Arbitrum's Short-Term Incentive Program (Arbitrum Improvement Proposal)

Proposals
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Note: This proposal has been drafted on behalf of the Arbitrum Incentives Working Group as a result of multiple community calls and workshops between multiple stakeholders. It does not exclude external incentive proposals from outside of the proposed structure.*

Abstract

This proposal outlines a one-time, community-created consensus framework to distribute up to 50,000,000 ARB of DAO-funded incentives targeting active Arbitrum protocols. Aimed at fulfilling short-term community needs, the program plans to allocate DAO-owned ARB towards incentives while ensuring transparent consensus and distribution methods. It spans two voting rounds and provides incentives to eligible programs designed to fund incentives through January 31, 2024.

Granted funds are expected to be distributed by the end of January 31, 2024. Participating grantees will be expected to self report data, dashboards, and summarize grant performance on an ongoing basis.

Motivation

This provisional framework aims to allow delegates to distribute incentives fairly and effectively using transparent criteria agreed upon by the community, while a thorough system is developed (1, 2, 3, 4).

The goals of the framework are to:

  • Support Network Growth: Accelerate the distribution of incentives to Arbitrum dApps to drive network and ecosystem growth.
  • Experiment with Incentive Grants: Experiment with grant distribution to uncover new incentive strategies that increase user engagement and increase volume, transactions, and liquidity in the Arbitrum ecosystem.
  • Find new models for grants and developer support that generate maximum activity on the Arbitrum network.
  • Create Incentive Data: Generate data on the efficacy of distributed grants to inform future incentive programs and incentive design.

Rationale

By incentivizing the use of existing Arbitrum dApps through this proposal, we anticipate increased volume, transactions, users, and liquidity, laying the groundwork for a dynamic ecosystem. While the proposal acts as an experimental program, its primary goal is to ensure basic safeguards while promoting innovative incentive strategies.

Given that this proposal aims to be a one-time, short term incentive distribution, it lacks the accountability and operational rigor that a full program may provide. As such, we encourage protocols to consider that the use of funds will be both evaluated, and monitored by the community. Any misbehavior, or failure to comply with grant requests will likely result in ineligibility, or at the very least significant discernment, in future incentive or grant programs.

Specifications

The Arbitrum Short-Term Incentive Program will comprise up to a 50,000,000 ARB budget earmarked for incentive grants for eligible protocols. In order to expedite the distribution of this capital to the ecosystem, the DAO will adopt a bifurcated process comprising two separate processes: the Financial Proposal and Application Process.

Following a successful Snapshot Temperature Check, the DAO will launch an expedited application and review process, allowing applicants to apply to delegates for grants concurrent with the on-chain vote to distribute DAO funds from the treasury.

The Snapshot Temperature Check achieved consensus and approved funding of up to 50,000,000 ARB through the end of January 31, 2024.

Financial Proposal

The Financial Proposal will comprise the following:

  • A ratification of the Arbitrum Short-Term Incentive Program and application template as articulated in this document.
  • Approval of the eligibility criteria, grant budget parameters, distribution strategy, and evaluation requirements.
  • A 50,000,000 ARB distribution to the STIP-ARB multisig.
  • A 94,000 ARB operational budget for community/project facilitation.
    • 20,000 ARB to @tnorm as retroactive payment for conducting community moderation:
      • Draft and review of multiple iterations of the STIP framework.
      • Moderation of community calls and working group telegram.
      • Coordination individually across dozens of stakeholders and community members over the past three weeks.
    • 54,000 to ARB Multisig Signers (6,000 ARB per Signer).
    • 20,000 ARB to StableLab streamed weekly for organizing and highlighting applications and managing review processes. This includes:
      • Overseeing forum application and review stages.
      • Monitoring progression of applications throughout the application and review process.
      • Monitoring progression of applications throughout the application and review process.
      • Collaboration with the Foundation for forum setup and oversight.
      • Facilitation of Delegate x Grantee Community Calls during review periods.

