Entropy Advisors: Exclusively Working With Arbitrum DAO

Proposals
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Entropy Advisors: Exclusively Working With Arbitrum DAO

non-constitutional

Abstract

This proposal aims to secure funding for Entropy Advisors to continue its work exclusively with the Arbitrum DAO for one year. During this period, we will deliver strategic proposals, guide key partners through the DAO processes, and align the priorities of essential stakeholders for the betterment of Arbitrum. We will also expand our efforts to include a small set of additional verticals by hiring skilled contributors in areas where the DAO needs support, such as data analytics, technical proposal creation, marketing, or any other needs that may arise.

With a budget of $2.791M for the year paid in monthly installments and stored with the Foundation for DAO-clawback capabilities, along with an optional up to 1.5 million ARB for performance-based bonuses voted on by the DAO near the end of the term and put in a 3-year vesting contact to ensure long-term alignment, we will continue to build a dedicated team focused solely on enhancing the Arbitrum DAO’s success. The primary goal of our work is to help Arbitrum DAO continue its path toward efficient and effective operations and execute its long-term vision of becoming a sustainable entity with diversified revenue streams. We believe that over the coming years, Arbitrum DAO has the potential to generate hundreds of millions of dollars per year while maintaining its status as the leading Ethereum scaling solution with an ever-growing base of users and developers. All of Entropy Advisors’ employees will work full-time towards achieving this goal.

Motivation and Rationale

Arbitrum DAO is set up to prosper with its cutting-edge technology stack that will soon support numerous coding languages, a vibrant community of users and developers, abundant resources in the DAO treasury, and the ecosystem’s commitment to scaling the most decentralized and secure L2 on Ethereum. Despite our belief that Arbitrum holds a strong position in the market today, there is a lot of work to be done over the next 3-5 years to ensure Arbitrum maintains and advances its position. We have diagnosed some key areas in need of improvement that we feel well suited to take on:

  1. Designing, drafting and executing proposals that benefit Arbitrum.
  2. Strengthening overall governance processes and providing feedback to other DAO contributors, unlocking efficiencies and ensuring redundant work is avoided.
  3. Acting as a mesh layer between key stakeholders, e.g., active delegates, development teams such as Offchain Labs, and the Arbitrum Foundation.
  4. Helping potential 3rd party strategic partners navigate the DAO to attract high-quality companies and individuals within the ecosystem and RFP applicant pools.
  5. Attracting/retaining top talent working full-time, professionally on behalf of Arbitrum DAO.
  6. Improving the ability of the DAO to spend money effectively and support a long term sustainable future for Arbitrum.

Today the Arbitrum DAO faces friction executing across all of the aforementioned tasks. Many times those creating proposals have known or unknown ulterior motives and incentives at play. It is difficult for aspiring contributors and partners to navigate the DAO. No one is incentivized to bolster RFP applicant pools. Communication is fragmented with no entity in place to tie perspectives together, and operations/goals often overlap across initiatives. There are numerous proposals that are consensus to move forward but do not progress because there is no financial incentive to do so. There is inadequate accountability over and transparency into DAO funded programs. The problems are ever-evolving and growing, and the Arbitrum DAO needs an entity that only has the DAO’s best interests in mind to fill the gaps.

Our team (@swmartin19, @mattonchain, and @pruitt) brings an extensive network as well as experience in research, governance, brand building, and project management to the Arbitrum DAO, having led well-known brands in the space such as Blockworks Research and 404 DAO. We have all been involved in the DAO since the beginning, starting with Blockworks Research’s entry into the DAO by highlighting flaws in the DAO’s very first proposal, AIP-1. We are not afraid to push against the status quo if we believe it helps Arbitrum achieve its goals.

Entropy Advisors was extremely fortunate to receive a grant from the Arbitrum Foundation. As such, we have been able to use the past few months contributing full-time to Arbitrum DAO to further showcase our value in the community. We have hosted bi-weekly 1-on-1 calls with a cohort of large delegates, with the foundation, and with OCL, and feel that we have a strong hold on various stakeholder’s interests, strategic goals for Arbitrum, working initiatives, etc. When paired with our experience and networks within the industry, we believe that we are uniquely positioned to help Arbitrum achieve its long-term goals with all stakeholder perspectives in mind. With exclusivity meaning no official or unofficial engagements with any other client, Entropy Advisors can serve Arbitrum DAO with no ulterior motives or conflicts of interest.

