The core idea behind DRIP is to use incentives not to subsidize usage by simply increasing returns higher than the prevalent cost of capital, but to tip the scale in favor of Arbitrum where organic product-market fit is emerging and can be catalyzed via incentives. We’re not trying to manufacture demand from scratch for products with market share that has already stabilized and there are no systemic changes to be made, instead, we’re targeting activities that are organically emerging (think new product releases, parameter changes, protocol migrations, etc.) where capital can incentivise users to relocate to Arbitrum, so that when incentives turn off, Arbitrum maintains its position as the best organic place to execute a certain activity in its competitive environment. Some aspects of creating the best natural environment include deployments of apps that create new utility for a specific action, which is where the BD perspective is most important, but incentives would never be gated to one specific protocol. This structure is driven by learnings from past incentive programs, where outperformers (in terms of retention and capital attracted per dollar spent) exhibited common attributes: enabling new or better UX activities with organic PMF for verticals and products where Arbitrum’s market share was previously minimal or growing. In short, we believe that no matter the incentives design, user retention cannot be achieved without the underlying product/activity actually being among the best available on the market, but naturally, we can’t promise exceptional retention metrics with 100% certainty.
The DRIP is open to the community for help in ideation, contribution, and SPs; it’s just the end decisions that lie solely with the AAEs. Without the DRIP’s structure, we’d decrease the potential for ideation and takeaways from the community. Entropy will be acting as a point of contact to make sure this input is taken into consideration. It’s additionally worth mentioning that expenses and performance data will all be made publicly available.
Appreciate the passion and agree that transparency and DAO voice are essential. That said, you’re misguided. The evaluation partner doesn’t decide anything unilaterally, they provide open, public dashboards and feedback to guide the program, not dictate it. The 80M ARB is a capped max, not a blank check. Funds are only deployed when users actually participate, and unused funds are returned. The committee’s discretion ensures programs can adapt quickly based on real data, not bottlenecked by gridlock. Most importantly, DAO members absolutely can shape the direction of DRIP through season suggestions, public evaluation, and proposal feedback. This isn’t a rejection of DAO governance, it’s a rejection of vague, bloated programs without clear responsibility areas that fail to deliver. It’s a rejection of rent-seeking theatrics in the name of decentralization at the expense of Arbitrum’s position in crypto.
Yes, there will absolutely be opportunities for community input throughout the DRIP process. We’ll be actively calling on the community to help ideate (and already have been) on the most impactful season goals and service providers. That said, input will be weighted based on relevant expertise. For example, builders with product-market fit in a targeted vertical or contributors with procurement experience will naturally carry more influence when evaluating potential program design or partners.
This is something we discussed quite a lot internally and called on Castle Cap for feedback as well. We wanted to have some flexibility in case there were excellent partners not on our radar who could make the program quantifiably better. We want to make sure that we have the opportunity to onboard partners that will add value, but believe that internally at Entropy, AF, and OCL, we have quite a lot of bases covered and really just need help in the areas of optimization and distribution. We don’t want to pigeonhole ourselves into a number that removes the flexibility, and OpEx as a % of total expenses will naturally be dependent on how much capital we’d end up distributing during seasons. Like we say in the proposal:
Transparency into pricing will be given to the community after decisions are made.
We strongly believe that these entities are all aligned in only spending ARB in positive ROI ways and would like to go into this with a sufficient budget to make sure we can have a real impact that can capture a large category like wstETH. As mentioned in the proposal, in the condensed example section, capturing the wstETH market alone will likely cost in the realm of 1 entire season or more (given that this may need to be paired with incentives to bring over looping/lrt vaults, more liquidity in DEXs for LTVs, etc). At current prices, the total value of the program is ~$23M (assuming all ARB is distributed and used on OpEx), compared to the ~$140M of realized expenses for the DAO on STIP, STIP.B, STIP Backfund, and LTIP. The program’s value roughly aligns with the DAO’s annualized YTD income (excluding Timeboost). We believe we can have more retained impact with this budget than the totality of the ~$140M spent thus far.
If and when a season is successful, if the committee believes that there is further room for catalyzation toward the point of “critical mass sustainability”, further budget may be requested from the DAO. We believe that this budget is sufficient to get the data we need and potentially even catalyze one or a few markets, depending on their size.
Vesting may or may not be included in the design of a particular season, depending on the target audience. Having said that, based on past research on Arbitrum’s incentive programs, different incentive distribution structures don’t seem to have had a large difference on long-term retained usage. The DRIP is focused on high-retention activity created by organic drivers, and if vesting tokens may help toward that goal for a specific season, it’s possible to be included.