Multisig Setup

The STIP-ARB 5/9 multisig is being created. The funds in the multisig belong to the DAO and the signers act as grant managers on behalf of the DAO in coordination with the Arbitrum Foundation. Funds held in the multisig are explicitly banned from usage in DAO governance including delegation. The multisig includes the signers from the original PL-ARB multisig with the addition of to three community members (pending KYC):

  • Karel Vuong, Treasure DAO
  • Jack Sanniota, 404 DAO
  • Lindsey Winder, Hedgey Finance

This new multisig, the STIP-ARB multisig, includes two features to ensure accountability of signers and grantees:

  1. Clawback capability so the DAO can retrieve funds if the multisig violates the agreement.

  2. Streaming of funds to grantees every second week for the grants duration using Hedgey. This allows for the halting of funds if misuse is discovered with the goal to stop bad actors, not punish bad designs.

What are the Eligibility Requirements?

Grant Requirements:

  • Grantees are required to keep distributions in ARB without converting to other assets.
  • Grantees must not farm their own incentive programs.
  • Grantees must outline a spending plan, provide a pro forma, and state the grant’s objective.
  • Grantees must commit to providing data on distributions, all ARB spending transactions, and key metrics like daily TVL, transactions, volumes, unique addresses, and transaction fees. This data should cover 30 days before, during, and after the Incentivization period, and be presented preferably in a Dune Spell/dashboard .
  • Grantees must agree to share all contract addresses being used to distribute incentive rewards.
  • Grantees must disclose the contracts being incentivized and denote any external contracts being incentivized as part of the program.
  • Grantees can only incentive contracts on the Arbitrum Network.
  • Grants are not to be used in DAO governance.
  • Grantees are expected to not encourage or partake in sybil attacks against the forum to sway community opinion.
  • Grantees must agree to KYC with the Arbitrum Foundation in order to receive funds.
  • Grantees must apply using the approved program application template.

By streaming grant payments, the multisig will be empowered to hold grantees accountable to their proposals by halting fund streaming for any of the following reasons:

  • Any use of funds not explicitly described in the grantees application.
  • Failure to comply with data reporting standards.
    • Grantee recipients will be required to provide Dune dashboards uploaded and posted to the forum by eligible teams by December 15, 2023.
      • Dashboard requirements are: Daily TVL, transactions, volumes, unique addresses, and transaction fees for incentivized protocols. This data should cover 30 days before, during, and after the Incentivization period. If a metric does not apply, or this is not achievable, it should be noted in the application.
      • More granular dashboards (including pool-level and user analysis) will be noted by the community for future programs.
    • If dashboards are not posted by this date, the multisig will be empowered to halt incentive funding streams for protocols at their discretion.

In that this proposal aims to be experimental, the multisig is not intended to provide quality control on the design of incentive programs. Rather, they are empowered to halt streaming in the event of negligence or misuse of funds.

Eligibility and Evaluation Guidelines

Grants span two award cycles, but projects can only be awarded once. Projects rejected in the first cycle are invited to address delegate/community feedback and reapply for the second cycle.

Protocols can submit grant applications for amounts they feel appropriate. While there’s no ARB limit, delegates and voters will assess each grant individually.

As such, the Arbitrum Working Group has included four grant categories, as well as some recommended metrics by which the community might consider evaluating the grants:

  • Beacon Grants (<= 200K ARB)

    • Recommendations:
      • Live on Arbitrum for at least 2 months.
      • Meets one of the following criteria:
        • .> $1.5M TVL.
        • .>$2M 30D cumulative Volume.

  • Siren Grants (Up to 750K ARB)

    • Recommendations:
      • Live on Arbitrum for at least 4 months.
      • Meets one of the following criteria:
        • .> $4M TVL.
        • .>$40M 30D cumulative Volume.

  • Lighthouse Grants* (Up to 2M ARB)

    • Recommendations:
      • Live on Arbitrum for at least 6 months.
      • Meets one of the following criteria:
        • .> $15M Arbitrum Network TVL.
        • .> $100M 30D cumulative Volume.

  • Pinnacle Grants* (> 2M ARB)

    • Recommendations:
      • Live on Arbitrum for at least 12 months
      • Meets one of the following criteria
        • .> $30M Arbitrum Network TVL
        • .> $200M 30D cumulative volume

One could reasonably use the date of publication for this proposal to inform these metrics.

