GnosisDAO Terminates Treasury Management Partnership with KPK
Gnosis, the decentralized autonomous organization (DAO) behind several notable projects including Safe, CoW Swap, Gnosis Chain, and Gnosis Pay, has made a significant decision to dismiss its treasury management partner, KPK. This move was overwhelmingly supported, with 88% of the votes favoring the change. The proposal, known as GIP-143, highlighted extensive discussions within the community regarding KPK’s performance, fees, risk exposure, and overall alignment with the DAO’s objectives. The GnosisDAO treasury is currently valued at over $175 million, according to data from DeFiLlama. KPK, which was initially part of Gnosis, separated into an independent entity last year.
KPK’s Cost-Cutting Measures Come Under Scrutiny
In a timely update coinciding with the vote on GIP-143, KPK outlined its plans to significantly reduce costs, aiming to lower expenses from $6.3 million in 2024 to $2.2 million in 2025. The firm also pledged to narrow its focus to treasury and liquidity management. However, these efforts have been criticized as insufficient. Users on the Gnosis forum expressed concerns about KPK’s “contentious” fees, which include 1% of assets under management (AUM) and 20% of any yield generated, as outlined in the 2022 proposal GIP-58. Some users pointed out prior discussions regarding KPK’s underperformance against benchmark assets like sUSDS from Sky and Lido’s wstETH. Others highlighted that KPK struggled with managing concentrated liquidity positions, with approximately $8 million reportedly out of range.
Liquidity Pool Incident Raises Concerns
Tensions escalated in June due to a problematic liquidity pool involving EURe/sDAI on Balancer, which was established by KPK, Gnosis, and Balancer to manage DAO funds for swaps and fee generation. This pool, crucial for GnosisPay’s liquidity, utilized an oracle that updated every three hours and was inactive on weekends. A user pointed out that this limitation resulted in an estimated loss of $700,000 due to arbitrage opportunities arising from outdated prices. The forum post criticized KPK’s poor incident management and noted that KPK had offered a refund and a bounty to the user who reported the issue.
Concerns Over Voting Integrity and Performance
Responses to proposal GIP-143 included allegations of “shameless” voting practices by KPK employees, who reportedly constituted 75% of the votes in favor of the proposal. The scrutiny of KPK’s performance is not limited to Gnosis; discussions within the Ethereum Name Service forums raised similar concerns, indicating that total returns did not keep pace with inflation, alongside errors in yield calculations.
KPK’s Justification and Future Outlook
In defense of its actions, KPK attributed the challenges to a lack of clarity in the initial engagement and an expansion of responsibilities over time. The firm also pointed out its proactive steps in 2024 to eliminate “idle holdings” from the fee structure and implement a $2 million fee cap. However, KPK acknowledged that it should have provided more structured updates and established clearer reporting cycles. This emphasis on improved communication was echoed in an Open Letter, though users countered that the issue lies more with performance than communication.
Shifting Dynamics in DeFi Treasury Management
DAOs often rely on treasury managers and risk consultants to handle complex tasks, alleviating the need for direct token holder voting. Nonetheless, concerns have arisen about service providers taking excessive fees while delivering minimal value. This trend has prompted DAOs to reconsider the fully decentralized approach. Last year, a public dispute between DeFi lending platform Aave and its previous risk advisor culminated when Gauntlet departed for a rival, Morpho. Uniswap’s recent decision to activate the long-anticipated “fee-switch” while streamlining operations has also stirred debate within the DeFi community. Moreover, the reputational standing of vault “curators” has been tarnished following significant failures of strategies that prioritized fees over depositor safety. An observer from Sandbox Tree Capital praised Gnosis DAO’s decision as a move driven by sound business principles.
