Abstract
The Arbitrum DAO’s treasury management strategy and execution have become fragmented due to the numerous committees overseeing various initiatives.
We propose phasing out the TMC, GMC, and STEP committees and replacing them with a canonical 3-unit committee (Arbitrum Treasury Management Council) to enhance the cohesion/effectiveness of the DAO’s treasury management strategy.
The new Arbitrum Treasury Management Council comprises:
- Voting Body
- OAT - Approves or denies allocation recommendations from the Execution Body, and, in rare cases, initiates emergency actions that it deems necessary to pull out capital from existing allocations
- Execution Body
- Entropy Advisors - Responsible for strategic financial management, data transparency, and procurement
- Communications Body
- OpCo (Entropy until entity operationalized) - Ensures council members are delivering with excellence, mandates are met, and relays information between the DAO and the council
In addition to the 3-unit council, the following AAEs will serve observatory roles to ensure wider ecosystem alignment and smooth operations as it relates to fund deployment:
- Observatory Body
- Arbitrum Foundation - Manages movement of funds/custody (Note that any of the AF’s deliverables can be moved to OpCo over time through a DAO vote)
- Offchain Labs - Inform the aforementioned council members of any ongoing BD efforts that may conflict with fund allocations
Delegates will approve high-level strategies and capital allocations to the council. More granular decisions suggested by the Execution Body (e.g., reallocating capital across providers, or allocation recommendations) have to be approved by the OAT, which has DAO representation as well as key members from OCL and the AF.
All of the council members have funding sources in place, so there will be no additional overhead related to paying these contributing entities. In terms of the remaining balance to pay the previous councils/committees (TMC & GMC) that currently sits with the AF, this will be repurposed to cover service providers’ costs for specialized deliverables that the new canonical council does not possess competency to fulfil, e.g., granular risk, legal, etc. The roles of each council member are further defined below.
Rationale
The Arbitrum DAO now has 3 separate initiatives related to its treasury management strategy between the TMC, GMC, and the STEP committee. The TMC focuses on ARB and stablecoins, while the GMC focuses on ETH allocations, and the STEP committee focuses on RWAs. The following entities/individuals sit on councils overseeing these initiatives, with their respective pay defined below:
- TMC
- Austin Campbell
- $20k per milestone, total of $60k earn-able, $20k already claimed
- Make Markets
- $20k per milestone, total of $60k earn-able, $20k already claimed
- Three Sigma
- $20k per milestone, total of $60k earn-able, $20k already claimed
- Austin Campbell
- GMC
- Callen (Formerly Wintermute)
- $20k per milestone, total of $60k earn-able, $20k already claimed
- Llama Risk
- $20k per milestone, total of $60k earn-able, $20k already claimed
- Entropy Advisors
- Waived Payment
- Callen (Formerly Wintermute)
- STEP I
- Committee (mandate completed):
- Karpatkey, GFX Labs, Steakhouse, Nethermind, North Lakes Legal, Treasury WG Lead (Devansh)
- 150k ARB, 25K for each member
- 50k ARB to the Arbitrum Foundation for conducting due diligence/drafting legal agreements
- Karpatkey, GFX Labs, Steakhouse, Nethermind, North Lakes Legal, Treasury WG Lead (Devansh)
- Program Manager (mandate ends in September ‘25)
- Steakhouse original allocation: 100k ARB
- Faced a shortfall due to fees being denominated in USD. $174K (total fee) - ~$87K (received from ARB liquidation) to be paid from yield earned through the program
- Steakhouse original allocation: 100k ARB
- Committee (mandate completed):
- STEP II
- Committee (mandate completed)
- Karpatkey, GFX Labs, Entropy Advisors, Nethermind, North Lakes Legal, Treasury WG Lead (Devansh)
- 125k ARB in total (Entropy Advisors waived payment, thus 25k ARB less than STEP 1)
- Karpatkey, GFX Labs, Entropy Advisors, Nethermind, North Lakes Legal, Treasury WG Lead (Devansh)
- Committee (mandate completed)
To summarize, the DAO has ~$581,000 of overhead associated with treasury management activity, assuming an ARB price of $0.285 (realised dollar-denominated spend is higher, as ARB price has fallen since previous payments to contributors). The total AUM amongst all of these programs is approximately $50M, with the total yield earned on the underlying thus far amounting to ~$590k. The DAO has just recently broken even on its treasury management initiatives. However, it is worth noting that not all of the funds have been deployed from the TMC and GMC proposals, which are expected to accelerate passive yield inflows.
