[Connext] LTIPP Application - FINAL

SECTION 1: APPLICANT INFORMATION

Applicant Name: maxlomu

Project Name: Connext

Project Description: Connext is a cross-chain protocol that allows users to quickly and inexpensively transfer tokens and data across chains, and builders to create secure cross-chain applications. It’s intended for high-frequency transfers and works by leveraging liquidity pools provided by routers on the sending and receiving chains.

Team Members and Roles:

Connext is built and maintained by the Connext Collective is an ecosystem composed of autonomous entities and individuals aligned with the common goal of realizing the Connext vision.

The Connext Foundation (Director: Arjun Bhuptani, 11 team members), Proxima Labs (CEO: Layne Haber, 7 team members), The Connext DAO, comprised of NEXT token holders, and other core contributors that include Wonderland, P2P, CoinHippo, Community Leaders, Veil Capital, and Creed.

More info can be found here

Project Links:

Website: https://connext.network/

Dapp: https://bridge.connext.network/

Twitter: https://twitter.com/Connext

Github: Connext · GitHub

Contact Information

Point of Contact: maxlomu

Point of Contact’s TG handle: maxlomu

Twitter: maxlomu

Do you acknowledge that your team will be subject to a KYC requirement?: Yes

SECTION 2a: Team and Product Information

Provide details on your team’s past and current experience. Any details relating to past projects, recent achievements and any past experience utilizing incentives. Additionally, please provide further details on the state of your product, audience segments, and how you expect incentives to impact the product’s long-term growth and sustainability.

Connext was born in 2017 with the vision to help scale Ethereum.

Starting with v1, where the product was based on a simple asset bridge between the user and a router that provided liquidity in the supported chains.

Then, with the arrival of Amarok (v2) the bridge adopted a modular architecture, built on top of the canonical bridges of each domain, acquiring the ability to send both assets and messaging in a trustless way. This opened the door to the creation of cross-chain applications ( xApps).

Today, Connext works as an advanced intent protocol: routers (key players in the network) front cash on the chain where users want to bring funds, and then wait for a refund coming from the underlying protocol, which uses the native bridges of the L2s for optimal security.

On the destination chain (Arbitrum), an AMM pool automatically swaps into canonical ETH (ex: Arb ETH) so that users always receive ETH usable in the Arbitrum ecosystem.
Importantly, this stableswap AMM is extremely capital efficient, and its balance gets skewed in one direction when users bridge into Arbitrum, and in the other direction when ETH is Restaked from Arbitrum. The two flows tend to self balance themselves, and this pilot should help us to identify the best way to keep the pool balanced.

In addition to new updates to our interoperability network, (such as Bacco, which incorporates an optimistic messaging layer in addition to our canonical bridge network) we have focused on providing tools for builders to improve the interoperability experience:

  • xERC20, an open standard, which gives sovereignty back to token issuers over their assets. This standard allows 1:1 transfers between different domains, without requiring liquidity pools, being able to opt for 1 or more bridges, and also the possibility of setting daily/per transaction limits for each of them.

  • Chain Abstraction Toolkit, a set of utilities that simplifies the process of transforming an existing dApp into a xApp, allowing DeFi applications to send messaging/directives to/from different domains, providing the user with a chain-agnostic experience.

What novelty or innovation does your product bring to Arbitrum?

As I mentioned above, thanks to both xERC20 and our crosschain primitives, applications like Renzo Protocol can allow the user to restake their native ETH on Arbitrum without dealing with unreachable gas fees on Mainnet.
Our goal is for Arbitrum to become the primary choice of ETH restakers.

More info on the Restake from Arbitrum module.

Is your project composable with other projects on Arbitrum? If so, please explain:

Yes - Any dApp or DAO on Arbitrum can use Connext to enable a chain abstracted experience for their users: without the need for the app to ever deploy outside of Arbitrum, users can interact with it (deposit, swap, …) even if their funds an initially on another chain - without the user having to explicitly bridge, buy gas, switch their RPCs in their wallets, …
This unlocks an inflow of value from any other chain into Arbitrum, and enables a true chain abstracted experience.

Do you have any comparable protocols within the Arbitrum ecosystem or other blockchains?

Other cross-chain protocols obviously exist and connect with Arbitrum.
Connext is the only generalized trust-minimized cross-chain intent protocol.

