Disclaimer: This content is for educational purposes only and not financial advice. It’s based on historical data which may not predict future market trends. Cryptocurrency markets are volatile and risky, and the authors bear no responsibility for any decisions made from this analysis.
In a recent call regarding backfund of successful STIP proposasls, @krst from l2beat mentioned his delegators were asking him about the $ARB price impact from grant programs approved by ArbitrumDAO. This linked with the objectives of our group in ascertaining a DAO spending limit.
Our analysis show that using a soft-cap on DAO spending within the range of 135-210 million USD this quarter (Oct-Dec ‘23) can be implemented without incurring a significant price impact assuming steady market conditions.
Here’s some back of the envelope numbers on major proposals passed & pending this quarter:
- Arbitrum STIP: $50 million
- Backfunding STIP: $21 million
- Arb Staking: $25 million per quarter ($100 million annually)
From our rough estimates, if the backfunding and ARB staking proposals are both passed the Arbitrum DAO has an additional ~ $100 million discretionary spend until December end without incurring significant price impact.
We hope to influence Arbitrum’s culture so that proposals list amounts requested as % of quarterly budget instead of % in treasury size.
Assumptions & Challenges:
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We have analyzed data across exchanges with a liquidity score above 450. We have excluded exchanges that portray anomalies, have a low confidence score, and those that were omitted from aggregate data set.
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We have estimated order-book depth to fluctuate between 7-10 million dollars within a 2% price slippage. For the pursuant discussion we will be using $10million as buy side liquidity.
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All grants are liquidated, and orders are executed proportionately across pairs and exchanges using an optimized execution strategy.
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Market sentiments and liquidity doesn’t change drastically and remains within bounds. No major spike on the supply side through unlocks or investor liquidations.
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Order-book data reliability such as errors in aggregating data from multiple sources, unharvested data, trading bots, wash-trading, etc.
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Opaque OTC markets lead to closed order-books which are not included.
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<20% of the daily open bids within a 2% price slippage can absorb selling pressure.
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Estimates are based on historical data and not real-time trades which would create a feedback loop for optimization of our modeling.
Here are the liquidity metrics based on the last 90 days of trading data:
- Average Daily Volume: Approximately $153.56 million was traded daily on average.
- Cumulative Volume: Over the 90-day period, the total trading volume was about $13.82 billion.
- Average Market Cap: The average market capitalization was approximately $1.17 billion.
- Average Daily Price Movement: On average, the daily price movement (high - low) was about $0.0388.
- Volume-Weighted Average Price (VWAP): The Volume Weighted Average Price (VWAP) is approximately $0.9342. This helps us determine a benchmark with relatively higher volume.
Based on the above metrics here are some observations
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Order-book depth: Current bid levels suggest that selling $1.5-2 million worth of the ARB which accounts for 15-20% of cumulative open bids is likely to keep slippage within a limit of 2%.
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On the day with the lowest trading volume in the last 90 days, which was September 9, 2023, the volume was approximately $47.23 million. On this day, a $2 million trade size would have represented about 4.23% of the total daily volume.
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Total Liquidation Size : Cumulative Quarterly Volume (USD)
- 180 million: ~1.3%
- 135 million: ~1.0%
- 210 million: ~1.52%
Based on our analysis, we recommend a soft cap of between $135-210 million for grant programs in Q4 2023.