Entropy Advisors has been involved in all 3 committees, and we see some areas in need of improvement. Outside of cutting down on the dollar-denominated expenses associated with running these programs in a way that only scales with the size of the programs, the sheer number of people involved in the act of treasury management without clear responsibilities is counterintuitive. It is difficult to coordinate calls across so many teams’/individuals’ calendars, none of the committees actually speak to one another thus resulting in a fragmented strategy for the Arbitrum DAO’s treasury, each committee usually ends up in a state where a minority of members ultimately produce a majority of the work required for execution, communication between applicants and individual committees/their members often becomes fragmented (the applicant may not know who to reach out to in order to discuss certain things relevant to the application process), etc. Additionally, all of these committee members have varying degrees of insight into things in the pipeline for the Arbitrum ecosystem, which often sets these contributors up to make misinformed decisions due to missing context.
With Timeboost officially live, the DAO treasury has again reached >7,500 ETH since the last TM v1.2 proposal passed on Tally, as well as other ongoing initiatives such as the GCP that will generate additional revenue over time, we must be able to deploy some of these assets into yield bearing strategies as they accrue to the treasury. It’s time to reduce fragmentation and streamline the decision-making processes.
Four open discussions on this matter were hosted on April 30, 2025, May 14, 2025, May 28, 2025, and June 11, 2025, with recordings available here, here, here, and here. We recommend watching these, and joining future calls on the topic if you have strong opinions to share.
Specifications
In line with the new vision laid out by the Arbitrum Foundation, we propose that Entropy Advisors serves as the “Treasurer” with the OAT in place to approve/deny usage of budgets allocated to treasury initiatives, with the council including two of the most aligned AAEs, the AF and OCL, as observatory members to help inform and execute on strategy. This will enable the DAO to approve high-level strategies that do not go against Arbitrum’s broader strategy, considering the insight the AF and OCL will have in regards to ongoing BD efforts/opportunities as well as any operational complexities related to deploying and custodying funds. It will also reduce overhead, unify strategy, and empower Entropy to outsource specific needs to service providers with concrete deliverables on an as-needed basis, thus decreasing the principal-agent problem we face under the current structure with fragmented committees.
Entropy Advisors will have the autonomy to make decisions with funds pre-approved by the DAO, but all decisions must be passed by the OAT with ⅗ approval. Any decision that does not receive ⅗ approval from the OAT will be considered denied and no funds will be allocated. This includes reallocating from one asset/strategy to another, thus giving the DAO the ability to respond to changing market conditions and to hold vendors accountable. Any/All fund movements will be accompanied with an update on the forum in order to keep the wider community informed. Again, this process only pertains to funds that have already been approved for allocation by the DAO, but the standard governance process will always be required to earmark funds for deployment. Assets already approved by the DAO for deployment (STEP I&II, TMC, GMC) will be eligible for reallocation, in accordance to the process herein, per this proposal’s passing.
The non-exhaustive, high-level responsibilities of this council and its observers will include:
Voting Body
Allocations Review - OAT
- Approve or Deny allocation decisions presented by the Treasurer
- The OAT will also be able to initiative emergency actions E.g., Alert the custodian to perform emergency withdrawals due to an exploit, or other emergency actions that it deems necessary to pull out capital from existing allocations
Execution Body
Treasurer - Entropy Advisors
- DAO Budget Creation
- Financial Forecasting
- High-level KPI development / Data transparency through analytics
- Net Working Capital Management
- Quarterly Reporting
- Strategy Formation / Allocation Recommendations
- Protocol & Active/Passive Treasury Funds Manager Procurement
Risk Management & Miscellaneous - Likely areas for outsourcing to SPs
- Additional legal/compliance assistance beyond the Arbitrum Foundation’s scope (we expect the custodian, so in this case the AF, to lead this SP onboarding given their insight into what is needed beyond their in-house competency)
- Develop and maintain a comprehensive risk framework/monitoring system for treasury allocations (e.g., liquidity, counterparty, smart contract risks, etc.)
