My co-founders and I launched Anthias because we saw a gap in the risk management market: risk tools were esoteric and almost indecipherable for a majority of users. Our team sought to fix this through intuitive design and clear use cases for the data we provided. Reflecting on the creation of Anthias, I have been thinking about the next evolution of DeFi risk management. A core Anthias thesis is that DeFi risk management will continue to decentralize as opposed to centralize. This thesis hinges on multiple factors, but two primary necessities are 1) more & easier governance participation and 2) more & more open risk managers operating at different levels of the “risk management stack.” In this essay, I will walk through these two necessities and explain my belief in the decentralization of DeFi risk management.

This thesis relies firstly on a drastic increase in DAO governance participation. DAOs need governance in order to function, but decentralized governance has not yet reached its final form as made clear by the continued lack of governance participation and ongoing security issues for myriad protocols with hacks ranging from a few million to hundreds of millions of dollars. Companies like Senate Labs are helping governance on the tooling side by providing tools to help users keep track of proposals across various DAOs, while groups like StableLab have created a new niche of professional delegate. To further develop risk management, DeFi needs more of both the former and the latter. More governance tooling will allow more users to easily read, assess, and vote on proposals as well as feel more engaged with the DAO even if they are not whales. (How does Aave get the member with 10 AAVE to feel an impact on the same level as the member with 10,000 AAVE? – This question relies in large part on accessibility and usability.) More informed voters (like Stable Lab) will create more informed votes, which will lead to more well-run, well-functioning DAOs that can more effectively manage various types of risk that a DAO may face.

However, if a majority of DAO participants cannot assess even the most basic risk management proposals, how can they ever make an informed vote? This reality must be addressed in order for DAOs to expand and truly become decentralized organizations as opposed to centralized bureaucracies run by a handful of users in a Discord server. In order to decentralize DeFi risk management, DAOs must simplify where possible and work to incentivize education where simplification isn’t viable. Our team at Anthias is focused especially on accomplishing the former through making risk tooling (as well as the benefits of reviewing this tooling) intuitive. Too often, either the tools are unintelligible or the results one is supposed to achieve by reviewing said tools are not clear. This lack of clarity can and will be improved.

Secondly, this risk management decentralization thesis relies on more transparent risk managers operating at different levels of the “risk management stack.” Over the past 6 months, active DAO members in a variety of DAOs have pushed risk managers to open-source. This points to a larger trend: the desire within DAOs to decentralize risk management. Instead of hiring one risk management group that provides recommendations on a basket of parameters, I foresee a future where DAOs will begin to form more internal risk cohorts built of multiple contributors. These cohorts will be composed of DAO members that have supported the DAO with risk management previously. A common criticism of current risk management relationships is the lack of incentive alignment. For many risk managers, the only skin in the game is the actual contract with the DAO, paid in stablecoins. This does not seem to be working to adequately incentivize the highest level of scrutiny on the part of the risk manager. The next breed of risk management will need greater incentive alignment with the respective DAO in order to ensure the highest level of work. These risk managers will operate together at different levels of the risk stack in order to carve niches and prove expertise. Through Anthias’s specified focus on position liquidation probability (Liquip), our team is hopefully pushing this decentralization through specialization forward.

Currently, DeFi risk management is heavily focused on lending markets and a basket of financial parameters. But soon risk teams will also maintain focuses on other risk vectors including smart contract risk or even “competitive risk” to avoid the loss of users/TVL to other protocols. These shifts will hopefully lead to a rapid increase in protocol security and economic viability for DAOs across DeFi. It is the Anthias mission to contribute to this future.

-Charlie, September 2023