How do you measure and think about retention internally? (metrics, target KPIs)

Retention of integrated apps: dApps that integrate Connext are the largest volume generators and are our long-term partners, as they integrate our infrastructure (xERC20, Chain Abstraction, etc.) into their operations.
Those produce further Internal KPIs:

  • volume generated by the dApps that integrated Connext,
  • number of recurring users using cross-chain functionalities.

Relevant usage metrics:

Protocol volume since launchì: $2B+ USD

Protocol volume last 30d: 150.000.000 USD

Protocol volume on Arbitrum last 30d: 40.000.000 USD (26%)

Protocol txns last 30d: 65.000

Protocol txns on Arbitrum last 30d: 20.000

Do you agree to remove team-controlled wallets from all milestone metrics AND exclude team-controlled wallets from any incentives included in your plan: Yes

**Did you utilize a grants consultant or other third party not named as a grantee to draft this proposal? ** NO

SECTION 2b: PROTOCOL DETAILS

Provide details about the Arbitrum protocol requirements relevant to the grant. This information ensures that the applicant is aligned with the technical specifications and commitments of the grant.

Is the protocol native to Arbitrum?:
While Connext is by nature a multichain protocol, we can proudly say we have been an early deployer on Arbitrum and are very aligned with the Arbitrum ecosystem.
Our $NEXT token and DAO are hosted on Arbitrum.

On what other networks is the protocol deployed?:

Optimism, Base, Linea, BNB, Metis, Polygon, Gnosis, Ethereum Mainnet

What date did you deploy on Arbitrum mainnet?:
Oct-04-2021 02:57:37 PM +UTC

Do you have a native token?:
Yes - NEXT: What is NEXT | DAO Docs

Past Incentivization: What liquidity mining/incentive programs, if any, have you previously run? Please share results and dashboards, as applicable?
None

Current Incentivization: How are you currently incentivizing your protocol?

We aren’t currently incentivizing any protocol pools.

Have you received a grant from the DAO, Foundation, or any Arbitrum ecosystem-related program? No

Protocol Performance:

All information available here: https://connextscan.io. Our latest integrations and partnerships: https://blog.connext.network

Protocol Roadmap: [Describe relevant roadmap details for your protocol or relevant products to your grant application. Include tangible milestones over the next 12 months.]

  • Increase the liquidity efficiency of the protocol
  • Onboard as many LRTs on Arbitrum as possible
  • Connect to all Orbit chains

Audit History & Security Vendors:

Audit: GitHub - connext/audits: Links to all of the audit reports for Connext
Bounty Program: Connext Bug Bounties | Immunefi

Security Incidents: [Has your protocol ever been exploited? No

SECTION 3: GRANT INFORMATION

Detail the requested grant size, provide an overview of the budget breakdown, specify the funding and contract addresses, and describe any matching funds if relevant.

Requested Grant Size: 540k ARB

Justification for the size of the grant 11:

Our recent scaling of the ETH Restaking Module has been limited by the amount of liquidity we currently hold on Arbitrum
Once enough liquidity is bootstrapped, the organic yield that the system generates should be enough to incentivize liquidity stickiness, so we would like to kickstart some incentives to get to that stage.

For this pilot program, we want to run some experiments to create the best user experience for users that want to bridge to Arbitrum and restake their ETH from there.
The questions we want to answer (and measure results for) are:

  • If we bootstrap enough liquidity on the Arbitrum AMM, can we support bigger transfer sizes? How is the volume affected
  • If we bootstrap enough liquidity for routers, does the capital utilization (and therefore their return change)? Are we able to provide the ideal fast, cheap experience for all users?
  • Does incentivizing bridging into Arbitrum via a bridge refund encourage more users to Restake from Arbitrum? Does it help with properly rebalancing our pools?
  • How much new ETH is restaked where all these results are achieved?

To do so we want to incentivize 3 activities:

  1. LPing on Connext ETH pool.
    Value we want to attract in ETH pools: $8m in ETH
    APY needed to be offered on ETH - Based on conversations with LPs: 20%

8*0.20/4 (duration of LTIPP) = $400k

  1. Additional liquidity for Routers on the Arbitrum & Ethereum routes.

Value we want to attract: $4m in ETH

APY needed to be offered on ETH - Based on conversations with institutional LPs: 20%

As a further experiment, routers will be required to commit to locking liquidity for 6 months - even if the distribution of ARB will happen within the agreed 3 months of the program. We want to understand if locking liquidity is a sustainable option for routers, and how their liquidity stays within the system after that.