Steps to Implement (How does the DAO Approve Grants)?

Grants will be approved via a three week process across two cycles.

Cycle 1

  1. Application Period (1 Week):

During the Application Stage of the program, eligible protocols will be invited to post proposals in the “Incentive Grant Applications” Category of the Arbitrum Forum using the official Application Template.

Once posted, the community may provide feedback on the proposal through the end of the Review Period.

  1. Review Period (1 Week):

Delegates and network stakeholders will be asked to provide feedback on grant applications upon each specific forum post. Delegates should engage with the goal of ensuring the responsible use of funds. This means an application should represent a comprehensive strategy for incentive distribution, align with the program goals and requirements, and present their plan to adhere to the aforementioned data standards.

Applicants are expected to adjust, amend, and update their proposals in line with community feedback over this time period. Due to the accelerated timeline of the program, feedback and communication between delegates and applicants will be critical.

  1. Voting Period (1 Week):

A delegate will sponsor the proposal throughout the governance process for each grant application. ARB holders and ARB delegates will be invited to vote on each submitted proposal via Snapshot Poll.

To succeed, eligible applications must receive a greater than 50% majority in favor of the proposal, and receive greater than 71.51 million ARB… If successful, applicants will coordinate with the Arbitrum Foundation and the STIP-ARB multisig to secure the completion of KYC, and receive funding to the address included in their application.

Cycle 2

Repeat the process outlined in Cycle 1, with the exception that the review period for the second round will comprise a 2 week review period.

Projected Timeline

Sep. 01, 2023 - Forum Post
Sep. 10, 2023 - Snapshot Vote Begins
Sep. 20, 2023 - On-Chain Vote Begins

Round 1

  • Application Date Starts: September 20, 2023 12:00 AM EST
  • Application Deadline: September 27, 2023 11:59 PM EST
  • Review Period Starts: September 28, 2023 12:00 AM EST
  • Review Period Deadline: October 4, 2023 11:59 PM EST
  • Voting Period Starts: October 5, 2023
  • Voting Period Deadline: October 12, 2023

Round 2 (Subject to changes)

  • Application Date Starts: October 12, 2023 12:00 AM EST
  • Application Deadline: October 18, 2023 11:59 PM EST
  • Review Period Starts: October 19, 2023 12:00 AM EST
  • Review Period Deadline: November 01, 2023 11:59 PM EST
  • Voting Period Starts: November 2, 2023
  • Voting Period Deadline: November 09, 2023

Overall Cost

50,094,000 ARB.

Outstanding Questions and Concerns

What happens if the budget is exceeded?

We do not expect applications to exceed the funding budget of 50M ARB. However, if requested grants do exceed the allocated budget, funding will be allocated based on the amount of votes in favor of a proposal, and then on a first-come, first-serve basis dependent upon the time the proposal was submitted to the Arbitrum Forum. In the event that the budget is exceeded, the DAO may choose to unlock further funds for a third round, or backfund successful incentive proposals.

What will happen to excess funds?

Following Cycle 2, excess funds remaining in the multisig will be returned to the Arbitrum Treasury address by the multisig.

What is the plan after the Short Term Incentive Program?

The Short Term Incentive Program is designed specifically as a one-time program, with the intention of empowering delegates to process incentives while the DAO designs a more robust, sustainable program in the months throughout the end of the year.

At the end of the year, if there is no program in place, protocols can put forth direct votes to on-chain governance to extend their programs. This program offers an opportunity for participating protocols to demonstrate mission-aligned conduct as justification for future funding.

How does the program determine whether to halt funding streams?

Funds can be stopped by the STIP-ARB Multisig with a 5/9 consensus. Funds will be stopped in the event of negligent actions in violation of the previously defined grant requirements. If halted, the multisig must publish the justification of its decision on the Arbitrum Forum. The stream can restart either through a Snapshot Veto or if the multisig decides the grantee has corrected their actions and it’s appropriate to continue.

What are the specific KPIs for this program - what determines its success?

