Could we see this as a yes/and instead of either/or?
Arbitrum has a big enough treasury to fund both:
- Short term growth by giving grants to “tried and test” protocols that boost metrics and fees but don’t offer differentiation
- Long term growth by funding innovation
And both are needed for Arbitrum to succeed in its mission.
Our research (RnDAO has been focused on this area for 2 years) into entrepreneurship programs leads us to conclude that, indeed small grants are often ineffective in funding scalable and impactful ventures.
That being said, small grants do support community building if well designed by providing a fast mechanism for talented individuals and groups to get more engaged. We’ve experienced this ourselves as RnDAO, where a “pilot” grant by Plurality Labs has motivated us to build more relationships here and contribute instead of only continuing the work we were already doing with Optimsim, Near, Celo, etc. Small grants are not about protocol/venture growth but about growing the community and also experiments and small but useful initiatives (e.g. like the equivalent to having an initiative to improve one’s neighborhood that’s small but well-tailored. Many of these can aggregate to large impact and be antifragile).
Now, we already learned from Web2 that
- going lean and agile is powerful and that means starting with small experiments before raising a top of funding
- giving only cash to ventures means they often fail as, by their very nature (early stage, small teams), they have many blindspots. That’s why incubators and accelerators have become popular, where, in addition to cash, ventures get mentorship. And more recently Venture Studios are taking over as they offer even more support (co-founding type as opposed to just advising) and can thus apply a more systematic process to venture building learning from each iteration.
So, an ideal fund deployment mix could include:
- medium to large grants to fund growth
- small grants to fund community development (and I don’t just mean meetups but attracting projects and high-caliber talent) and ecosystem improvements (e.g., cultural initiatives as people don’t choose ecosystems only based on money and infra but also the quality of living and vibez).
- grants+support to fund and support scalable innovation that creates USPs (e.g. via venture building, or failing that, accelerators/incubators)
There’s a further recommendation I’d add, and that’s the idea of business clusters, as they’ve been shown to create competitive advantages and network effects for cities and nation-states (valuable comparison as businesses can also move from one city to another).
We have a pilot of how this can work through the Co.lab programme (executed by us RnDAO, thanks to funding from Plurality Labs). We start with low-cost, high-mentorship fellowships to deeply understand a problem (fellows are carefully selected for commitment and ambition for scalable innovation). Followed by a venture building programme that has cross-ownership between the ventures to incentivise collaboration (multiple mechanisms complete the ownership layer too) and generate network effects (and also anchoring in the sponsoring ecosystem as it’s way harder for many ventures to coordinate a migration than for a single one to make the decision thanks to some grants somewhere else). All the fellows and ventures are selected within a clear domain (collaboration tech) to ensure collaboration, network effects (compounding insights, access to customers, aligned talent, etc), and also to strategically develop a capability in ArbitrumDAO and Arbitrum based projects for operational excellence (which can help attract project from other verticals too thanks to ease to operate).
Programmes such as the Co.Lab by RnDAO would then be paired with the other types of incentives/funding mechanisms mentioned, so there’s both short term and long term gains.
Then also ensuring this works as a matrix (aligned with strategic objectives) across key needs:
- growth: fees, TLV, attracting devs, etc.
- operations (keeping the DAO’s and community’s processes running day in and day out),
- sustainability (things like culture, well-being programmes, DEI, etc etc that keep you healthy)
- strategic initiatives (@AlexLumley is advancing something in this regard. the key here is that a lot of Growth is based on foundations that were laid bit by bit, showing no direct impact and so only targeting direct growth metrics leads to shortermism and ultimately being outcompete)
more context on these on the post I made on KPIs proposal by Serious People.
Based on the above, the question then becomes about the mix (i.e. what % for each type? and what’s the total amount/% of the treasury that should be disbursed per cycle).
Hope these ideas makes sense and help the discussion. I’m curious to hear your thoughts 
(For clarity, I believe what I’m suggesting here is entirely compatible with what @coinflip are putting forward at the start of this thread and Plurality Labs are working on defining. I meant the above as a mental model that is useful to think with nouance around this difficult and high stakes topic. And the matrix I suggest could be operationalised at some point in the future, but should not hold the DAO back today).