4 * 0.20 / 2 = $400k

Having deep liquidity will allow us to onboard new LRTs: LRTs embracing the xERC20 standard and the Restake from Arbitrum module will tend to create great ecosystems around them, and work with partners like money markets, yield farming tools, etc.

Committed long term liquidity allows us to guarantee the best user experience to users and dapps, making sure that transactions are fast and seamless when onboarding to and operating on Arbitrum.

We can enable Arbitrum to be the liquidity hub among L2s.

  1. Refund part of the bridging fees for users that bridge into Arbitrum.

Expected volume in ETH during the program (according to last 7 days estimate): 137k ETH
Bridge fees to be refunded: 3bps
Total refund: $145k

Grant Breakdown:

  • $400k: liquidity incentives on top of the Connext AMM pools for ETH on Arbitrum.
    Benefits: enable slow slippage on transactions (both inflow into Arbitrum and Native Restaking flow)

  • $400k: liquidity incentives to routers (active liquidity providers). Benefits: enables fast transactions into Arbitrum from any other chain. This is key as users bring in their ETH to restake it on Arbitrum, and they will only do it if they receive the best experience. A new thriving economy for Arbitrum can emerge.

  • $145k: refund bridging fees to users that bridge their ETH to Arbitrum.
    Incentivizing users on this particular route has 2 benefits:
    We can help more users bridge away from mainnet fees, onboarding them permanently onto Arbitrum
    It helps to rebalance the AMM pool, as the restaking activity tends to unbalance the pool in the opposite direction. Having a balanced pool means that users restaking ETH don’t incur into negative price impact.

Funding Address: [Enter the specific address where funds will be sent for grant recipients]
0xC7BeebB0C52121e17b3bfdf60f47e4e0715a0AA2

Funding Address Characteristics: 2/3 multisig with unique signers and private key securely stored

Treasury Address: [Please list out ALL DAO wallets that hold ANY DAO funds]

Contract Address: [Enter any specific address that will be used to disburse funds for grant recipients]
TBC - Contracts are being audited and will be shared in this forum post as soon as they are deployed.

SECTION 4: GRANT OBJECTIVES, EXECUTION AND MILESTONES

Clearly outline the primary objectives of the program and the Key Performance Indicators (KPIs), execution strategy, and milestones used to measure success. This helps reviewers understand what the program aims to achieve and how progress will be assessed.

Objectives: [Clearly state the primary objectives of the grant and what you intend to achieve]

  • Make Arbitrum the home of LRTs
  • Have value flow into Arbitrum for the long term
  • Enable smooth ETH-centric applications on Arbitrum

Execution Strategy:

Execution Strategy:

  • We have a staking smart contract that is being audited and will be deployed on Arbitrum.
  • Users who stake their LP tokens will be eligible to claim ARB tokens.
  • Users who bridge into Arbitrum will be able to claim their ARB tokens to refund part of the bridging fee
  • Offchain agreements with routers will be signed to lock their liquidity for 6 months.
    As the network doesn’t technically allow for any liquidity lockup, only routers that have completed a KYB with Connext will be eligible for this type of agreement.
    The ARB tokens will be disbursed and the addresses of the beneficiaries included in our reports (highlighting the liquidity locked).

Explainer on Routers: Routers are off-chain agents that are part of the Connext protocol.
They help to speed up the transactions of the network: Their function is to observe the events that originate in Connext contracts (a user initiating a bridge) and, based on this, front the funds to the user on the destination chain.

Liquidity with routers means that fast transactions can be executed into Arbitrum, enabling the smoothest user experience possible.

To ensure that the new liquidity provided by the routers will remain in Arbitrum and given their nature of off-chain agents, off-chain agreements will be put in place to lock in the capital for a minimum of 6 months.

What mechanisms within the incentive design will you implement to incentivize “stickiness” whether it be users, liquidity or some other targeted metric? [Provide relevant design and implementation details]

  • Routers will be obliged to sign a 6 months capital lock.
  • LRTs tend to stick within the ecosystem they are created when there are interesting opportunities to use them

Specify the KPIs that will be used to measure success in achieving the grant objectives and designate a source of truth for governance to use to verify accuracy.

  • ETH attracted on Connext AMM Pools: min $5m, target $8m
  • ETH committed by routers: $4m
  • ETH Natively Restaked via partners: min $5m, target $20m

Grant Timeline and Milestones:

Timeline: starting in April, the incentives will run for 12 weeks.