  • Community Support: The primary KPI for this proposal is aligning with both delegates and protocols to agree on the distribution of funds through the end of 2023, with an agreement to work towards a more efficient, comprehensive, and effective program in 2024.
  • Network Activity: An increase in network metrics such as TVL, Volume, Users and Transactions on the incentivized protocols in addition to an increase in general network activity.
  • Community Awareness: Raised awareness, collaboration, and understanding of incentive distribution strategies and tactics.
  • Incentives Data: Increased data on incentives, grants, and protocol behavior to inform future Arbitrum incentive programs and iterations.

*Regarding the StableLab Engagement StableLab has offered to handle management of the forum process starting September 22, 2023 and has agreed to accept back pay (from the proposal’s passing) via weekly streams forward through January 31, 2023. This arrangement was initiated due to their proactive outreach regarding a competitive rate and interest under unique time-constraints and circumstances. If at any point the multisig feels StableLab has not upheld diligence in its responsibilities the multisig is empowered to halt the stream and appoint a new service provided by election.

Further, due to these last-minute circumstances, the DAO is entitled to elect competitive service providers during the first voting round by signaling a competitive offer in this proposal thread. If a counteroffer(s) is endorsed by a delegate with over 500,000 ARB VP the DAO will hold an election for the remainder of the contract length (endorsement to avoid spam).

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This proposal stems from the Arbitrum Incentives Working Group, whose updates can view here.

We believe it represents the initial task that the working group sought to achieve:

Pending the reception and success of this proposal, the working group will proceed to focus on it’s second goal:

A huge thanks to everyone who contributed thus far, answered questions, and provided feedback including but not limited to @DisruptionJoe @coinflip @Matt_Gauntlet @krst @raho @lindsey @Myrddin @IronBoots @ameeradmi Darius, Mero, and the from the Foundation side: @stonecoldpat and Cliffton.

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5K ARB for posting proposals in snapshots? Why not make it open and share the reward among those who submit the proposal?

Personally, I am in favor of putting a reward for this type of actions.

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I estimate that this has already been agreed with the foundation. In Optimism there were several problems with the KyC. I understand that funds will only be sent to those who have successfully passed the KyC?

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75MM ARB that’s worth like $75MM. I personally think is way too much.

Most incentive proposals kinda remind me to the FED and trad economics… We all know the lesson: Printing money in mass and throw it into the markets to stimulate the economy is just a quick “fix” that always end up unleashing the monster of the INFLATION.

This kind of short term printing solutions use to become just a false make-up that make the chain look pretty but only while mercenaries keep getting paid. It artificial inflate the TVL and metrics but just temporarily.

This approach will only attract mercenary capital that will vanish as soon as the budget is gone. Then they will rotate to whichever new chain that launches.

The only goals I foresee to be achieved with this plan are:

  1. Even more inflation on ARB token which will be dumped.
  2. To load the farmers bags which will quickly bridge over.
  3. Extraction of $value from ARB to next trendy chains.

The focus should be in my opinion onto support the projects committed to innovate and ship cutting-edge sustainable dapps and defi models on Arbitrum that are really NEEDED by the users. Useful, unique, problem solving and with great UX.
Real UTILITY and real DEMAND is the only path to LONG TERM SUSTAINABILITY and success.

It’s about gathering givers here, not more takers. We need/want real consumers, that’s what we should aim to attract rather than only keep rewarding milkers.

The Foundation is already processing all the applications to assign and ship the grants to support projects. The DAO grants frameworks team is working to make possible more future support. Protocols will get support and will keep building. Respect the timings.

Genuine demand always turn up on bulla. Creating fake demand just to flex inflated metrics is cheating yourself. Be realistic with the current context please.

In my opinion you will never get an approval without splitting that crazy amount in tranches. Camelot’s ask was a tiny amount compared to this one and couldn’t pass. A more approval friendly ask would start small, give a try, assess results and escalate. $75MM shouldn’t be transferred to any multisig at once, even with 20 signers KYCed. Anything that is not trustless has to be handled with extreme caution.

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The authors (grant recipient) of any DAO-endorsed grants will need to work with the Arbitrum Foundation on KYC/compliance. I always recommend to start that process sooner rather than later.

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I think this is fantastic and should move forward as fast as is feasible.

A huge thanks to everyone who worked on this proposal and especially @tnorm for spearheading the initiative, putting all this together and getting it to this point.

