gm everyone and happy new year.
I used the holiday period to speak with a number of projects that reached out. The opportunity feels increasingly meaningful: attract and support a new type of builders and projects, while earning high, diversified yield for the DAO.
Some notable projects I spoke with:
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Audacity - Invoice financing for the truck industry in Nigeria. Currently deployed on Plume (an Orbit chain). Could be a great opportunity to support the Orbit extended ecosystem.
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Lend.xyz - Tokenizing blue chip real estate backed by a $400m real estate developer Sate Investment Partners. Building a liquidity system to enable secondary sales.
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North Investment: tokenizing SMEs and introducing an onchain trading orderbook.
High level conversations with members of Yearn and Estate Protocol who are exploring vaults on Morpho.
I found out that a similar initiative already exist on the Gnosis Ecosystem for example, where RealT token holders are able to collateralize and leverage on their real estate holdings (about $17m in liquidity at the moment, yielding 9.7%).
These could be considered in due time as a potential second cohort. As you can notice, some patterns and categories are emerging. We can then define 4–5 categories, standardize templates for each, and consistently underwrite financial risk rather than operational execution, which remains with the partner.
As promised, here are the initial drafts of:
- The financial modeling of these early opportunities, including downside scenarios. This plans for full capital allocation for 2 years for simplicity. In reality, we could use ARB incentives to attract additional LPs and gradually exit positions to recycle the capital into new deals. Program costs are not included at this stage - they are expected to remain largely fixed and not scale linearly with capital deployed.
- A legal agreement template. This refers to the category of invoice factoring as a base template. We will branch it into category specific revisions and covenants.
Notes on the feedback so far:
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I would encourage delegates to evaluate this primarily as a business decision, not a political one.
Is it worth supporting these builders? Are incremental returns (+7–10% vs T bills or Aave) worth the risk? -
What happens if things go south and the protocols incur bad debt? The answer depends on the type of protocol. The short term self liquidating deals are straightforward. For longer term (ex real estate) bad debt will be slower to recover. In these cases the benefits comes from the hard collateral and high certainty of eventual recovery. Fast liquidation is not assumed in all cases. If liquidity is required, selling the credit at a discount could be explored.
- Why I think this can work as an independent program:
- Liquidity provision for RWA projects is a standalone activity. It can complement, but does not depend on, other initiatives. Similar to how the Treasury Committee was created instead of having everything managed internally by the Foundation.
- This category of projects has not been a historical focus of the Arbitrum Foundation, so there is limited existing context or in house expertise. Obviously happy to collaborate with existing and new initiatives.
- A public program sends a different signal to the ecosystem: we want to build with you and for you. Attracts more builders, creates public discussions. Loop and repeat.
Looking forward to further feedback and continuing to move this forward.