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

Proposals Finalized AIPs
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Hey, this is Eugene from Galxe. Tally profile - galxe.eth

The proposal’s overall concept is quite promising as it aims to foster the growth of high-quality DApps within the ARB ecosystem. The allocation of a 75mm fund appears sufficient to attract substantial TVL projects that could make meaningful contributions to the ARB ecosystem. However, there is room for improvement in the project screening and review process to better demonstrate how these projects can positively impact the ARB ecosystem. Providing a more detailed explanation of how these initiatives can bring sustained benefits would be valuable.
Moreover, it may be advantageous for projects to incorporate significant milestones into their application proposals. This approach would enable the operations team to allocate funds based on the progress and achievements of each project, potentially enhancing the performance of initiatives that align with the development goals of the ARB ecosystem.

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Hey @Eugene_Galxe! Thanks for chiming in and on a personal note I’ve super impressed with some of the data on your OP Quests, it’s pretty amazing to see how paired with incentives similar programs can help boost engagement (depending on what you’re optimizing for) beyond TVL. Would love to talk shop one of these days about what you’ve seen on your side and how we could implement similar strategies in a long-term program.

I encourage you to review the application as I think it touches on a few of your questions :slight_smile:

I’ll admit this was shortened to be more concise…but hopefully it asks enough relevant questions to allow the community to judge each proposal against the concerns you mention above.

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Having conducted an in-depth analysis of multiple government token-based incentive initiatives, it is apparent that the current program leaves much to be desired in terms of structure and impact. Arbitrum stands in a unique position to innovate by leveraging insights from previous successful programs, thereby offering a more intelligent, category-specific incentive structure.

Extensive data already exists on the characteristics that define a successful incentive program in various DeFi segments, such as Automated Market Makers (AMMs), Lending Markets, and Perpetual Decentralized Exchanges (Perp DEXes). Similarly, we have a wealth of information on approaches that have failed to yield positive outcomes.

Focusing specifically on AMM liquidity mining, there are proven cases that illustrate its effectiveness in bootstrapping initial liquidity. Notable examples include the Avalanche Rush program, Fantom Foundation initiatives, and the nascent stages of Osmosis. However, it’s imperative to acknowledge criticisms concerning the transitory nature of capital these programs attract. While liquidity tends to dissipate once the incentives decrease, well-executed liquidity mining programs have been shown to produce enduring, statistically significant enhancements in liquidity within the ecosystem.

According to research conducted by Gauntlet, a successful AMM liquidity mining program goes through the following process:

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For it to work the following needs to be true.

  1. The program must yield a tangible increase in overall liquidity.
  2. The amplification in liquidity must correlate with a subsequent rise in trading volume, thereby elevating fee revenues for the platform.

SUGGESTION

  1. We should develop Best Practice LM models for the different well known defi archetypes (Amm, lending etc.)
  2. We should let protocols compete for incentives in these categories
  3. We should still have a wildcard incentive category for the less defined or new projects.
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46

It’s good that there is progress and glad to see discussions around the short-term plan, but I still don’t see much of a framework to answer the ‘why’ and endgoal behind this proposal.

Is the why to give the Arbitrum builders temporary relief while a more meaningful framework is built?

Also - what are the goals / metrics that will determine success?

Are we trying to ensure that new protocols get a chance to compete in the ecosystem against the established players? Is it so existing players don’t take their liquidity elsewhere?

Any of the above should have some data we are tracking. Data should also be reinforcing the proposed ARB amount.

The biggest single problem I see right now is that the existing ecosystem players have all the incentive to promote their own proposals and 0 incentive to help competitors break into the market. Any suggestions how we address the above issue?

Again, great job getting the conversation started, but I see lots of solid concerns and feedback that we should resolve before continuing forward.

Dan
Vela Exchange

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47

TVL growth, active user counts, developer engagement, and its impact on the landscape.

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48

thanks to the team who put this well thought out proposal together.

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50

As one of the DAO contributors at Abracadabra, I am looking with interest to this proposal. Abracadabra DAO currently has 915.89K amount of ARB delegated towards it, which will vote depending on SPELL holders decisions.

Abracadabra has been the first CDP protocol to deploy successfully on Arbitrum and following discussions that happened even in the past in our community, we strongly believe that if done properly, an incentives program will be able to boost chain activity and help develop the Arbitrum Ecosystem further.

One thing that is particularly interesting in my eyes is the 4 class division of grants, that target specific metrics and require full reporting after the grant acquisition.

It will be interesting to see how many protocols will apply under such strict conditions and it will likely be already a first scrimmage of the possible participants.

As Abracadabra though, our whole community will look with interest at this proposal and is looking forward to seeing its further developments, especially about the total number of ARB proposed for distribution that will be pivotal to then decide upon smaller grants distributions.