Today, virtually no money is spent on operations, while the DAO has spent almost 435M ARB in total with ~95% going towards investments, incentives, and grants (Source: Delphi & R3gen). We believe it is absolutely imperative for the DAO to make an investment in operations, simultaneously ensuring different initiatives across the ecosystem can be set in motion swiftly, fit together seamlessly, and can reach the best talent, while the DAO’s expenditures can be managed in a way that enables long-term sustainability. It is evident that this is becoming a wider-reaching theme within the DAO, but requires a heavy lift (see OpCo proposal from @dkpremia that asks for 25M ARB). We are NOT looking to replace OpCo, but rather drastically reduce the scope and funding request by helping formulate operational procedures until the OpCo is formally stood up. At that point, the DAO can decide what role Entropy Advisors plays as a service provider to the OpCo.

With the budget as outlined, Entropy will be able to hire up to 10 employees with a diverse range of skill sets including governance, data analytics, marketing, and development/engineering. We will be able to hire top talent in our industry who will dedicate their full-time bandwidth to Arbitrum DAO. Regardless of Arbitrum’s current strategic priorities, whether cutting costs or scaling strategies, our team will work to execute the goals of the DAO. Given Arbitrum’s dominance, size, and number of initiatives it is important that we build a well-rounded team at Entropy that can operate as the tip of the spear as a catalyst for change across the many sectors that the DAO operates.

Entropy’s Portfolio

At the beginning of May, we introduced Entropy Advisors to the Arbitrum DAO. We are a governance operations-focused business, working exclusively with Arbitrum. Our initial efforts have already driven several notable initiatives, demonstrating our capability and commitment to enhancing the Arbitrum DAO:

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  • Worked with @r3gen_Finance to create a proposal that reduces DAO OpEx on multi-sig signers, by establishing the Multisig Support Service.
    • We leveraged our network to ensure a competitive applicant pool, which ultimately resulted in one of the most competent applicant rosters (40 in total) in the DAO’s history despite just a $1,500-$2,500 monthly wage per signer.
    • The proposal is expected to save the DAO almost $400,000 per year.
    • Entropy managed the application process, and will soon host a call with the winning applicants to go over multi-sig best practices.
  • Conducted research into Arbitrum DAO’s sequencer margin / transaction fee mechanism, kicking off a conversation that aims to increase the DAO’s treasury value rather than deplete it of resources.
    • Attended/helped drive forward discussions related to DAO budgeting and sequencer revenue through working group calls.
    • Followed up with a formal proposal to increase the L2 minimum base fee on Arbitrum One, with plans to establish a more long-term solution that includes service providers.
    • This proposal, if passed, could bring the DAO an extra $5-15M per year of profit.
    • We also tapped on the ARDC to conduct research into these areas, thereby utilizing existing resources at the DAO’s disposal rather than wasting additional resources.
  • Moved quickly to get Hack Humanity, the entity behind GovHack, ample funding to throw an event in Brussels at ETH CC for the Arbitrum community. These events require a substantial amount of lead time to plan, and the event would not have been possible if a few extra weeks had passed prior to getting the event funded.
    • This is a great example of Entropy Advisors helping 3rd party service providers navigate the DAO while also combatting the collective inactive problem mentioned above. Everyone wanted Arbitrum DAO representation in Brussels and Entropy stepped in to get it done.
  • Introduced a governance calendar that encourages proposals to start and finish Snapshot and Tally voting on the same day each week, requires some support from delegates before proposals move to Snapshot from the Forum, and a holiday break at the turn of the new year.
    • The goal of this proposal was to reduce delegate fatigue by incorporating a more predictable structure, and ensuring things only go to Snapshot once they have been thoroughly reviewed by the broader community.
  • As mentioned above, Entropy has bi-weekly meetings with active delegates, members from OCL, and the Foundation in an effort to streamline communication throughout the DAO. This has helped ensure no two entities are working on the same thing in silos and will become more important in the future as we define the DAO’s long-term strategic vision.
  • By leveraging our existing network, we have kicked off discussions with potential major partners for the DAO. We will always be representing Arbitrum DAO in a high-value context, even though sometimes it won’t be visible to the broader DAO until the end of the negotiations’ lifecycle.
  • We are also working on numerous initiatives in tandem that are not yet ready for the forum:
    • Stylus Sprint - essentially a grants program for early adopters of Stylus to improve dev tooling and infra, and display the power of Stylus on mainnet.
    • Events RFP - a group of events providers who can organize events on behalf of the DAO for a fair price.
    • [Redacted] Gaming Project Looking at Deploying on Arbitrum - small concessions need to be agreed upon by the DAO, but a top-tier gaming project wants to build on Arbitrum if these terms can be met.
    • Pursuing the acceleration of a treasury management strategy so that the DAO is better prepared for the next bear market.