Analysis is ongoing, and distribution is at a regular cadence, for example, once per week. This will be performed by the distribution partner, and incentives will be directed directly to end users.
As outlined in the proposal, the scope for the distribution partner includes creating a dedicated frontend. We think this should be something that is fully Arbitrum-branded and “owned” by the DAO.
Each season will be planned meticulously, with real-time performance data being published. If we are seeing a decreasing impact, incentives will likely be tapered instead of a hard stop. This is to ensure that the program isn’t spending unnecessarily. Adjustments will be heavily prioritized during the season. That said, the kill switch is also an important mechanism to have in some low-likelihood scenarios, like protocol or user abuse.
Our opinion is that both investments and incentives are needed. When it comes to more mature market sectors where Arbitrum’s presence is lagging, e.g., looping, we don’t think investments are a viable route to penetrate this since the market leaders are already well established. Betting on a new team in such a sector could create larger, tangible returns for the DAO, but we must also focus on supporting the ecosystem, making Arbitrum the best place for DeFi activity.
As a clarification, the DRIP is asking for 80M ARB, not $80M. This accounts for ~2% of the DAO’s unissued ARB, and at the current price, roughly equals the DAO’s annualised YTD income (excluding Timeboost). We fully agree that the DAO requires a holistic budget, but we shouldn’t let perfection be the enemy of progress, and given the above figures, we think the allocation is justified as an ecosystem growth initiative. Further justification for the program’s size can be found in our response to Argonaut and Zeptimus above.
KPIs need to be designed on a season-by-season basis, which the evaluation partner, together with the committee, will be in charge of doing or approving in the case that the season recommendation comes from the community. KPIs that will be monitored across seasons would include: user retention, induced activity per $ spent, and total market share gains.
With the exception of security-related whitelisting or a TVL/protocol-maturity requirement, all protocols offering a product for the incentivised activity will be eligible for participation. When it comes to partner selection, to our knowledge, none of the committee members has a conflict of interest with providers in these verticals.
Real-time performance data and the program’s costs will be made publicly available, with KPIs being designed on a season-by-season basis. The evaluation partner, together with the committee, will continuously monitor performance. In the case of continued underperformance, the committee isn’t afraid of halting the program completely.
The DAO will be kept updated on a season’s performance.
Ad spend will not be covered, but there will be expectations and standardized structures when it comes to marketing. Marketing performance metrics will also be followed, but as long as guidelines are followed, they will not affect a protocol’s eligibility in future rounds. Since protocols must pass security-related whitelisting or a TVL/protocol-maturity requirement, such that users aren’t incentivized to use protocols that aren’t safe, we expect that the number of protocols with no marketing capabilities accepted into a season will be minimal.
Targeted activities/products will be clearly communicated before a season’s initiation, such that the market and protocols have ample time to digest the information and prepare. We expect that some liquidity will move from other avenues within Arbitrum to the incentivized activity until a new equilibrium forms within the ecosystem. We think this is inevitable to some degree since Arbitrum’s landscape of opportunities will change when incentives are turned on. However, by focusing on activities where Arbitrum’s potential for increased market penetration is large and striving to create the best environment for said activities (parameter changes, new protocols or products, etc.), the thesis is that capital flows to Arbitrum from other ecosystems and stays here. We expect the evaluation partner to be able to monitor the origin of capital that is used for activities that are being incentivized.
This will be designed by the distribution partner and accepted by the committee (we’d additionally note that sharing this information publicly would make farming incentives easier). Wallet eligibility will depend on the parameters set for a specific season.
As stated earlier, KPIs will vary depending on the season. Across seasons, shared metrics will include user retention, induced activity per $ spent, and total market share gains.
One fear with this path is that most excluded protocols will challenge, creating strain on the community, and potentially leading to significant pressure to create one-off programs that harm the ability to evaluate a program in an isolated environment. By trusting the committee that will have a holistic view of each individual component and nuance of a program, we reduce the risk of backlash from protocols. For example, if 3 DEXs are willing to match incentives for a specific program, but 1 is not and gets excluded, we don’t want them to have the ability to pressure the community, who may not have the full picture on why they were excluded. Bringing the drama to the forum may do more harm than good for all involved. Having said that, the committee will be in close contact with all relevant protocols to ensure adequate communication.
We agree that these are important building blocks for the DeFi ecosystem. However, we are fearful that for most of the assets and asset pairs mentioned above, it’ll be difficult to incentivize activity that is retained after incentives end, since creating a systemic shock would be challenging. We welcome community suggestions on structured seasons that would accomplish retention for LPing the specific assets mentioned above.
