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

[jpatten]

We agree with this proposal for the most part. Dedicating ARB for this proposal, especially during the bear market, will make a huge difference in helping projects succeed and allow Arbitrum to remain competitive with other ecosystems’ grant programs. However, we would like to note that the eligibility requirements here are written in such a way that caters to DeFi protocols (e.g. TVL metrics) over other sectors such as development tooling, gaming, web3 social, and other consumer applications that may have lower emphasis on staking capital.

Historically, user subsidies for DeFi protocols have not had lasting adoption unless the ecosystem is sticky enough to retain users for other reasons like NFTs or culture more broadly. User subsidies alone tend to attract mercenary farmers who hop between chains looking for the most attractive yield. While these kinds of incentives can be helpful in creating short-term boosts, Arbitrum DAO should be focused on supporting projects across the spectrum as well as developer tools that enable products with real market fit.

We would argue that gaming and web3 social ecosystems are an ideal candidate for an incentive program, but since DeFi and NFTs have different metrics for success, non-DeFi protocols wouldn’t qualify. Without incentivizing projects across the spectrum, the 75M ARB here might be incentivizing short-term adoption with no lasting effect. Using incentives to bring in games specifically would increase adoption for Arbitrum due to the amount of effort it takes for these projects to migrate chains. The more that the Arbitrum community can embed itself as the premier hub for NFTs and gaming, the stronger the overall retention of users within the ecosystem.

Our main suggestion for this proposal would be to add alternative criteria or exemptions for non-DeFi protocols from considerations like TVL and daily volume. Historical volume would make more sense if the DAO decides to evaluate NFT trading by volume. We agree that length of time within the ecosystem is a good rubric of determining whether protocols should be considered here as well as a more informal evaluation of whether a project seems committed to Arbitrum in a meaningful way.

We would also suggest that the grant application period begin after the proposal is approved so that projects will know with certainty whether the incentive program will go into effect before putting together a proposal. It is not entirely clear from the suggested timeline here whether proposals should be submitted at the same time the DAO is voting on the incentive program.

[tnorm]

Hello @jpatten,

Thank you for your thoughtful comments. Hopefully I can clarify a few points here:

1. Recommendations vs. Requirements: In the Evaluation Guidelines, the criteria regarding TVL and Volume were updated from “requirements” to “recommendations”. This change ensures they serve merely as guidelines for delegates when determining grant sizes. Our intention is for future programs to outline clearer requirements, which will indeed encompass game-specific projects and initiatives.

@tnorm

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.

Data Reporting Flexibility: While grant requirements remain consistent, we did introduce more flexible language in the data reporting section to accommodate different dashboard needs.

@tnorm

• 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.

Structure and Timeline: Projects who (understandably) would prefer confirmation of proposal success prior to applying may apply in the second application round. This design choice was made in the face of heavy demand and criticism to approve funds faster.

Lastly, we truly value the engagement of leaders like yourself and at Treasure DAO. While we’ve observed some of your team members joining calls, direct involvement aids in refining our proposals at earlier stages. This proactive involvement helps us measure and incorporate these considerations ahead of time.

I think we’d all greatly value your insights on gaming incentives and impactful program design and would love to collaborate on this moving forward!

[jpatten]

Thanks for the kind words about Treasure! This all makes sense to me and agree with this criterion about reporting flexibility being a good approach to accommodating the spectrum of projects.

[livadia]

good and interesting propousal

[litocoen]

@tnorm thanks for driving this initiative. I think this will be a welcome stimulus for the Arbitrum ecosystem and get more people involved in DAO operations which is a net positive.

Personally think your contribution of 20,000 $ARB is a bit excessive especially without breaking down the hours that went into this. I sure appreciate the time proposals and prior discussions around it take - but feel like half that amount would have seemed more appropriate and concerned this sets a bad precedent.

But I realize I’m late to the discussion and this is already on Snapshot and I don’t want to torpedo this whole proposal for some minor detail so i’ll vote yes

Around the application process and eligibility: would it make sense to make it a requirement that projects should have already used their $ARB allocation from the initial airdrop if they received any? Doesn’t make sense to apply again if you don’t even know how to allocate the first batch in my opinion.