Specifications

If this proposal passes, Entropy Advisors will sign a 1-year exclusivity agreement with the Arbitrum Foundation. The partnership will begin on the first of the month after this proposal passes. During this time, Entropy will service no other clients in any capacity. We will achieve the aforementioned goals through the following deliverables:

Proposals-as-a-Service (PaaS)

  • Neutral Proposal Broker
    • Hold introductory strategy meetings with key Arbitrum stakeholders and partners to help them navigate the DAO. Facilitate introductions between delegates, contributors, DAO leaders, and key strategic partners.
    • Assist with drafting and delivering proposals from select third parties to the DAO.
  • Proposal Incubation
    • Facilitate the oversight and creation of neutral DAO frameworks and initiatives that do not benefit Entropy and only have the DAO’s best interests in mind.
    • The idea behind Entropy is to assemble a team composed of highly capable DAO contributors with differing perspectives and expertises—we will use our collective brain power to create proposals that benefit Arbitrum over the long term and are aligned with community priorities.
    • Enable the DAO to expedite and refine proposals more precisely, addressing the recurring issue of proposals being approved without sufficient details on execution and long-term planning.

Strategy and Ecosystem Alignment

  • Serve as the liaison between Arbitrum’s key stakeholders
    • Host meetings with key stakeholders and report needs and updates between the relevant parties. Report notes to DAO when able.
    • Turn conversations and takeaways into an actionable plan and begin executing.
  • Product and Strategy
    • Regularly discuss with application developers within the Arbitrum ecosystem, relay this information to development teams/the Foundation, and use the insights to create discussions with clear goals on the Arbitrum governance forum.
    • Assist the key stakeholders on partnerships/integrations as needed. We will serve as an extra set of eyes to highlight emerging technologies and trends within crypto, aiding Arbitrum parties when we can be helpful.
    • Generally speaking, ensure that the Arbitrum DAO is on track to becoming a sustainable entity with sensible spending and a focus on profit generation.

Data and Brand Building

  • Build up a high-value brand through various mediums, such as X/Twitter with educational content and research, YouTube/Apple/Spotify through a podcast, and email through weekly newsletters.
    • Bring visibility into DAO initiatives and RFPs.
    • Represent the DAO professionally and with a demeanor that the community can be proud of.
  • Aid DAO-funded organizations like the ARDC and OBL in conducting research and analytics to inform proposal development.
    • Utilize data analytics to help the DAO with accountability and transparency around its initiatives.

Vision

Our vision for working with the Arbitrum DAO is structured in three key phases, each building upon the success of the previous one to ensure a thriving partnership.

[Complete] Phase 1: Establishing The Foundation For Entropy<>Arbitrum

In the initial phase, our focus was on establishing a solid foundation by identifying and addressing key pain points within the DAO. This involved acting as a neutral party to broker proposals, aligning stakeholders, attracting talent, and improving strategic partner onboarding and stakeholder relations. Our initial efforts have already demonstrated notable progress in a short time period, setting the stage for a more capable DAO.

During Phase 1 we identified how Entropy fits into the broader DAO, and how we can be most useful. This involved lessons learned in passing proposals, project management, and working with new and existing partners. Additionally, we took this time to start building relationships with all of the DAO’s most active stakeholders including many delegates, members of the foundation, protocol teams, and key individuals at Offchain Labs.

[This Proposal] Phase 2: Passing a DAO Proposal For One Year of Continued Work.

Over the next year, we will build on the foundations we have established, aiming to make the Arbitrum DAO an efficient and effective community dedicated to long-term sustainability through the points brought up in the Motivation & Rationale section.

We will enhance governance processes by ensuring the initiatives we develop and implement focus on accountability. By fostering stronger relationships between key stakeholders we will ensure more cohesive collaboration. Through data, quantitative, and qualitative analysis we will begin to analyze active initiatives and propose clawbacks and other mechanisms to decrease DAO spend to focus its budget on high ROI initiatives.

Leveraging our extensive network, we will secure partnerships that bring value to the DAO, enhancing the overall ecosystem. Additionally, we will pick up small lift brand and marketing campaigns to help bring awareness to DAO initiatives. We will continue to attract and retain high-quality contributors by offering competitive compensation, professional development opportunities, and a collaborative work environment.

Through strategic projects, such as well-thought-out economic stimulation, we will support the DAO in generating sustainable revenue streams. Our proposal includes an agreement with the Arbitrum Foundation so that if the OpCo is stood up in the next year, we can easily port our agreement to fall under its purview instead of the Foundation.