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51

As a member of the Arbitrum community, as well as Abracadabra DAO’s larger Arbitrum airdrop, I’ve been closely following the discussion of this short term incentive program. Drawing inspiration from the insightful feedback of members in this forum, I’d like to offer my perspective on the proposal.

Strengths:

Community Engagement: The proposal’s origin, coming from multiple community calls and workshops is commendable. This ensures a broad spectrum of voices and perspectives, fostering a sense of collective ownership.
Granula Incentive Tiers: Tiered grant system is a thoughtful approach, catering to projects at different stages of maturity. Ensuring inclusivity and offering opportunities for both already established and nascent projects.

Areas for Consideration:

Grant Allocation and Milestones: Echoing @realdumbird ‘s concerns, the milestone-based funding tranches should be applied universally, irrespective of the grant size. This ensures accountability and encourages protocols to set realistic, achievable goals. A potential cap on the distribution percentage for each tranche could further enhance accountability.

Time Constraints: The application review periods do seem rushed. Given the significance of this program and the potential influx of applications, extending the periods could allow for a better vetting process.

Economic Implications: @mfer ‘s analogy of the proposal to traditional economic stimulus measures raises valid concerns. Incentives can drive short-term growth, but there’s a risk of attracting mercenary capital that’s transient. I’d like to shift the focus from merely inflating metrics to fostering genuine, sustainable growth.
This could be achieved during the vetting process, by supporting innovative projects that offer real utility and address genuine user needs.

Transparency and Accountability: For a program of this magnitude there should be absolute clarity on the distribution of funds, the entities controlling them, and the checks and balances in place. We need to ensure that protocols have a clear understanding of the expectations and evaluation criteria.

I think this discussion and proposal is a step in the right direction, it’s essential to strike a balance between incentives growing the ecosystem and ensuring long term sustainability.

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52

TL;DR

Based on community feedback, we plan to update the proposal with these changes:

  • A new multisig will be created with clawback capabilities and fund streaming (every two weeks) to ensure accountability.

  • Snapshot Temperature Check will include 3 budget options: 25M, 50M, 75M ARB through Jan 31, 2024.

  • Round 1: 1 week review period for ready protocols.

  • Round 2: 2 week review period for thorough review.

Updated V2

Thank you to everyone who engaged with this proposal. After reviewing the community feedback, we have aimed to address the following concerns:

  • There were differing opinions on the maximum budget amount, ranging from as low as 15M to as high as 100M ARB.
  • The proposed timeline of 1 week for application submission and 1 week for review was seen as too rushed.
  • There were questions around the proposed multisig setup and the need for clawback provisions and streaming of funds.
  • Clearer goals, metrics and tracking were requested to justify grants and spending.
  • There was uncertainty around the time period required for grantees to receive, and deploy funds.

As such, we plan to update the proposal prior to a temperature with implementation of the following changes:

Multisig Setup

A new multisig will be created with the signers from the original pl-ARB multisig, under the name of the Arbitrum DAO. The new multisig will include 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 bi-weekly over the grant duration using Hedgey. This allows for the halting of funds if misuse is discovered with the goal to stop bad actors, not punish innefective designs.

Fund Streams will be halted for 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.

Budget and Timeline

There were differing views on the budget amount. The minimum length was extended until the end of January 2023 to account for more flexibility for grantees receiving funds in Round 2.

To gain consensus, we will put multiple options up for Snapshot Temperature Check:

  • 25M ARB through January 31, 2024.
  • 50M ARB through January 31, 2024.
  • 75M ARB through January 31, 2024.

Application Review Period

We’re suggesting the DAO keep the first review period at one week for those ready-to-go protocols, while extending the second review phase to two weeks for more thorough assessments. Protocols who are not accepted in the first round will be eligible to reapply.

We will also hold community calls for each review period for grantees to quickly present their case to delegates.

Coupled with the incentive period extension to January 31, 2024, we feel this strikes a compromise for all parties involved.

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53

So when does voting start?

According to the timeline, I think it started on September 8th, but I didn’t find any voting proposals on the Snapshot platform today.

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54

Maybe it already ended

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55

Apologies, I meant to note that we delayed shortly just to accomodate any feedback on the aforementioned changes. The vote will be up this weekend.

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56

@tnorm Thanks! Wish ya’ll good luck.

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57

I am very happy to see Arbitrum’s efforts and measures in community governance and incentives. This is also my first time to participate in community discussions. kepler.homes is a Web3 Game project starting in November 2021. After going through a relatively long development cycle, there is still a certain distance between this and delivering user testing. Before the game goes online for beta testing, we have plans to provide some full-chain gameplay to Arbitrum users.

This TVL evaluation rule is not applicable to the Web3 Game project, so my question is whether there are other evaluation standards? Thank you @tnorm for your hard work and dedication, and I look forward to getting answers.

