Arbitrum Foundation Transparency Report 2023

The Arbitrum Foundation and the ArbitrumDAO are 10 months old and it has been an amazing year for the community.

As part of the Arbitrum Foundation’s commitment to transparency and giving the community insight into Foundation’s operations, today the Foundation is sharing the first annual transparency report.

The report is structured based on the mission statements in Foundation’s bylaws:

  • Technical Advancement
  • Grants and Strategic Partnerships
  • Educational and Community initiatives

And of course, our largest responsibility of all, acting as a platform to enable and support all activity within the ArbitrumDAO.

Some key takeaways in the report:

  • The ArbitrumDAO is alive with driving its own initiatives while enjoying well-defined and specific support from the Arbitrum Foundation.
  • The Arbitrum Foundation’s Grant Program has received >800 applications and as of December 31st 2023 it has committed $10.6m USD to over 50 projects and overall we spent $23m to grow and support the ecosystem.
  • The community has hosted and participated in multiple events across the year including ETHGlobal, Devconnect, Token2024, Permissionless, and its very own Arbitrum DAO Sessions (in personal and virtual).
  • The Ambassador Program was launched which enables students in universities and universities across the globe to pursue a career in blockchain development alongside hosting local events about Arbitrum (and the Ethereum) ecosystem.
  • Hosted around 334 AMAs (average of 29 per month) for ecosystem projects and DAO activities on the Arbitrum twitter account.
  • Progress on research to improve the Arbitrum protocol includes Stylus, BoLD, and updates to the software license to steam behind the Arbitrum Orbit strategy.

Our team has grown from 5 initial members to 20 full time contributors to tackle ecosystem growth, marketing, tech and research, legal and compliance, operations and DAO relations. We are continuing to build the team to ensure we can execute on all mission statements and to support all efforts undertaken by the ArbitrumDAO community.

We will target to publish a semi-annual progress update in August which is approximately in 6 months.

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This’s why I love Arbitrum DAO

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The below response reflects the views of L2BEAT’s governance team, composed of @krst and @Sinkas, and it’s based on the combined research, fact-checking, and ideation of the two.
This post is way overdue as we ended up discussing its contents too long instead of just publishing it. Therefore we’re not expecting any action on it, but we’ll just leave it as feedback that might be useful for the next Transparency Report.

The only thing that we want to propose at this point is that for the next Transparency Report and the ones after it, we should have a process to ratify it by the DAO (for example via a simple Snapshot vote), to make sure that delegates read the report and don’t have any significant issues with its contents.

Intro

The goal of the Transparency Report is to provide delegates with the necessary information so they can carry out their responsibility of overseeing the Foundation. The reason for the transparency is so delegates can answer one simple question; should we, as a DAO, request any changes in the Foundation functioning and/or reassess the funding schedule for the Foundation?

In the AIP-1.2, it is mentioned that:

The Foundation understands and agrees that the community should have oversight across how these funds are being utilized to gain comfort that spending is in the interest of the community. In furtherance of this goal, the Foundation is committed to providing a comprehensive annual report and a semi-annual progress update. This will provide the community with a better understanding of the Foundation’s expenditures, balance sheet and its pursuit of ecosystem growth opportunities alongside partnership developments, as well as the various internal and external committees and stakeholders that are involved in the decision making process.

Overview

After reading through the report, the impression we were left with was that it was more of a report about what has happened in the DAO and overall Arbitrum ecosystem and less of a report on what the Foundation has been up to. To be clear - we appreciate and value the DAO coverage in the report, we think it’s a very useful overview of DAO activities and it perfectly shows the role of the Foundation as a facilitator rather than the manager for the DAO. However, we would like to see the structure and activities of the Foundation covered in the same level of detail as those of the DAO, and in that regard we find the current report lacking.

We believe that wasn’t done in a conscious attempt to hide or obscure information, but rather as an oversight. While we appreciate the Foundation’s intention behind creating a transparency report, we want to take the opportunity to offer our feedback as active delegates in Arbitrum’s governance on how to make the report more useful.

Operations

There are a lot of things that could use more communication and transparency on the Foundation’s side, including the Ambassadors program, events during conferences, and even R&D that the Foundation is carrying out. Citing again the AIP-1.2 fragment mentioned above:

This will provide the community with a better understanding of … the various internal and external committees and stakeholders that are involved in the decision making process.

Delegates should be aware of what the Foundation is working on, and not just hear about it after the fact. Not just for the sake of transparency, but more importantly to be able to help the Foundation in its efforts and amplify the results.

If the DAO had a better view of the Foundation’s internal structure and operational processes, it would be easier for the DAO to support the Foundation’s efforts. Moreover, it might be useful to have a communication channel/procedure with a point of contact on the Foundation’s side for each domain (like growth, Orbit chains, ambassador program, grants, etc.) so that DAO contributors know with whom and how to coordinate their DAO efforts.

Finances

While the report published does offer information on how the Foundation’s funds are being utilized, we think it is merely scratching the surface and doesn’t offer any actual transparency of how the foundation carries out its mission.