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Real utility is already there. If you don’t support builders contributing to the ecosystem, they will just leave like anybody else. They are no different.

Note that this proposal is not to test the effectiveness of grants by handing out small amounts. Other initiatives are there to assist the goal.

Given the situation where the ARB is being caught up and slow in terms of distributing grants, disrupting the proposal under the idea of “amount is too much” would only hamper the growth.

Yes, the grants should be managed and distributed properly but ARB dao should not place thick walls on protocols wishing to expand and commit.

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Big supporter of this proposal and the criteria. The use of trading volume over 30 days is very good as opposed to just TVL which will ensure that these tokens are used to get activity moving on ARB, rather than just propping up low volume gov tokens. Camelot are the elephants in the room here and can of course expect a healthy distro, I would like to think that they are willing to vote in favor of other protocols receiving grants too, especially as it will mean competition for them!
The use of recommended metrics for distribution is also genius and allows protocols to ‘sell their wares’ and promote what they are building for community discussion. BIG FAN.

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How did the team come up with the number 75M?

Personally, 75M in 2 months feels a bit too aggressive.

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The budget was raised to 75M ARB to accommodate larger protocols (Pinnacle Grants) without compromising smaller applications. The Working Group recognized that larger protocols might request funds external to the program if it was not large enough to accommodate their requests on similar timelines, so the change was also made to prevent confusion from overlapping large proposals.

It’s important to note that this is just a budget; under this proposal, unused funds would be returned to the treasury. Delegates and voters will still individually vet each application, and decide whether a grant application for a given protocol is too aggressive.

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In my humble opinion, I think the $75m is too big lol, but all the same I support the proposal. It’s good for the community

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It is great to see some progession.

Whilst I am aligned with the need for incentives and that a framework is required, I do have several questions that I would like clarified before proceeding to support this specific proposal.

Compensation
I have been following discussions, but due to time-zones and family commitments I have been unable to attend all the working group calls and chats. From what I understand, it was a collective effort from multiple people, delegates, and protocols, so it would be great @tnorm if you could detail how you came to the 20,000 ARB number for just yourself? Since the framework itself was the product of various group discussions, I assume the main thing you single-handedly worked on was writing it and some co-ordination around this? Whilst these efforts are great, I struggle to come to the same conclusion that it deserves 20,000 ARB for 3 weeks work, especially when it’s only for you.

Multisig
Please could you provide more clarity on the multisig? The only info provided is that plurality labs are being compensated for this. Does this mean they are the sole signers of $75m worth of ARB? This seems a slight conflict of interest, and I would expect significantly broader reassurances on a multisig for this size. Who is on it, what are their roles, are they publicly KYCed etc?

Success of the framework and what that means after the initial 4 month period
I do not think that 75m is too big or too small, but I am simply unsure of how to understand it’s size in the context of Arbitrum. Please could the working group or @tnorm detail how you came to this conclusion? Did you have any feedback from protocols on what size proposals they would be requesting?

Does this also mean that every proposal within the framework is only 4 months long?

How will the framework be measured in terms of being effective? What data is being laid out to do this?

Review process and KPIs
This section appears quite vague and high-level. I understand that they are meant to be guides that protocols pick and choose rather than requirements, but it seems somewhat lacking for a framework of this size. The review process leaves me feeling the same, at what point does something not pass through the review stage? What if no delegates are involved here?

Is it possible to not get through the review stage? What is actually required here?

.

In conclusion, I am pleased to see a step in the right direction, but given that this is a vague framework that still ends in delegates voting for individual protocols, I would require further clarity on it’s efficacy in order to support it. Especially regarding the review process, the compensation, the multisig, and finally how to measure the proposal as successful. I personally do not think it will pass in its current form.

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I think if we compare it against Optimism’s funding rounds, the 75M makes sense. I give the example of Optimism because in my opinion it is a good point of comparison.

Considering that Arbitrum outperforms and doubles Optimism in terms of TVL and number of protocols, I think it is a good number. I would like to clarify that a deeper analysis should be done but given the context I think it’s ok,

In addition we must take into account that this working group was created to get out of the way while working on a more general framework.