And in terms of eligibility does it make sense to have a rigid TVL requirement when there are many non-financial project that don’t necessarily fulfil the TVL criteria but are successful in other ways such as game projects such as Treasure, NFT marketplaces, bridge aggregators etc. ?

[chefmaroon]

@tnorm Appreciate the comprehensive and well-thought out framework for the incentive program!

Are there any details on what are the exact KYC requirements for project teams?

[GFXlabs]

These are very large amounts of funding being proposed to be spent in a very short amount of time. Historically, bringing many grant proposals to a delegate-wide vote has not resulted in prudent spending (Optimism’s early grants are an excellent example of how this very model does not perform well). Realistically, most will receive de minimis review and likely be approved.

It would be good if there was some kind of structured review process or curation process beyond simply finding a delegate to sponsor a proposal. A maximum cap on what a project can request is also recommended. The lower tiers with caps allow grantees to request amounts ~15% of their TVL - which seems both very high and very arbitrary.

We applaud the concept, but it is a struggle to understand why solicitation of direct-to-governance-vote grant applications is the process chosen here.

There are not a lot of examples of that performing well. It’s also just very hard to spend even 25,000,000 ARB in the next 3 months without just giving money to the lowest effort grantees.

What is it about this proposal that makes people think 20-30 grant proposals flooding the forum will receive proper diligence (to avoid ghost projects, unlaunched projects, technically infeasible plans, etc) without someone explicitly charged with providing either a recommendation or a neutral summary of each one?

[frank_lifeverse]

I was pleased to see the revisions that were made to enable the potential for NFT projects to be eligible in addition to Defi projects. However the recommended requirements of transaction volumes above $2M 30D cumulative volume is significantly more than any project on Arbitrum. Although this is the minimum recommended criteria for the Beacon Grant, the highest volume NFT collection on arbitrum has less than $100K 30D cumulative volume.

Can this be revised to provide some degree of inclusivity? Alternatively, adding an eligibility criteria that allows for the value of the assets held by an NFT collection’s DAO would be worthwhile. This would still ensure that the grants are going to NFT collections with live products that have meaningful assets associated with its DAO to support growth on Arbitrum.

[ChoppaTheShark]

Is there any chance timelines for submissions will be changed? There’s not a whole lot of time left to get applications together and it’s not clear when submissions are actually opening - unless i’ve missed something going through all of this.

The proposal overall I think good, and only a small fraction of a very, very large war chest. The ARB provided is on estimate enough to fund at the very least some interesting campaigns and marketing/memetic ideas within the ecosystem that could be very beneficial.

I do think TVL restrictions could be waived in the case of creative or novel DeFi use cases - there’s a risk that have such restrictions hamstrings an ecosystems ability to reward ideas and teams that are innovating and building novel products on their own, or without explicit VC funding which is generally what contributes to TVL in outsized proportions relative to the community at large.

[definidude]

Hi @tnorm, trying to find out where the Incentive Grant Applications page is, would like to submit a proposal!

[creedanew]

Hi @tnorm
I usually refrain from participating in these discussions, but the importance of this proposal prompted me to create an account just to weigh in.

While the proposal undoubtedly has its merits, especially for well-established projects, it seems to overlook a critical segment of the DeFi ecosystem: the underfunded innovators. I’m talking about the new players who are genuinely pushing the envelope but struggle for visibility and resources, often because they are self-funded and cautious with their limited marketing budgets.

Many of these are focused on automated strategies and vaults but are operating on a limited budget, with TVL often falling in the $50k-$200k range. The current criteria will inevitably exclude them, which is concerning.

My suggestion is to introduce a separate section within the existing Incentive Program that specifically targets these smaller, ‘under-the-radar’ projects that have a great track record and are brimming with technological innovations. We could call this an ‘Innovation Grant’ or ‘Underdog Fund,’ aiming to support projects that are pushing boundaries but are held back due to limited resources and visibility.

