[deBridge] [DRAFT] [STIP - Round 2]

Archive Short Term Incentives Program (STIP) Round 2
1

Application Notice

Dear Arbitrum community, at deBridge we were originally considering to apply for STIP — Round 2, but due to the heavily oversubscribed Round 1 and based on Snapshot voting, that funding will be allocated on a first-come, first-serve basis, we’d like to publish our application now (earlier than the official start of Round 2 submissions) due to lack of certainty whether the total of 50M ARB would be distributed evenly between two rounds.

We’re posting earlier to make sure grant council of Round 1 have an option to review our application alongside other projects from Round 1 or keep some ARB tokens for this application for the Round 2 as we believe that proposed campaign is the best possible approach to incentivize cross-chain transfers of liquidity to/from Arbitrum where ARB tokens are distributed efficiently based on settled volume.

SECTION 1: APPLICANT INFORMATION

Applicant Name:

deBridge

Project Name:

deBridge & DLN

Project Description:

We’re building deBridge and DLN. deBridge is a secure cross-chain messaging infrastructure for high performance interoperability. By removing the bottlenecks and risks of liquidity pools, deBridge enables DeFi applications to scale faster with ultra capital-efficient and deep liquidity transfers across chains.

DLN is a high performance cross-chain trading infrastructure powered by deBridge that enables near-instant, native cross-chain trading of any assets with zero slippage, and without liquidity at risk (0 TVL).

With this proposal, we suggest a new efficient way to incentivize cross-chain liquidity transfers based on the settled volume, instead of continuous in time incentivisation like it’s often done in classical solutions based on liquidity pools. The grant is to be fully distributed to users and protocols transferring liquidity to/from Arbitrum and will help to incentivize at least $200M of cumulative trading volume. Any unused part of the grant will be returned back to the DAO treasury.

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Team Members and Qualifications:

  • Alex Smirnov (CEO & Cofounder)
  • Alexander Ghahremany (COO)
  • Jonnie Emsley (CMO)
  • Gal Stern (Head of BD)

Details about each team member’s qualifications: deBridge Core Team - Google Docs

Project links:

Contact Information:

TG: @phenom_alex or @gal_debridge

Email: alex@debridge.finance or gal@debridge.finance

Twitter: https://twitter.com/AlexSmirnov__

Do You Acknowledge That Your Team Will Be Subject to a KYC Requirement?:
Yes

SECTION 2: GRANT INFORMATION

Requested Grant Size:

725,000 ARB

Grant Matching:

deBridge & DLN don’t have a token so we can’t match with token incentives.

Grant Breakdown:

100% of the ARB tokens provided via this grant will be allocated towards incentives to users (makers) and PMMs (takers). It will also be available to all users of applications utilizing the DLN Widget and API.

The DLN trade’s intent created by users lay in spread based on the following pricing model:

  • At a market quote, there’s a spread laid in between the assets a maker has on the source chain and what they receive on the destination chain. The taker‘s normal spread is 4bps for chains where private market-makers can instantly rebalance using CCTP or CEXs. For chains where rebalancing through a canonical bridge takes 7 days, the nominal laid-in spread is 30bps as market-makers need to lock liquidity to rebalance. ~30 bps for a week converts into ~15% APY for market makers in ARB token on locked liquidity.
  • For inflows into Arbitrum: Instead of earning the spread, takers receive an incentive in ARB tokens according to normal spread, which allows takers to provide a tighter (0 spread) as they will be incentivized in ARB tokens. Makers will then only pay the DLN fee, because takers are incentivized in ARB tokens. Thus users and protocols get the ability to move liquidity into Arbitrum from any other ecosystems supported by deBridge at 0 cost.
  • Maker DLN fee is rebated in full in ARB tokens after the trade is fulfilled. DLN fee structure: https://docs.dln.trade/the-core-protocol/fees-and-supported-chains
  • For outflows out of Arbitrum: rebate half of the maker fees (2 bps), and half of the normal spread for the taker, so that the maker still needs to pay 50% of the Taker incentive). Essentially half the volume-based incentive of inflows into Arbitrum.
  • In addition, gas used by users/projects moving liquidity and/or trading to/from Arbitrum will be rebated as well.

Funding Address:

Funding Address Characteristics:

deBridge 5/8 governance multisig

Contract Address:

To be determined.

SECTION 3: GRANT OBJECTIVES AND EXECUTION

Objectives:

We believe this structure of incentives, where we rebate users performing cross-chain trades via Arbitrum will accelerate inflows of capital and new users into the ecosystem from our other compatible chains (e.g. Ethereum, BNB Chain, Optimism, Avalanche, Polygon, Linea, Base, Solana and more to come). It will also encourage Arbitrum-deployed protocols to build intents that elevate their UX and make it more seamless as performing it is at no cost for the user.