  • ETH Pools show APY based on Arbitrum rewards
  • ARB being able to be claimed for LP stakers

Starting in April, the incentives will begin to be distributed linearly over three months, both to LPs and Router Liquidity Providers.

In the case of Routers, the amount allocated to each will depend on the capital they commit to contribute and guarantees them 20% APY for the time they commit to lock.

Formula: Capital x 0.2 (APY) x time locked.

Users will instead be able to claim their ARB refund directly after the bridging activity, up until the allocated pool is emptied, or the program is concluded.

Expected milestones

Month 0: $4M Router Deposits ($400k of ARB to be linearly distributed through the program)

Month 1: $4M LP deposits ($66k of ARB distributed). 44k ETH bridged into Arbitrum ($50k of ARB distributed)

Month 3: $8M LP deposits ($400k of ARB distributed) 137k ETH bridged into Arbitrum ($150k of ARB distributed)

How will receiving a grant enable you to foster growth or innovation within the Arbitrum ecosystem?

Our Native Restaking from Arbitrum module can enable all Liquid Restaking Providers to easily bring their LRTs to Arbitrum, and at the same time enable users to send ETH and receive the LRT directly on Arbitrum - without ever leaving the L2.

Restaking is a big threat and a big opportunity for Arbitrum.
By design, ETH and LSTs tend to flow out of Arbitrum to be restaked on mainnet.
But, thanks to Connext innovation, these LRTs can actually flow back to Arbitrum (or better: be minted directly on the rollup) so that:

  • Value stays on the L2
  • LRTs can be used in Defi to amplify the Arbitrum economy

Let’s be clear: all L2s are starting to look at this opportunity in what will soon become a gold rush. By making sure LRTs are encouraged to deploy on Arbitrum via high liquidity and the secure, mainnet-abstracted flow that Connext provides, Arbitrum can retain its advantage among L2s.

The xERC20 standard enables LRT issuers to move their tokens without any vendor lock up via any 3rd party bridge or even the native bridge of Arbitrum.

Do you accept the funding of your grant streamed linearly for the duration of your grant proposal, and that the multisig holds the power to halt your stream? Yes

SECTION 5: Data and Reporting

OpenBlock Labs has developed a comprehensive data and reporting checklist for tracking essential metrics across participating protocols. Teams must adhere to the specifications outlined in the provided link here: Onboarding Checklist from OBL 5. Along with this list, please answer the following:

Is your team prepared to comply with OBL’s data requirements for the entire life of the program and three months following and then handoff to the Arbitrum DAO? Are there any special requests/considerations that should be considered? Yes - No special requests

Does your team agree to provide bi-weekly program updates on the Arbitrum Forum thread that reference your OBL dashboard?

Yes. We have our explorer https://connextscan.io that will be used to report metrics

First Offense: *In the event that a project does not provide a bi-weekly update, they will be reminded by an involved party (council, advisor, or program manager). Upon this reminder, the project is given 72 hours to complete the requirement or their funding will be halted.

Second Offense: Discussion with an involved party (advisor, pm, council member) that will lead to understanding if funds should keep flowing or not.

Third Offense: Funding is halted permanently

Does your team agree to provide a final closeout report not later than two weeks from the ending date of your program? This report should include summaries of work completed, final cost structure, whether any funds were returned, and any lessons the grantee feels came out of this grant. Where applicable, be sure to include final estimates of acquisition costs of any users, developers, or assets onboarded to Arbitrum chains. (NOTE: No future grants from this program can be given until a closeout report is provided.)

Yes

Does your team acknowledge that failure to comply with any of the above requests can result in the halting of the program’s funding stream?:

Yes

3 Likes

Hello @maxlomu ,

Thank you for your application! Your advisor will be Castle Capital @Atomist.

Please join the LTIPP discord and ping your advisor in the general chat so they can create a new channel and start communicating with you.

2 Likes

Hi @cliffton.eth @Matt_StableLab we have finalized our proposal.
I am not able to change the title, can you change it to FINAL please?

Special thanks to our advisors at Castle Capital, an amazing job from their side.

Hey there I’ve amended the title post to reflect that this proposal is FINAL. All the best!

1 Like

As I was asked to clarify this, the requested amount is

540,000 ARB

At the current ARB price ($1.75) that’s equivalent to $945,000 USD.

The budget has been broken down into the different areas and milestones.

Thanks!