- Coordinate stress-testing and scenario modeling for treasury assets under various market conditions
- Evaluate traditional financial assets under consideration, such as tokenized MMFs, private credit instruments, etc., and determine their viability/safety as a DAO-treasury asset
- Miscellaneous needs that may arise from time to time
Communications Body
DAO Orchestration - OpCo (Entropy Advisors in the interim)
- Responsible for every party delivering with regard to their respective responsibility areas
- Post updates related to council votes and DAO allocations
- Create proposals and present them to the DAO as they relate to funding requests, with direct input from the rest of the council
- Contract SPs, taking in feedback from the wider council, to fulfill the work related to the “Granular Risk Management & Miscellaneous” functions defined below. Note that the AF will assume this responsibility until the OpCo has been operationalized.
- Inform proposers whether they should be requesting to-be-monetized ARB from treasury, or stables currently deployed in strategies through coordination with the Arbitrum Foundation.
Observatory Body
Operational Execution - Arbitrum Foundation
- Accounts payable/Payroll (ensure service provider payments are processed)
- ARB to stable/dollar conversions
- Compliance (KYC/KYB)
- Custodian of the funds on behalf of the DAO
Ecosystem Support - Offchain Labs
- Lead institutional adoption of RWAs on Arbitrum, and help inform the wider council on ideal STEP allocations in the future based on strategic goals
- Connect the “execution body” of the council with relevant app developers through their deep network of Arbitrum builders
- Ensure the “execution body” is informed of any ongoing BD efforts that may conflict with allocation decisions
The remaining funds from the TM v1.2 proposal that were allocated to pay TMC and GMC members for their work (1M ARB) will be repurposed to this canonical treasury council to contract SPs to fulfill required duties as they arise, likely related to the “Risk Management & Miscellaneous” deliverables defined above.
Given that all 5 of the entities involved in the Arbitrum Treasury Management Council are DAO-funded AAEs (or in the case of OCL, project founders), it does not make sense to have a mechanism in place to remove specific members. However, it is important to ensure the DAO remains in complete control over its treasury assets. As such, any DAO contributor can disband the Arbitrum Treasury Management Council entirely by getting a proposal through Snapshot that garners 3% of the votable token supply in favor of the council’s disbandment. The onus of replacing this initiative with a new structure i.e., council members, budgeting/forecasting/ reporting cadence, risk management, SP procurement, etc., will fall on the contributor that is proposing the abolishment of the Arbitrum Treasury Management Council. The contributor seeking abolishment will also need to define what happens to the currently deployed assets e.g., funds pulled from strategies and returned to the treasury. We expect delegates to be cognizant of this, and to hold contributors that seek abolishment of the Arbitrum Treasury Management Council to high standards in regards to the defined transition from the proposed structure herein to its proposed replacement. Also note that the responsibility of fund movement and custody can be transferred to OpCo via a DAO vote on Snapshot that garners 3% of the votable token supply in favor/abstain of the shift of responsibility.
Hypothetical Workflow Example:
The council identifies additional ETH in the DAO’s treasury that is not currently being utilized and wishes to allocate these funds to begin earning additional yield. The "DAO Orchestration” member works with the “Treasurer” member to draft a proposal to the DAO seeking to earmark these funds for deployment, taking into account various risk factors and the current treasury composition. The AF and OCL would be charged with providing input on the draft based on compliance and deployment feasibility, as well as any upcoming strategic partnerships that could align well with a DAO deployment of capital. The general goals of the deployed capital will be loosely defined in these proposals, as to provide the treasurer with flexibility, but also to impose guardrails/ensure the capital is deployed in a manner that achieves the goals the DAO desires. Prior to the DAO Orchestration member posting this proposal to the forum, a ⅗ consensus amongst the OAT will be required.
