DeFi Renaissance Incentive Program (DRIP)

[KlausBrave]

Hi Entropy, Arbitrum Foundation and OCL,

Procedural feedback

This proposal is the first since the Vision for the Future of Arbitrum post, it is initiated by 3 Arbitrum Aligned Entities (AAEs) and it’s style and content suggests a way of moving de facto within this new paradigm.

Given these facts its critical this proposal embodies and exemplifies the standards required for the ecosystem to build trust and establish norms for this new way of operating.

I agree with the points raised by @pedrob on auditability,
@Chris_Areta on the need for mechanisms of community input - a superpower of a DAO is activating collective intelligence, great ideas can come from anywhere and the current structure would miss out by not tapping this valuable resource,
agree with @krst and L2Beat on accountability, continuity, process and metrics.

Now is the time to put in place the organisational infrastructure required to make the AAE paradigm viable and trustable, this moment is a critical inflection point where its necessary to develop new norms, lets strive to listen to all stakeholders and bring intentional care in change-management for how working relationships will need to adapt and function between individuals and entities in different roles from AAEs, Service Providers, talented individual contributors, and Delegates in the DAO.

Imo the ground work and organisational infrastructure needs to be developed and in place and referenced within the proposal, before a proposal of this magnitude can be considered for voting.
I am not against this kind of program, I see the potential, however we should really hold ourselves to a high standard when experimenting with something new of this nature and magnitude.

Proposal Intent and implementation feedback

Considering the MVP (Mission Vision and Purpose)

@Entropy

Purpose (Meaning): Defend and guide the Arbitrum ecosystem.

Mission (Action): Empower people with the freedom to build their best onchain world.

Vision (Aspiration): Arbitrum is home to the universal shift onchain.

in combination with the vision for a Sovereign Digital Nation / Sovereign Wealth Fund

@ajwarner90

We want to support projects through that developer cycle because we want to expand Arbitrum’s economic zones of opportunity, a concept we will discuss below, as much as possible.

This vision of creating additional economic zones of opportunity is important precisely because Arbitrum is also neither just a blockchain or a stack. It is so much more. It is a collection of stakeholders who are bound together and empowered by their common interests as participants in the ArbitrumDAO. Collectively, our business opportunity is significantly more ambitious than just generating revenue on transaction and Arbitrum Expansion Program (“AEP”) fees. We should support builders and create business lines that compound demand for Arbitrum technology and capture value from the resources that we contribute and commit. Arbitrum is a collective of builders, users and investors that can form the largest digital sovereign nation

Right now I am not seeing how this incentive program’s novel mechanism targeting verticals over protocols, and strategic timing intervention within the development of candidate organisations further solves for sustainability/stickiness of keeping activity with Arbitrum, nor how this approach achieves the MVP or moves us towards creating economic zones of opportunity.

It would be good to have this explained more clearly, in particular how could this cost outflow of 80m ARB bring returns back into the treasury? if that’s not the paradigm, how are the AAEs thinking about returns?
Some projections of how this growth-cycle loop is envisaged would be helpful for Delegates and contributors to get behind this model.

Now more than ever in Arbitrum the parts need to support the whole, with the DAO now having gone through the process to define an MVP, with OCL offering the Sovereign Wealth Fund paradigm, the AF suggesting a new org structure around AAEs, and the DAO still being in the middle of SOS setting, this proposal may be too early before the SOS process has completed to ensure maximum coherency and congruency.
Lets get our ducks in a row and ensure with rigor all new proposals (parts) are shaped to add up with systemic integrity inside of the (whole) organisational structures and strategy we are defining.

[BlockworksResearch]

Commentary
We appreciate the effort to bring forward a refined incentive framework with DRIP, especially the pivot toward targeting specific assets and activities. This is a welcome change from our past programs and aligns more closely with sustainable ecosystem design. That said, we’d like to see stronger justification behind certain mechanisms. Recent proposals have done well to explain the rationale for their incentive designs—empirically or rationally. This proposal needs some of that grounding, and we’d prefer to see more rigorous data to support key assumptions. Nonetheless, we believe this is a step in the right direction and support it.

Criticisms & Questions

Self-Juicing and Backdoor Dealing
What’s the risk of protocols self-juicing or making backdoor TVL deals to get more incentives here? This needs to measured/monitored somehow. Otherwise, we’re at risk of another STIP like situation.

Distribution mechanism
For the distribution partner, it may be helpful to distribute funds through Hedgey contracts again, as last time they proved to be useful for incentives management and oversight last time. This would also provide contributors a place to monitor the program individually in case they would like to make a tip to the DAO Watchdog program.

DeFi Impact: There should be greater scrutiny on impact on DeFi this proposal can have, in both directions. From Gauntlet’s past uniswap research, LPs and borrowers are elastic to a degree, and thus shift their capital in response to changing APRs. So there needs to be some justification into what yield is needed to get mass movement of these groups. I.e., will this incentive generate enough demand to beat other benchmarks like the US3M or sUSDS rates (which have outperformed Aave rates in the past)? There should be consideration of the explicit goal per season weighted against opportunities elsewhere both onchain and offchain. Furthermore, how would borrower demand respond to the decrease in borrow APR if this is to affect lending protocols.