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58

Hey Matt, great question.

As for whether games are eligible under this framework, the recommended metrics are designed to help delegates make informed decisions. Projects applying for incentives around edge-cases that may not stand in a certain TVL bracket, such as gaming, can still apply with their justification for a grant and delegates will ultimately make a decision on each application.

That said, this program is designed for applications that are currently deployed on the Arbitrum network.

If your project has not deployed, I recommend exploring some of the other grants programs including Questbook’s, which has a specific category for gaming itself:

Hope that clarifies…

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The response and solution was incredible, thank you so much for your answer. Kepler.homes Get ready. Thanks again @tnorm

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Well said. Tranches would help Protocols plan and establish realistic and achievable goals while counting on the long term sustainability and support these grants would offer them…something quite necessary as we head into a very complicated financial landscape in the coming quarters.

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Coming from a DeFi project, I think the requirements are unforgiving to other projects that are not trading-related. Something also to monitor is that most developers will be traveling during the period you want to collect applications. I would push the application process 4-6 weeks out. The sweet spot would probably be between mid-October and mid-November (when Dev Connect starts). Also, it’s probably best to keep the first round to 25mm or less; you will learn a lot from the first round you can use for future rounds. 75mm in a quarter is a ton of responsibility, and some of that is probably better for the DAO to try to procure exclusivity deals with projects outside the perps or dex project types, which it seems this proposal is focused on.

Personally, I would like to see grants awarded to auditors, research, infrastructure, tooling, inter-project collaboration, shared resourcing, etc - things that developers actually need right now rather than juiced yields.
Happy to jump on a call to discuss this or chat at any upcoming conferences we think about these incentive structures and the relationships between projects building on layer-2s every day.

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62

I am very pleased with the changes. LFG

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There is no doubt that Arbitrum’s long-term health requires the right incentives. It’s not merely about competing but about creating a thriving ecosystem where all participants are motivated, especially in these early stages as we attempt to cross the chasm in onboarding the next generation of users.

The proposal outlines comprehensive eligibility requirements and evaluation criteria, which suggest careful consideration and planning. This foundation is crucial to ensuring the program’s success and fairness. We commend the Incentives Working Group for their efforts.

While 75 million ARB might sound immense for a 2-month program, context is everything. With a 4.2 billion ARB treasury, this is merely a drop in the ocean. It’s not about recklessly spending but strategically investing to foster growth and innovation.

Governance processes, while necessary, can be lengthy. The proposed timetable does take its time, but given Arbitrum’s competitive landscape, it’s essential to hit the ground running. Delays might lead to missed opportunities, and this is a chance to expedite the process.

This proposal, while thorough, is notably short-term. It’s imperative that this isn’t the sole “quick fix” but serves as a precursor to more consistent, long-term programs. As tokens start flowing, governance will be tested, and having a clear vision will be paramount.

Past decisions, like the Camelot opportunity, serve as lessons. It’s essential not just to move forward but to ensure previous oversights aren’t repeated. Although the advancement of ecosystem grants was delayed due to the proposal’s result, we believe this has galvanized ecosystem participants to take more of an interest in Arbitrum and its governance. As a DAO, we must make this a crucial lesson learned in order to push Arbitrum forward.

This proposal is more than an opportunity—it’s a chance to correct course and set Arbitrum on a path of sustainable growth.

Key Takeaways

  1. Indisputable Value of the Incentives Program: Incentives aren’t just important, they’re absolutely vital. Although ARB is a governance token at heart, correctly incentivizing ecosystem growth is paramount.
  2. Eligibility and Guidelines: The proposed eligibility and evaluation guidelines aren’t just well thought out; they’re a great benchmark-setting for the future as we iterate as a DAO.
  3. Funding Amount and Treasury: Before anyone panics about the 75 million ARB for a 2-month program, let’s get some perspective. With a 4.2 billion ARB treasure chest, this is a mere calculated gambit, not a splurge.
  4. Timeliness of Implementation: It’s not just about urgency; it’s about seizing the moment. Every moment we waste deliberating, the competition takes another step ahead.
  5. Beyond the Proposal’s Timeframe: This proposal? Just the beginning. What we truly need is an unwavering commitment to a vision that extends far beyond this initial pitch. Although this is an extremely important proposal, we have to keep the momentum up once we hit the ground running.
  6. Governance & Delegation Dynamics: Eyes open, everyone: The governance structure isn’t foolproof. There are challenges and pitfalls on the way. Make sure to delegate to ecosystem-centric, honest, and responsible actors!
  7. Learning from Past Mistakes: The start of our DAO hasn’t been the smoothest by any means, but we must use this to our advantage in lessons learned. The emphasis now has to be on proactive, and bold steps to ensure the chain’s bright future.
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