Market volatility: How have Gauntlet vaults performed during extreme market events?
Summary
On Feb 21, 2025, ByBit was hacked for 500K ETH due to an exploit on SAFE’s multisig frontend.
Potential risk
The primary risk to Morpho vaults was through Ethena token exposure, given that ByBit is one of the CEXs where Ethena takes short perpetual positions. ETH exposure was not a concern.
Gauntlet Risk Management Actions
Proactively reallocated $28.9M from potentially affected markets: $16.7M from PT-sUSDE/USDC markets in the Gauntlet USDC Core vault and $12.2M from PT-USDe and PT-sUSDE markets in the Gauntlet DAI Core vault out of an abundance of caution.
Acted preemptively despite Ethena Labs reducing its PnL exposure from an initial <$30M to $0 and confirming that none of its stablecoin's backing assets were custodied on Bybit.
Confirmed that ongoing Safe frontend issues had no impact on our vault operations. Implemented an internal multisig transaction checking tool to verify transaction hashes independently, eliminating reliance on the Safe frontend which displayed incorrect transaction hashes during the exploit.
Result
Gauntlet vaults did not accrue any insolvent debt.
Summary
Usual Money offers two stablecoins: USD0, a tokenized Treasury bill-backed stablecoin, and USD0++, a liquid staked version of USD0 with a four-year lock-up. Originally, Usual Money offered a 1:1 instant redemption from USD0++ to USD0, which allowed users to bypass the four-year lockup.
On Jan 9, 2025, Usual Money announced they were updating their terms on the USD0++ to USD0 redemption window to a 0.87 price floor and an early unstaking mechanism that would be released in the following days.
Potential risk
USD0 and USD0++-related Morpho markets were only allocated in the Gauntlet USDC Core vault given that the assets and underlying protocol smart contracts were not yet battle-tested.
Gauntlet risk management actions
Within 5 minutes of Usual's updated terms announcement, which triggered the eventual depeg of USD0++ from its 1:1 with USDC and other stablecoins, our team was wargaming likely outcomes and responses. Gauntlet was the first to release a full quantitative assessment of the situation and outline our actions to protect our vault suppliers.
Between 9:46pm on 2025-01-09 and 4:02am on 2025-01-10, we executed a series of nine transactions that withdrew all funds from the affected markets, eliminating all of our exposure to USD0++-related assets.
Result
Gauntlet vaults did not accrue any insolvent debt.
ezETH Market Volatility (April 2024)
Summary
On April 24, 2024, ezETH experienced a liquidity crunch with a market price drop starting at 2024-24-04 02:25 UTC.
Potential risk
Only the highest risk ezETH/WETH/0.86 LLTV market accrued insolvencies (10.96 WETH), with 7.12 WETH (11 basis points of yield) socialized to the Gauntlet LRT Core Vault. The lower LLTV markets (0.77 and 0.625) experienced no losses.
Gauntlet risk management actions
Prior to this event, our risk-balanced allocation strategy distributed WETH across three LLTV tiers: 5k WETH in the highest yield 0.86 LLTV market, 2k WETH in the 0.77 market, and 400 WETH in the 0.625 market. This tiered approach contained potential losses while maintaining exposure to higher yields.
Result
The Gauntlet LRT Core vault (now Gauntlet WETH Core), designed to capture higher-risk yield opportunities for users with a greater risk appetite, delivered an annualized yield of ~27% in the weeks preceding the event. As shown in the conversion chart, this substantial yield significantly outpaced the 11 basis point socialized loss during the volatility event.
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