency with protocol risk by tracking essential indicators and guaranteeing protocol adjustments align with changing market conditions.

Services offered by Gauntlet encompass:

  • Custom dashboard development,
  • Monitoring and notifications,
  • Real-time modeling,
  • Dynamic parameter adjustment, and
  • Proactive risk evaluation.

Initially, Gauntlet will conduct a risk evaluation of Jupiter’s perpetual trading platform and develop bespoke risk models. These models will be continuous, providing immediate insights into risk management and actionable guidance on critical risk factors, including:

Parameter Description
Trader Open & Close Position Fees Opening & closing perpetuals position fees
JLP Deposit & Withdrawal Fees Fees related to depositing and withdrawing LP
JLP Spot Swap Fees Swap fees for trading spot assets in the JLP
Borrowing Rate Fees Fees paid by perpetual traders during the life of the position
Asset Target Index Weight Target weight of the asset in the JLP
Max Leverage The maximum leverage of a market
Global JLP AUM Limit The maximum size of a pool
Global Market Open Interest Limits The maximum OI for long and short positions
Max Position Size The maximum size of an account position

Next, Gauntlet will release a dedicated risk management dashboard, showcasing vital risk metrics and utilization data, along with Gauntlet’s parameter recommendations.

Stay updated on the dashboard launch and further partnership news by following both Gauntlet and Jupiter.

About Gauntlet

Gauntlet is an end-to-end solution provider for on-chain market risk management. Founded in
2018, we have experience protecting DeFi protocols throughout market cycles and black swan
risk events. We achieve this via active monitoring of on-chain positions and liquidity to make
regular as well as urgent risk parameter adjustments to keep clients optimized to current market
conditions.

Gauntlet’s platform quantifies risk, runs economic stress tests, and calibrates parameters
dynamically through a joint optimization function. We use agent-based simulation models tuned
to historical and current market data to model tail market events and interactions between
different users within DeFi protocols. As new risk scenarios are observed in the market, we
adjust our methodologies to account for them, leveraging new parameters and risk mitigation
mechanisms developed by our clients. Gauntlet’s methods mature and evolve as the industry
does.

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How does the collaboration between Gauntlet and Jupiter Perpetual Exchange enhance the security and efficiency of the exchange compared to if Jupiter were to manage these aspects independently?

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What specific metrics does Gauntlet consider most indicative of emerging risks in the DeFi space, and how are these integrated into the real-time monitoring ?

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Hey @ToddlerNFT!

Key metrics like liquidity, positions in the protocol, prices, and others will be tracked in our
monitoring system.

  • Price: We monitor large price swings affecting margin position safety, including price depeg, volatility spikes, and asset manipulation costs.
  • New Positions: We scrutinize new positions for activities risking the protocol or requiring intervention, such as utilization alerts, whale movements, concentration risks, and approaching safety limits (e.g., Max Global Short/Long Size, Max Leverage).
  • Liquidity: We observe JLP pool and DEX liquidity for listed assets, noting significant decreases in DEX liquidity.
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  • Hey @ToddlerNFT, as mentioned in the forum post, Gauntlet will utilize our extensive experience in DeFi alongside our platform that quantifies risk, runs economic stress tests, and dynamically calibrates parameters through a joint optimization function. We use agent-based simulation models, tuned to historical and current market data, to model tail market events and interactions between different users within DeFi protocols.
  • As new risk scenarios emerge in the market, we adjust our methodologies to incorporate them, leveraging new parameters and risk mitigation mechanisms developed by our clients. Gauntlet’s methods mature and evolve as the industry does
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Love the breakdown of everything y’all are planning to do. Security should always be a top priority and knowing how serious you and Jup are by going into this partnership should help all users feel safe using perps!

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Great move from Jupiter to get into a partnership with Gauntlet. This will increase the capability maturity of the financial app. I think the methodical approach is absolutely needed to prevent unintended runtime issues.

Question: Does your work also include e2e testing of the app in quality assurance and product environment? And are development tests occurring beforehand, in which communication endpoints to third party are mocked?