Asset Expansion: it’s obvious to promote majors like ETH, USDC, and USDT. But what about long tail assets and less established stablecoins (i.e., sUSDe, SUSDS/USDS, etc). What about interoperable assets (OFTs, NTTs, etc, maybe this can be a direction for solver-loan program ran in tandem with a season at some point) or real-world assets (Paxos Gold, whatever else). Moreover, protocols should be given a reasonable heads up for asset promotion, as many (especially lending) will need to go through a governance process followed by risk management curation; this wouldn’t apply to USDC/USDT/ETH but can apply to interop variants, RWAs, etc.

DAO-Issued Assets & Managed Products: Long term (and of course this is likely outside of the scope of this proposal) the DAO should focus more on issuing some of these assets itself. This is not to say the DAO should fork Ethena and have arbUSDe, but rather the DAO should consider partnering with an institution to issue major assets like BTC, etc. Example: Mantle is taking an onchain asset issuance approach with their Mantle Index Fund (BTC, mETH, SOL, USD) and the DAO gains a management fee from this structure (Source).

[CastleCapital]

Thanks for the response, @Entropy.

We welcome the ambition behind DRIP and recognize its potential to streamline incentives through a more agile, season-based approach. This proposal is a strong starting point, but to fully realize its promise, we believe it must evolve structurally to better reflect the DAO’s values of transparency, reusability, and collective intelligence.

Currently, the Season Selection Committee (SSC) — composed of Entropy, Offchain Labs, and the Arbitrum Foundation — holds significant authority over the design and execution of each season. In this, we agree with @Chris_Areta:

@Chris_Areta

While we are fully aware that the SSC comprises solely AAEs and assume they will act in the DAO’s best interests, we want to emphasize the need for transparency and community input.

However, as currently structured, the model lacks formal DAO oversight.

While we understand the appeal of operational efficiency, speed cannot come at the cost of legitimacy. To strengthen DRIP’s alignment with the DAO, we propose adding at least two independent DAO observers to the SSC. These observers would not hold decision-making power but would ensure greater transparency, provide early-stage feedback, and facilitate broader trust in the process. This would build on what has already been proposed:

@Entropy

The DRIP is open to the community for help with ideation, contributions, and SPs; it’s just the final 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 serve as a point of contact to ensure that this input is taken into consideration.

Additionally, while we understand the need to maintain some flexibility, the current proposal does not sufficiently define how seasons will be scoped, how goals will be selected, or how success will be measured. For a program requesting funds from the DAO, we believe it is critical to provide at least a high-level framework outlining:

• How goals for each season will be set
• What criteria will be used to select and prioritize initiatives
• How KPIs will be defined and evaluated
• How will learnings be documented for future reuse

Providing even a preliminary framework would enable the community to better evaluate and support DRIP’s direction, while still allowing the SSC operational flexibility to adapt. There is also currently an ARDC Recommendation for Incentives in the works, and it should be referenced if approved as a boilerplate design specification for bootstrapped, targeted programs.

Overall, DRIP is directionally strong, and with these structural adjustments, it can potentially become a repeatable, DAO-aligned model for catalyzing growth across Arbitrum.

[APE]

We’re very supportive of this program. Aave are likely one of the most experienced organisations in developing and running incentive programs and believe this is the kind of program that is likely to perform well and achieve Arbitrum’s goals.

We believe that the targeting of specific activities and assets is a solid strategy. At times it is difficult for an individual protocol to fully support these sort of activities even if they wish to. For example, if Aave were given an incentive budget to spend and we wanted to incentivise borrow asset A against asset B collateral, it is likely we would come up against supply or borrow cap issues due to low liquidity of one of these assets. Our options here would be to go to LPs or teams of specific assets and encourage them to deploy more liquidity, but we wouldn’t be able to directly incentivise this and so would be limited in how much control we have. However, if this type of strategy is applied at the entire chain level, it would be possible to carry out a phased approach of deepening liquidity, initiating borrow and supply, and then expanding this activity in a holistic way which would be far more effective and result in much better outcomes.

Looking at the example given here of encouraging borrowing of stablecoins against wstETH, we would recommend that the approach is even more explicit in incentivising this behaviour. Instead of simply incentivising wstETH deposits, which would also incentivise other strategies such as a simple wstETH deposit or a wstETH-WETH loop strategy, we would recommend directly targeting users who do precisely the actions you’re targeting - both depositing wstETH AND borrowing stablecoins. ACI has developed infrastructure for Aave - Merit, and more recently, MASIV - which is capable of handling granular incentivisation such as this. We have found this incentivisation approach to be extremely effective resulting in both direct TVL growth in addition to indirect TVL growth through deepened liquidity which benefits adjacent user strategies. As an example of how effective this can be we have seen up to $7,855 TVL growth per dollar spent in extreme cases, and an average of $2,284 TVL growth per dollar of incentive spend.

In summary, we fully support this initiative, and stand by through our service providers to provide advice and assistance in any future incentive programs.