Key Performance Indicators (KPIs):

The main KPIs we’ll be carefully tracking various metrics such as cumulative volume via Arbitrum, the number of users that placed cross-chain orders, and the total number of orders that have been placed. We will also be looking at which Arbitrum-deployed protocols are providing the most activity relating to the metrics mentioned above. With these protocols, we can also do comarketing to attract more liquidity.

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

It’s important to highlight that the classical cross-chain approach poses a lot of risks and limitations, especially when it comes to cross-chain capabilities and scaling DeFi as a whole, and we offer a great alternative with notable USPs:

  1. Efficiency
  • Since DLN does not utilize the classical AMM model, traders incur zero slippage on any order size. Instead, a spread can be laid in as an incentive for takers to fulfil. There’s just an 8bps spread (at a market quote). Additionally, the quote shown on the destination chain is a guaranteed rate because there’s no slippage incurred. In contrast, solutions that utilize the AMM model are only able to show the theoretical maximum that a user can receive, which disregards the slippage tolerance and the amount a user actually receives on the destination chain, which tends to be much less than the metric shown. We believe this is an inefficient model and negatively impacts the user experience.
  1. Fast settlement
  1. High–performance cross-chain interactions
  • DLN infrastructure allows attaching any call data/instruction to the trade, which the market maker will be obliged to execute at the moment of fulfillment. That opens a whole new spectrum of applications and enables projects to build powerful UX which abstracts away the entire infrastructure stack. For instance, users can initiate a $1,000 cross-chain trade into Arbitrum and have a long position on GMX opened at the moment of settlement, having this interaction executed in seconds.
  • Example of trade into Arbitrum with call data
  1. Security
  • The 0-TVL model is also a very favorable model from a security perspective, altogether avoiding the risk of passively locked multi-million dollar liquidity pools. Funds are locked individually in isolated smart contracts, and only for an extremely short duration (a few seconds) prior to settlement. This means that the attack surface layer of our model is highly minimized.
  • Over time, the DeFi space has witnessed the security risks associated with the TVL model, as they are honeypots at risk of getting drained, resulting in $2+ billion dollars in total hacks.
  • Users no longer have to have exposure to wrapped assets at any point of their cross-chain trade, as native assets are sent directly to their address by the private market maker.
  1. Scalability
  • DLN is also a much more favorable solution since it’s rapidly scalable. It’s able to facilitate 6-7 figure orders simply because the model is not capped to the size of a liquidity pool, and can draw liquidity from the entire market. If there is a significant volume in a certain direction, private market makers will be able to efficiently fulfill that demand as they can re-balance liquidity very quickly, which is not feasible in classical bridges with statically locked liquidity.
  • Liquidity in DLN is also much more capital efficient as takers (e.g. private market makers) have full custody of their liquidity at all times in DLN. This enables a vast range of rebalancing capabilities where liquidity can be reapplied to order settlements to maximize yield opportunities.

Our innovative incentivization structure allows inflows into the Arbitrum ecosystem to be at zero cost relative to outflows. Naturally that will allow protocols and liquidity deployed within the Arbitrum ecosystem to flourish. We don’t just see our infrastructure as a high performance cross-chain trading infrastructure, but also the most seamless user onboarding experience for ecosystems like Arbitrum.

We also believe that there are many sub-segments of the DeFi sector that are heavily underserved such as traditional institutions, market makers, OTC desks, and protocols that need and desire high performance cross-chain capabilities, simply because current cross-chain solutions cannot facilitate their use cases due to the limitations highlighted above. These sub-segments consist of key industry players that have shown a lot of interest in our infrastructure because we’re the only solution that enables high performance cross-chain interactions and value transfers.

We see ourselves as much more than a cross-chain infrastructure, but also as DeFi’s global liquidity engine due to the possibility of tapping into the liquidity of the overall space, making the sector more capital-efficient with liquidity-on-demand.

Justification for the size of the grant:

We’re requesting 725,000 ARB tokens. At the current market price of the ARB token, we expect that this grant will help to incentivize at least $200M of cumulative trading volume to/from Arbitrum. Based on the Arbitrum ecosystem analytics on DeFiLlama (https://defillama.com/chain/Arbitrum) and the volume we’ve already processed (deBridge Finance), this seems to be a sufficient and realistic milestone to bootstrap growth for cross-chain trading via Arbitrum and with DLN’s properties and liquidity sources.

It’s important to mention that we are taking a fundamentally different approach to 0-TVL as we realized that the classical liquidity pool-based model for bridging brings numerous bottlenecks as described above.

Execution Strategy:

Every two weeks we’ll generate a snapshot of all DLN market orders to/from Arbitrum ecosystem, calculate their USD equivalents at the moment of trade, and rebate DLN fee + gas cost to makers and spread + gas cost to takers (Gas cost should not exceed 5% of the market trade value to be eligible for rebate).