Assuming this proposal passes through the standard Arbitrum DAO governance process and the funds are transferred to the AF’s control, the Treasurer would begin drafting outbound materials to conduct protocol outreach/SP procurement for fund deployment. Similar to the proposal above seeking funds from the DAO, a ⅗ consensus will be required amongst the OAT prior to any funds being deployed. Likewise, if the Treasurer wishes to reallocate funds from STEP I/II to a different provider because the initial provider did not execute on what was originally promised (e.g., failing to deploy the tokenized asset on Arbitrum One), this will require ⅗ approval from the OAT. This ensures that funds can be moved without hurting relationships with existing vendors due to the negative PR that could stem from a reallocation that currently requires a high-profile DAO vote.
Note that, as always, the DAO remains in ultimate control. Any allocations made by this council can be clawed back to the DAO treasury, or be forced to be reallocated by the Execution Body, via a Snapshot vote that garners 3% of the votable token supply in favor of the clawback or forced reallocation. Also note, the OAT will be able to initiate emergency actions with ⅗ approval to pull out funds from a prior allocation, with the rationale posted to the forum immediately.
DAO’s Checking Account
It was made evident in the recent community call, as well as on the forum, that the DAO needs to have a process for spending stables/cash during periods in which it would rather not monetize treasury ARB to cover dollar-denominated expenses, or to cover service provider shortfalls that arise due to downward ARB price volatility.
Moving forward, we propose the “DAOs checking account” is taken over by the Arbitrum Foundation with full discretion on how it can be spent. For example, it can be used to cover service provider shortfalls or to cover dollar-denominated expenses in proposals that pass through Tally. Note, if a draft DAO proposal wants to access the funds, then it is recommended they contact the Arbitrum Foundation who will decide whether the assets can be used, before putting the DAO proposal up for a vote.
The Arbitrum Foundation will be required to adhere to any future structures that arise, including, but not limited to, a DAO budget or Net Working Capital requirements. This requirement is only related to the DAO’s treasury management initiative, and does not pertain to the AF’s current operations / existing budget. The AF will be required to confer with the Treasurer (Entropy) and inform the DAO Orchestration member (OpCo once operationalized) so that financial frameworks are followed, capital movements can be accounted for, and the DAO stays informed. The Treasurer will continually evaluate Net Working Capital developments, and make proposals to the DAO accordingly to ensure short-term liabilities can be met.
Please note that after speaking with the AF on May 30th, some changes to the “DAO’s Checking Account” section were made.
Costs
There will be no additional overhead related to these contributing entities, as they aren’t being compensated for their services in relation to the treasury management strategy and execution under this proposal. As such, the costs associated with this proposal, excluding SP expenses required to fulfill Risk/Miscellaneous-related work, will be zero. The budget already approved to pay the GMC and TMC members is expected to cover all overhead related to needed SPs over the near-to-medium term.
There are likely to be indirect costs associated with each fund deployment (treasury management fees, tokenized RWA fees, etc), and all of these costs will be disclosed in quarterly updates from the Treasurer or in the regular updates posted by the DAO Orchestration member.
Note that this proposal will only require a Snapshot vote that garners 3% of the votable token supply in favor/abstain of the Arbitrum Treasury Management Council’s implementation, and thus mark the wind down of the GMC, TMC, and STEP committee mandates. This is in-line with terms laid out in the treasury management v1.2 proposal.
Closing Thoughts
Through our proposed architecture herein, the DAO will deploy assets from its treasury with lower overhead and more accountability over each member’s contributions, develop a more cohesive overall strategy, provide applicants with clear points of contact with streamlined channels for receiving proposal feedback, have comprehensive financial reporting/live monitoring, will not make any decisions without maximum context through the AF’s and OCL’s involvement, and will have dedicated resources to ensure risk evaluation over all treasury management initiatives in order to maximize safety over the DAO’s assets.
We look forward to the community’s feedback.
Disclaimer: Although Entropy Advisors and the rest of the Arbitrum Treasury Management Council will do everything possible to ensure the safety of deployed assets, crypto is experimental technology from a security and economic design perspective. Entropy Advisors, or other members of the Arbitrum Treasury Management Council, cannot be held responsible/liable for any of the risks associated with fund deployment.