By backing these underdogs, the Arbitrum foundation and DeFi experts wouldn’t just be giving them a lifeline; they would be enriching the entire DeFi ecosystem. Arbitrum could become a breeding ground for true innovation, ensuring the network’s long-term resilience and competitiveness.

Now, a question might arise: How do we make sure that these grants are used effectively? I propose that we borrow some of the scrutiny measures from the larger grant programs:

1. Require detailed project plans and roadmaps.
2. Mandate regular updates and transparent reporting.
3. Conduct technical audits of the codebase.
4. Involve Arbitrum foundation or community members in an advisory role for these projects.

This way, the ‘Innovation Grant’ can still be held to high standards. The lower TVL and trading volume thresholds would allow these projects to qualify, while the additional scrutiny ensures that they are genuinely contributing to the space.

I hope these suggestions prompt a meaningful discussion on how we can make the Arbitrum network a more inclusive and nurturing environment for all kinds of innovations. It’s crucial, especially in the ever-evolving DeFi landscape, where today’s underdog could very well be tomorrow’s leader.

I believe a more diversified grant program would make Arbitrum a truly comprehensive platform, encouraging innovation at all scales.

[olimpio]

This is a good initiative. Congratulations and thank you to the Incentives Working Group for the time invested to craft this, including organizing workshops, calls, and putting this forward.

I have voted in favour of incentives for this temperature check (order: 50M, 25M, 75M, A). I believe in the positive impact of incentives for the ecosystem and though the structure proposed can probably be enhanced, given the short-term objective and the points made to be getting things started I think this is a good compromise.

Some feedback on previously discussed points:

1. Amounts, Timeframe, Awareness

The extension of the programme until Jan 31st is a positive change for potential new grantees to come to know about this and apply. It could be a good idea to leverage Arbitrum’s official social media channels for discovery. Not sure if this is something the Foundation can help with, tagging Patrick just in case: @stonecoldpat.

Considering all possible Pinnacle bracket protocols (only 12 according to Defillama) which are the ones that could request the larger allocations, 50M in the proposed timespan until Jan 31st looks reasonable as a first iteration or until further initiatives come to place.

It would have been ideal to set a maximum cap on how much ARB protocols can request. Maybe for the on-chain voting? In any case and since the DAO will be reviewing grant applications individually, I don’t view this as a major issue.

Reposting the document already shared by @axlvaz_SEEDLATAM.eth to another data input for the Optimism L2, on amounts and timeframes: Optimism GovFund: Public Distribution Tracking - Google Sheets

2. Accountability, reporting, and milestones

Streaming funds and tranches is a great idea.

Before the on-chain vote, how would the DAO feel about the suggestion that protocols that receive grants post a bi-weekly report with results and progress instead of just one Dune Dashboard at Dec 15?

Also, where will these be made available, a forum post? Is there a template? I saw Section 6 of the Application Template but it does not detail exactly how are protocols to move forward in this regard once a they receive a grant.

Might it be a good idea that yourself @tnorm take on the (of course - paid) responsibility of organizing and controlling the data reporting and execution, for the DAO to later process and read? Could this come out of the Operational Budget, or is this destined to something else?

3. Compensation for the Working Group

The 20,000 ARB compensation for @tnorm looks fair to me. It’s true that if we break it down to $/hour and compare it to similar demanding jobs it could or could not be overpriced, however for prices to go down there needs to be competition in the DAO services market offer. Until that happens, I am glad that there is people that do offer their services and time, as long as it’s not an unreasonable ask.

4. Difficuly for proper due-diligence upon flood of applications

I am echoing concerns by some delegates about this matter, and it will ultimately come down to the whole delegate community to revise and research to the best of their abilities. I am looking forward to seeing how this first attempt turns out, keeping in mind that adjusting/voting policies in real time is also acceptable.

---

In summary, I voted to support the funding of this grants programme. Hopefully we can keep improving the mechanics of this proposal before on-chain voting.

[Djinn]

Agree. Established protocols that likely already received a large airdrop don’t need the funds. Newer players and new projects trying to build the next frontier of defi should actually receive a larger allocation vs protocols that have an edge over the ecosystem already.