Phase 3: A Well-Oiled Machine

In Phase 3, we envision Entropy Advisors as a well-oiled machine, seamlessly servicing the Arbitrum DAO. Entropy will grow together with the ecosystem, continuing to perfect the deliverables mentioned earlier while looking for areas where we can add value. By this stage, we will have employed and retained top talent, creating an environment where the DAO operates at peak efficiency. Our efforts will help position Arbitrum as the clear-cut leader in the rollup ecosystem, driving innovation, growth, and success.

At this point OpCo should be well underway and Entropy Advisors will continue to serve as a service provider to OpCo, if viewed as beneficial. The DAO will be able to retain a second year of Entropy’s services under the same terms stipulated in this proposal, if it desires to do so. For this second-year engagement clause to be executed in the future, the DAO will also need to vote in favor of the future bonus proposal discussed below. If the OpCo is stood up, this entity can be responsible for the potential renewal in place of a DAO vote. This structure would come into effect at the end of our initial 1-year term.

Cost & Budget Breakdown

Salaries: $1.96M

  • Justification: According to Delphi, a VC analyst (the lowest level employee) makes $85,000-$160,000 + a carry with more senior positions making significantly more. Employees cost an employer substantially more than base salary due to benefits, taxes, and other assorted costs. This ensures competitive compensation to attract and retain top talent, with our goal being to hire up to 10 employees. Additionally, we will be able to hire independent contractors and service providers on a project-by-project basis as needed. We are doing highly specialized work, and obtaining experienced individuals in the middle of a bull market with extensive experience in operations, project management, finance, and governance that are also crypto native will be expensive.

Legal, Insurance, and Accounting: $90K

  • Justification: Covers necessary legal, insurance, and accounting services to ensure compliance and protect the organization. As a company operating in a forward-facing role in the governance space, a sufficient budget is necessary to protect against changing tides in the regulatory environment. Costs include setting up a Cayman Entity, D&O + E&O insurance, accountant’s hours, ESOP, employee agreement reviews, and more.

Conference Travel, Offsites, and Small Events: $105K

  • Justification: It is important that Entropy represent Arbitrum DAO at industry leading events. Hosting our own small events is important for brand building. Offsites and conferences can cost as much as $5,000 per employee in attendance. Even throwing a small “Happy Hour” type event can cost between $5,000 and $15,000. This enables Entropy members to attend industry conferences, conduct 1-2 offsites per year, and host 1-2 small events to foster team collaboration and engagement with the community. All while representing Arbitrum DAO in a professional manner.

Assorted Software: $21K

  • Justification: Enterprise Dune, Gusto, QuickBooks, Replit, Google Suite, Web Hosting, Laevitas, Token Terminal, Open AI API, Slack, etc. Provides essential tools and platforms for data analysis, development, operations, and communication.

Brand and Marketing: $80K

  • Justification: Invests in brand building and marketing efforts to enhance the visibility and reach of the Arbitrum DAO. Though it is a small budget and the DAO should still explore other avenues for marketing, it will allow us to do the bare minimum of promoting Twitter/X threads, building websites, and other brand building mechanisms of this nature. Launching a high-quality podcast can also incur significant costs. Our existing familiarity with Arbitrum’s methods of information dispersion allow us to lean into brand and marketing in an optimal manner.

Office / Misc: $70K

  • Justification: Covers expenses for coworking spaces, office equipment (laptops, podcast materials, office stipend), dinner stipend for late nights, and other miscellaneous costs to support a productive work environment.

Operating Budget Subtotal: $2.326M

Margin / Contingency (~20%): $465K

  • Justification: Provides a buffer for unforeseen expenses and ensures the project’s smooth progression and some potential profit for the company over year 1.

Total Budget: $2.791M

Payment Details and Clawback

While the Entropy team scales, they will draw a reduced $100,000 per month and after crossing the threshold of 7 employees dedicated to Arbitrum, will start receiving regular monthly payments ($2,791,000/12 = $232583) for the remainder of the 12 month term.

A total of 6 million ARB will be sent to the Foundation, for them to monetize at their discretion to secure at least $2,791,000. Any Excess ARB not monetized (or stored for the potential bonus below) and excess stables from lower payments during the initial scaling of Entropy will be sent back to the DAO by the Foundation.