We see the value in increasing DAO representation in the committee, but are against the idea of doing so just for the sake of having committees. If there are specific community members who fill gaps in the current committee’s competencies, we are happy to consider adding members. It’s also important to remember that AAEs represent the DAO’s best interests, and the combination of the currently proposed committee, together with the evaluation and distribution partners, has the required resources to execute on the mandate.
If the v2 mandate has ended before a DRIP season can be initiated, the committee has the authority to enlist a security firm that is capable of doing the whitelisting.
Language will be added that specifies ARB will be sent to a foundation-controlled multisig with DAO-clawback capabilities. We are happy to stipulate the same for the distribution partner, but given the delay in the onchain proposal, this may not be very beneficial in practice.
While the Foundation hadn’t divested a notable amount of the ARB as of the end of 2024, it’s not transparent how much of the 250M has already been committed. The public data is incomplete.
Capital in the Foundation’s budget is for a range of purposes beyond what DRIP targets. DRIP is not meant to replace those efforts, but to complement them. While the AF’s growth strategy to date has been largely one-off important grants, DRIP focuses on a more holistic strategy for a given sector. Together, these 2 strategies work together to make sure we have support for those coming into the ecosystem as well as within the ecosystem itself. DRIP is not about just partnerships, it’s about capturing an entire vertical and everything involved with doing so.
We foresee this leading to situations where most decisions are vetoed, meaning that changes would commonly go through a public forum discussion, after which a 7-day Snapshot voting period might even be required to reach a clear consensus.
Protocol/product (in the context described in the above comment) selection is more concerned with making sure that users aren’t incentivized to utilize something that has possible security vulnerabilities or is so new that their stability hasn’t been proven yet. Each season will define which specific products/liquidity pools and activities will be eligible for incentives, and the decision should mainly be driven by the underlying market size as well as what Arbitrum’s potential is to increase its market share sustainably within these through systemic shocks. Seasons wouldn’t be as general as “utilize the ETH/USD pair, no matter in what context”.
Mainly through a combination of market share changes for a KPI(s) relevant to the incentivised activity, tracking the source and ending locations of capital used for the incentivized activity, and retention of incentivised activity per $ spent. The evaluation partner will be in charge of spearheading these efforts. Specific behaviors and structures that drive long-term retention have been identified through research done on Arbitrum’s previous incentive programs.
The program’s main goal is to get capital/activity to move over from other ecosystems into Arbitrum through incentives and retaining that capital/activity by creating a home base for it through a systemic shock before incentives begin, resulting in an organic market-leading value proposition. This is to be accomplished by focusing on targeted activities/products where Arbitrum has high potential for increased market penetration.
Incentives should be distributed proportionally across eligible protocols based on the activity that they generate. Using the example given in the proposal: protocol A reaches $100M of wstETH that is used as collateral with at least a 15% LTV, while protocol B reaches $200M. Both protocols’ users gain a 2% incremental APR on their collateral, but protocol B is indirectly getting more incentives since it is generating more of the targeted activity. Consistency in incremental yield within the ecosystem is important, such that the baseline cost of capital within Arbitrum stays stable (although nothing would stop protocols from increasing this yield through additional native incentives). In our opinion, it’ll be more important to look at the average performance of a season, but real-time protocol-specific data should also be made available. Specific parameters will be modified by the committee together with the evaluation partner, which we don’t think the whole community could manage in real time.
The maximum allocation per season is 20M ARB. The 1-year mandate refers to the committee having the ability to initiate seasons within this time period. A season would never be cut abruptly. Additional funds may be requested in the future, depending on the success of seasons (if analysis shows that add-on incentives could further amplify organic market share growth) and the DAO’s financial position.
The season described in the proposal is an example, and there are no set rules that incentives have to be used for derivative tokens or the lending vertical. As long as incentives can be used to amplify an activity’s/product’s organic PMF, and the underlying market size not captured by Arbitrum is substantial, this activity/product would be ideal for a DRIP season. Entropy will be acting as a point of contact to make sure input from high-performing protocols is taken into account.
We’re currently working on a separate proposal that prioritizes Arbitrum-native builders over everything else.
DRIP incorporates learnings from Arbitrum’s previous incentive programs as well as strategies brought up during the detox period. Mainly, it’s extremely targeted, tries to minimize pressure put on recipient protocols, and targets activities where the potential for retention is high through sustainable market share penetration. As such, our strong opinion is that running other generalized incentive programs on top of the DRIP would be counterproductive, likely even parasitic.