While established protocols on Arbitrum have the highest user / volume counts, what is going to keep Arbitrum ahead of the competition is having the strongest infrastructure and defi ecosystem around.

We see this case study in web2 again and again - once a platform /company reaches mass adoption, innovation slows to a crawl. In many cases, they will proactively stall innovation from competitors (which is very possible with ARB governance).

If the framework can figure out how to avoid overallocating grants to established protocols who are the least in need of extra incentives or funding while helping newer projects get a foothold, it would be much more favorable for the ecosystem.

[tuktuk]

i’m confussed about KYC requirement. what’s stand for?

[Djihend]

n 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

[BlueClarity]

Hi everyone, i’m Blue Clarity, the Head of Marketing and Growth at Trader Joe. I’m speaking both as a delegate and on behalf of the Trader Joe Community.

Trader Joe is excited to express full approval of and alignment with the short-term incentives program published by the Arbitrum Incentives Working Group. Given our past participation in similar programs, we foresee significant benefits for the Arbitrum ecosystem from this initiative.

The goals outlined in this program strongly resonate with our vision for both Trader Joe and the broader Arbitrum ecosystem. We think it is crucial for the Arbitrum DAO to mobilize and begin directly supporting builders with incentives, especially given the rapid changes occurring in the DeFi landscape in which we all participate. Although this program is designed for the short term, we see it as an excellent first step toward fostering long-term success for Arbitrum.

Alongside the Trader Joe Community, I am personally looking forward to engaging and shaping this program further to bring it to a successful fruition for Arbitrum.

[Blackdiamond]

Lovely idea and strong team. I will go for $50m, $25m, $75m.

[krst]

The below response reflects the views of L2BEAT’s governance team, composed of @krst and @Sinkas, and it’s based on the combined research, fact-checking and ideation of the two.

We are voting FOR this proposal with our preffered order of budget allocation being 50M, 25M, 75M.

Having attended the workshops and consulted with other delegates, we have decided that we’ll be voting in favor of this proposal. We do believe there are kinks to work out and that the impact such a program will have won’t necessary be what we’d ideally want, but we realise that sitting on our hands will cause a greater harm to the DAO and the Arbitrum ecosystem as a whole.

While we think 25M might not be enough as a overall budget to achieve the overarching goal of attracting liquidity, we are also skeptical of allocating 75M ARB towards a short-term pilot program. With that in mind, we feel much comfortable voting in favour of distributing 50M ARB and we’ll be paying close attention both to the execution, but also to the impact the incentives will have.

[brisket]

While I’m not opposed to the idea of providing grants, it’s imperative that there’s a clear and purposeful strategy behind their allocation. There is no point in distributing millions of ARB to entities like traderjoe, camelot, ramses, etc., if all it does is to get some wash trading volume trading volume that disappears as soon as the program ends. This would accomplishes absolutely nothing but allow those protocols to dump their token at higher price for 3 months.
Most of the protocols begging for grants are built on ponzinomics destined to allow them to maintain the token price high as long as possible (Hello veBlabla, locked Blabla, locked LP Blabla and so and so and so…), and that’s exactly what they want your ARB token for.

There was a time where arbitrum looked like it was the only credible competitor of Ethereum mainnet to actually get a significant share of defi volume. If this happens, this will go through protocols that can retain users longer than a grant program distribution. Give people a reason to move from uniswap LP mainnet to Uniswap LP arbitrum , or Aave mainnet to Aave arb and then we might get something sustainable from our grant distribution. In fact it probably makes a lot of sense to build an incentive program around the arrival of Uniswap v4 which will probably reshape the defi landscape or at least bring some real innovation to the table. In any case, please dont squander those arbs on wash tradings for projects that add nothing to the table but another token to dump on retail.

[talha]

I think 75M ARB is too much fund and unnecessary incentive for 2 months time period. Since this is an experimental project, it can be started from a fund that will have less impact, such as 25M ARB. If this incentive makes a good impact the grant can be increased to 50M or 75M ARB.