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I recently saw this:

Tldr: Drift is offering vaults for JLP users to turn their position delta neutral by opening short positions in Drift. This would put JLP and Jupiter perps users at risk of having too much liquidity rehypothecated into a different protocol. People depositing assets into JLP so others can trade against them, and then use that collateral in a different protocol and let people trade against it. What can possibly go wrong?

This measure comes backed by Gauntlet, and it looks like a gross conflict of interest for them. In bed with Jupiter but also Drift and I guess Kamino (how much JLP is rehypothecated there as well?)

Gauntlet is in charge of protecting JLP holders, but it doesnt look like its their priority. There has been a consistent lowering of the fees (effectively rewarding JLP holders less and less for the risk taken, and improving the conditions of those trading against them), and now it looks like they want to use their influence in other DAOs to rehypothecate JLP creating all kinds of unforeseen risks, in a clear conflict of interests.

We can all agree the end goal of JLP is not going to be competing against Binance, trading against a pool is a terrible model compared vs CLOBs. Why are we focusing so much into creating stickiness and a moat, if once CLOBs happens, the product will become irrelevant?

I have also seen them floating proposals of allowing borrowing against the pool, which would completely change the risk profile of the JLP product, for a measly yield increase that they lost in first instance by lowering fees. Those proposals havent come to fruition, but it just indicates Gauntlet’s carefree attitude.

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Hey @fanatik0,

To clarify our relationship with Drift: we are only using their platform as a hedging venue for hJLP positions and to access their vault infrastructure. We are not partnering with them for protocol risk management or optimization services.
This new product offers several benefits for JLP holders:

  1. It provides investors with delta-neutral JLP option, which helps grow JLP’s TVL
  2. When users deposit USDC, we automatically swap it to JLP in the pool, which positively impacts both JLP price and protocol TVL
  3. The risk profile is limited since this product doesn’t use leverage, eliminating the possibility of position liquidations

Regarding JLP fees, we’re actively monitoring our competitive position against both centralized and decentralized exchanges. While maintaining high fees might seem attractive for JLP holders initially, it could be counterproductive if it results in low long-open interest and eventually less revenue for the protocols. We’re working to optimize this balance.

it looks like they want to use their influence in other DAOs to rehypothecate JLP

  • This couldn’t be farther from the truth. Delta-hedging allows us to engineer an enhanced risk/return profile compared to the current JLP offering that actually benefits current JLP holders.

We can all agree the end goal of JLP is not going to be competing against Binance, trading against a pool is a terrible model compared vs CLOBs.

  • Do you have data to support this argument? If so, please provide.

I have also seen them floating proposals of allowing borrowing against the pool, which would completely change the risk profile of the JLP product, for a measly yield increase that they lost in first instance by lowering fees. Those proposals havent come to fruition, but it just indicates Gauntlet’s carefree attitude.

  • This statement is false, please find the post and reflect it here.
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My bad, it could have been Chaos Labs or perhaps another user. But I saw the idea of borrowing against the pool floated around and I assumed it was our risk manager.

Trading using a single pool is worst performing than trading in a CLOB for the following reasons:

  • Poor use of inventory, and doesnt provide flexibility to add/remove assets.

  • It cannot compete in price with a CLOB where several market makers are competing to set bid/asks with the smallest spread possible to be picked up, and where participants are being matched directly.

The main reason we are not doing CLOBs on-chain is because its too expensive to post and pull orders in the books, and the model of a lazy pool that people trade against is ok. But you cannot say its competitive vs an orderbook. There is a reason Hyperliquid is the favourite venue for trading perps in Ethereum, which is an older ecosystem, and there is a reason GMX moved out from their GLP model to v2. Which is also not a CLOB, but at least allows them to be more capital efficient and granular with their liquidity.

Regardless of all that, Jupiter perps is a completely different business model to Binance. Its user wants to remain on-chain (perhaps for tax purposes, perhaps for convenience/anonimity) and are happy to pay a premium for a slightly worse performance. There is almost no one who, if trading in a CEX was no problem for them, wouldnt prefer to trade there right now (airdrop considerations aside).

One could argue the main thing you are doing bringing fees under a certain thresold is benefit users who can trade in both venues, making it profitable to market making firms and profesional traders to come trade vs JLP at a profit.

Can you be on record here stating that Gauntlet wont benefit at all from being the curator of those Drift vaults?

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