For makers, distribution will be performed to the “order authority in the destination chain” address for trades coming to Arbitrum, and “order authority in the source chain” for trades initiated from Arbitrum. These parameters are specified by the user at the moment a DLN order is created.

Grant Timeline:

December 1st 2023 - January 31, 2024

Alongside the reports and promises we will provide described in Section 5, below are the commitments we’ll work towards with the grant.

Milestone #1 - deBridge team to deploy and promote the initial payment of the grant to the public

  • Deadline: 3 months after successfully receiving the initial payment of the grant

Milestone #2 - Achieve $20M in cumulative volume passing through Arbitrum (trackable on the deBridge explorer)

  • Deadline: 3 months after deployment of incentives

Milestone #3 - Achieve $75M in cumulative volume passing through Arbitrum (trackable on the deBridge explorer)

  • Deadline - 6 months after deployment of incentives

Milestone #4 - Achieve $150M in cumulative volume passing through Arbitrum (trackable on the deBridge explorer)

  • Deadline - 1 year after deployment of incentives

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 4: PROTOCOL DETAILS

Is the Protocol Native to Arbitrum?:

deBridge and DLN are deployed on different chains, including Arbitrum

On what other networks is the protocol deployed?:

Ethereum, BSC, Polygon, Avalanche, Linea, Optimism, Base, Solana

What date did you deploy on Arbitrum?:

November 22, 2021 (deployment tx)

Protocol Performance:

So far, over 83k unique users have placed a transaction via our infrastructure.

Information about all users and transactions is publicly available on our explorer: https://app.debridge.finance/explorer

Protocol Roadmap:

We have an extensive roadmap for deBridge moving forward. Here are some of the upcoming releases: We will enable partial fulfillments in DLN that will allow market makers to fulfil big trades faster and with better efficiency of used capital.

We will expand support for more chains and ecosystems, including both EVM and non-EVM. This will have a positive impact on Arbitrum as users, volume and overall activity will be able to pass to the Arbitrum ecosystem.

DLN V2 will enable a vast range of features and functionalities that will significantly increase the user experience and overall possibilities for users and projects to interact and move to Arbitrum. New features that will be enabled here are gasless transactions, and more.

Audit History:

Security audits (23+ to date): GitHub - debridge-finance/debridge-security: deBridge security audits

To add, we’re one of the few bridges that have had zero security incidents, 100% uptime, and a more secure approach by design of 0-TVL.

SECTION 5: Data and Reporting

Provide details on how your team is equipped to provide data and reporting on grant distribution.

We have very extensive experience in breaking down protocol metrics and visualizing/reporting them effectively. Here are examples of our explorer and analytics dashboards that we’re developed from scratch:

Explorer: deBridge Finance

Analytics: deBridge Finance

Is your team prepared to create Dune Dashboards for your incentive program?:
Yes

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

1 Like
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Thanks for sharing this Proposal. A quick question.

You mentioned DLN as a high-performance cross-chain trading infrastructure. Can you elaborate on the technical aspects of DLN and how it achieves fast settlement times and zero slippage? What kind of market makers are involved in DLN, and how do they operate?

2 Likes
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Hi, thanks for the great questions.

DLN’s unique edge is that it follows a 0-TVL approach, where instead of liquidity pools there’s an orderbook of intents which are fulfilled by any market maker that is part of our liquidity network, which is a much more secure and scalable approach compared to the classical bridging solutions that follow an AMM approach. This unlocks a lot of bottlenecks of existing solutions, enabling:

  • Guaranteed rates
  • Near-instant settlement
  • Razor-thin spreads on any order size
  • High scalability and high throughput

You can read more about technical implementation of the protocol in DLN Documentation portal: (https://docs.dln.trade/)

To answer the second question, there’s a network of market makers participating in DLN and fulfilling orders (intents) passing between different chains. Each one is running the taker script, which tracks all the created limit orders, and if an order identified is profitable, the market makers will compete against each other for fulfillment. The first market maker to fulfill the order will then be able to send a message to unlock the assets on the source chain, therefore earning a spread. This is also what enables the near-instant settlement component of DLN. To facilitate the process, we provide a taker script that anyone can run to automate this work: GitHub - debridge-finance/dln-taker: DLN Taker is the rule-based daemon service developed to automatically fulfill orders placed on the deSwap Liquidity Network (DLN) across supported blockchains.

It’s fully permissionless and any address can be a market maker and start fulfilling cross-chain intents simply by calling the Fulfill Order method of the DLN smart contract. Example of fulfillment tx: Arbitrum Transaction Hash (Txhash) Details | Arbiscan

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Unlisting until Stable Labs gives us direction to make Round 2 Applications Public.