I am not part of the working group and I did not participate in the calls due to work and time zone issues. But I think this is a good place to start working with DAO.

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Is there a maximum cap on the number of ARB tokens that can be applied for? I understand that the recommendations reduce the number of protocols that can apply for this type of grants. But I think that a maximum cap should be established as it has the rest of the categories.

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Answer’s below:

To clarify, I volunteered to lead this task without any promise of payment. Throughout the process, several stakeholders suggested I ensure I receive similar compensation. If the working group members feel this retroactive acknowledgment is excessive, I welcome that feedback in private or public. Accounting for ARB price, taxes, and the relative cost of this effort compared to the costs of other Arbitrum grants programs I do feel as though this amount is quite reasonable.

Your observation about the inconvenience of participating is accurate. To facilitate, I juggled time zones, family/life commitments, and long hours to recurrently coordinate across various stakeholders via community calls/telegram and individually. The tasks ranged from facilitating workshops, calls, group messages, and to drafting and refining the program through multiple iterations. All of which involved significant hourly commitments.

On the multisig: The 2,000 ARB per signer is a gesture for the operational burden of coordinating between the Foundation and protocol teams.

The multisig details can be read here. It was selected as it is already set up and it was identified as the most expeditious path for funding. @DisruptionJoe can answer further Q’s on the multisig re: kyc, etc.

Neither of these acknowledgments were requested but added as a thank you for a thankless job. Given the expedited nature of the process, we kept the operations as lean as possible. If the community does not value these contributor efforts, the comp can be removed.

@axlvaz_SEEDLATAM.eth pointed towards one great comparison we also observed and I addressed why we raised it to 75M exactly because of protocol feedback above here. Protocols were 100% involved in this recommendation as were delegates.

You are correct, while the framework may seem vague, it’s meant to be flexible. The review stage allows stakeholders to voice concerns, and provide feedback so applicants can adjust their proposal. Unless a proposal is ineligible, it moves to a snapshot vote.

It is undeniable that the robustness of the program suffers from the urgency of the DAO’s appetite for incentives. This proposal reconciles ~7 months of lethargy and avoidance of the topic, lacking leadership or even attempted coordination from the DAO.

I think we all probably feel the proposal falls short in some way. I certainly do. But as anyone who participated in this process is aware, this proposal is a result of compromise.

Ultimately, delegates will decide whether an amount is excessive given the scope. Because there are two rounds, if a grant is rejected because of excessive cost, that team would have a chance to reapply.

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I sincerely hope holders/delegates either vote YES or vote NO. Pick a side. Incels practice abstinence.

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:wave: Hi @tnorm, thanks for sharing this proposal. It’s evident that a lot of effort has gone into crafting this program. Distributing 75,000,000 ARB to active Arbitrum protocols is indeed an exciting prospect for community growth.

:dart: The goals outlined, especially supporting network growth and experimenting with incentive grants, align with community interests. However, transparency and accountability should be at the core.

:handshake: Community involvement in evaluating grant applications and monitoring fund usage is a positive step. But could you elaborate on how you plan to ensure compliance and prevent misbehavior?

:bar_chart: Metrics for evaluating grants are essential, but what measures are in place to adapt these metrics if needed, considering the evolving nature of the crypto space?

:arrows_counterclockwise: Lastly, the plan beyond this short-term program is intriguing. Could you provide more insight into how this initiative feeds into the development of a more robust, long-term program?

Looking forward to further discussions and clarifications. :blueberries:

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Seems to me that Arbitrum still doesn’t clearly have a framework for a grant/incentives and just comes up with numbers based on their analysis each time.

75 million Arb is not much for incentives but for 2 months, it’s quite a lot.

No forms of lockups of any sort, just distribution.

Also, only protocols requesting 1m Arb and above can provide milestone-based funding tranches in their application… I don’t support this. Every protocol should be able to give specific milestones for grants they’re requesting; this will mount for proper accountability, transparency, and dedication to the protocol building.

These are my thoughts so far, but overall, incentives to protocols are a great way to keep the ecosystem rolling.

Lastly, I’d like to know if a team that’s looking to build something new on Arbitrum can also apply for this incentive program.

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I fully support, our arbitralum is not going through easy times …

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