Specifically, out of 47 pages, there’s only 1(!) page that covers finances, and it does so through a small table that offers information on the amount of money spent on 5 vague buckets. While some degree of confidentiality is expected around the financials that pertain to sensitive topics (e.g. specific employee salaries), we find the ‘Finances’ section of the report severely lacking.

There should be a more comprehensive breakdown of the Foundation’s finances and not just a high-level overview of the categories in which the funds were spent. Each category outlined in the report should be broken down even further and offer an insight into what the specific expenses in each category were to the degree that is possible.

While we don’t need to dig deep into the specific amounts being spent, we do need to understand the justification for the level of spending. The budget should also include some kind of a forecast of what is planned to be spent in the next period (6 months) so that we can check in the future if the spending is going according to the plan.

There should also be a clear distinction between categories of spending. For example, if the ‘General and Administrative’ category includes employee salaries, and 1 FTC is working on Research, is there any overlap with the amount spent on ‘R&D’? We theorize that there isn’t, but this isn’t readily apparent with the information currently available in the report.

Foundation Grants Program

While there is a list of the grants the Foundation has given, there are no details for each grant other than the project’s name, the category it belongs to (NFT, DeFi, etc), and the date the grant was approved.

There’s no information on the amount of funding each project received, the milestones they have in place to receive the funding, their current metrics (where applicable), or their current status. There’s no way for delegates to review the value of the Foundation’s grants with the information that is currently available.

As mentioned above, some degree of confidentiality is expected, but we need to find a good balance between the DAO’s need for transparency and the Foundation’s need for confidentiality to efficiently grow the ecosystem with grants.

Some additional information that we’d like to see in the transparency report that pertains to the Foundation’s Grant program include:

  • The Arbitrum Foundation Grants Team

We understand that the identities of the team members should not necessarily be made public (unless the team members choose to reveal their roles). However, the DAO should have an understanding of the size of the grants team and have a clear point of contact and communication channel with the grants team to coordinate programs on the DAO side.

  • Application Pipeline

Is there an outreach strategy that’s used to grow the grants pipeline? If yes, what does the strategy include? How can the DAO help with it?

  • Operational Procedures of the Grants Team

What are the internal procedures that the grants team uses to assess each grant application?

  • Relevant Metrics

What are the metrics that the grants team is using to assess the impact of the Foundation’s grant program on the Arbitrum ecosystem? Is there information on how many applications are coming in every month, how many get accepted, what is the max/median/min and average time to process an application, a compilation of the reasons applications are being rejected, and how many rejected applications reapply?

  • High-level goals

What are the current (we understand they might change based on market shifts), high-level goals of the Foundation’s grants team? What is the area of focus and what kind of projects is the team looking to fund?

  • Individual Grant Info

What is the overall scope of each individual grant funded and when can we expect the results for each? What are the milestones set in place and where can we track progress? In case of confidential grants, perhaps there should be information to make the DAO aware of its existence without breaking the confidential nature, but allowing the DAO to track

  • Splitting work between the Foundation and the DAO

Most importantly, and the reason why the DAO should have access to the information mentioned above, is so we can determine how we can best split the responsibilities between the DAO and the Foundation to make sure we complement each other’s work and do not unintentionally compete or undermine each other’s efforts.

Conclusion

Overall, we found that the report published contains a lot of information that is useful to anyone looking to understand what has happened in the DAO over the past few months, but there’s a space for improvement on the following, as quoted in AIP-1:

The financial element of these transparency reports will include a breakdown of operational costs incurred while running the Foundation, including infrastructure spending for the Arbitrum chains, events, community building efforts, grants, etc.

We suggest that next time Foundation should include more comprehensive operational and financial data, more information on what they’re working on, and what their plans are for the future.

Lastly, there should be a specific date we can expect the next Transparency Report, as this one was way overdue by the time it was published for no apparent (to us) reason.

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Dear Krzysztof,

On behalf of the Arbitrum Foundation Grant team, we want to express our appreciation for your insightful comments and constructive feedback regarding the Arbitrum Foundation Grant Program.

To address the various topics outlined in your forum post, we would like to schedule an open discussion on Wednesday, April 24th, at 10:30 am EST. @cliffton.eth and @raam will assist in coordinating this event. During the call, our team will share a Grant-specific transparency report that we have prepared and provide futher details.

In the meantime, we encourage you to take a look at our recently updated Notion page, where you can find information about the Arbitrum Foundation Grant Program’s mission, scope, and the goals outlined in our grant agreements, among other content.

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The meeting details for the discussion @Mark1 mentions can be found below:

Arbitrum Foundation Grant Process Transparency call
Video call link: https://meet.google.com/hpz-deeq-xfr
Wednesday, April 24th, at 10:30 am EST

Here is the grants transparency report that was shared and discussed during the call

Arbitrum Foundation Grants Transparency Report.pdf (267.9 KB)

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And here is a link to the meeting recording: Arbitrum Foundation Grant Process Transparency call (2024-04-24 15:33 GMT+1) - Google Drive

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I’m I’m gonna work all this stuff out an it’s gonna be quite funny