Termination and Clawback

The DAO may vote via Snapshot to terminate Arbitrum’s relationship with Entropy Advisors at any time. Quorum for this proposal will be set at the same level as ongoing non-constitutional onchain proposals, with quorum defined as total votes for termination+abstention, and the proposal must have more voting power in favor of termination than against or abstaining. If the Snapshot proposal passes, the DAO can terminate the agreement with Entropy Advisors, effective on the last day of the month in which the Snapshot passes, effectively stopping any future payment at that moment. In this scenario, all funds earmarked for Entropy Advisors will be returned to the DAO by the Foundation.

1.5M ARB Bonus

The Foundation will hold 1.5 million ARB allocated to potential performance bonuses. As the 1-year period comes to a close, Entropy will post a Snapshot vote so that the DAO may decide if the bonus should be distributed. The DAO will have the options of no bonus, 500k ARB bonus, 1M ARB bonus, or full 1.5M ARB allocation. If the proposal passes, the Foundation will send the X (TBD number) ARB to a 3-year vesting smart contract that pays out to Entropy Advisors in monthly streams. This ensures Entropy Advisors remains aligned with the DAO and ARB token even after this agreement has expired and as we move into Phase 3 and onward.

Return

The Foundation will send all funds in excess of – $2,791,000 + 1.5 million ARB – back to the DAO. At the end of the year, any additional dollars resulting from months where Entropy receives $100,000 instead of the full allocation, and remainder from 1.5M ARB if the full bonus is not allocated, will also be returned.

Our vision is to turn Arbitrum into a sustainable entity with durable operations in place. Entropy will be the spearhead of catalyzing operational change and leave long-lasting structure in its wake.

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Could you please specify what the KPIs will be for this proposal?

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Note: this answer encompasses only my personal opinion, and does not represent the opinions of any protocol or entity that I might be part of, partner with or contribute in any form. Remember, I’m just a cow.

This proposal is interesting, bold, and strategically well placed timing wise.
I won’t go in the specificity of numbers, I still need to reflect on them. What I want to discuss is the overall idea.

We have a group of people (@MattOnChain, @swmartin and @Pruitt) that want to create a Service Provide, exclusive for the Arbitrum DAO. This group, so far, has lead meaningful initiatives and discussions such as the multisig for the dao, the base fee of the chain and others. It is, so far, composed by highly skilled people (blockworks, 404dao) and we can expect to maintain the same quality of new hire over time.
Above all, they are all hungry as fudge.

I did find myself discussing this evening the proposal with a dear friend, with very polarized and different opinions. The discussion has helped me clear my mind on the value of the proposal from a qualitative standpoint.

  1. the idea of an exclusive provider is something quite novel, and likely applicable only to a DAO as big and complex as Arbitrum. While this fact might be dismissed by most, it should ensure an high degree of alignment, and should also guarantee a knowledge and skillset level that we can expect to go vertical into the arbi ecosystem, L2 competitions and so on. A plus.
  2. without going in the numbers, the proposal on one side puts aside the maximum amount that is targeted by the group in term of salary + expenses + others, on the other has a tier system to ensure that, if no growth happens, the expenditure is limited, especially because funds are withheld by the foundation. A plus.
  3. the proposal talks about several scope, some in reach already (data) and some a bit more far away (marketing). This broader scope might diluite a bit the efforts, or spread it too thin, or morph into a monster that gatekeeps other service providers in case of extreme success. Maybe a minus more than a plus.
  4. the proposal has a bonus mechanism in the form of vesting. I like this concept, and I also think that without KPIs it could lead to a “sympathetic type”. Overall positive on the idea, and less on the implementation.

The above are just general considerations.
The bulk of the discussion with my friend was about: is this a good idea? Is this a timely idea? Is this idea a costly one?

Taking for a bit off my delegate’s hat, and putting on the one of one of the thousands arbitrum builders, I think is an imperfect and nonetheless potentially good idea, with a very good timing.

The dao is now more or less 15 months old. Some say we are a few months away to the peak of this cycle, some say we will respect the cyclicaltiy and we have further 15 months for the peak.
Whatever the reality is, I don’t think we have, as a DAO, too much time to plant the needed seeds to sustain properly what happens next. We need to start acting now on specific initiatives.
Don’t get me wrong, I think that as a collective we were able to spin up also something good over time; and some of what was done will show fruits in the years to come. But we also need a new force

  • able to steer the convo toward the important topics
  • able to have the ability and knowledge to discuss and potentially implement these topics
  • not necessarily tied to a single powerful governance entity.

This is how I currently see Entropy. A potential solution, probably a non perfect one, to some of the gaps we have as a DAO, but for sure a different solution to what we have so far iterated upon, and hopefully, totally personal opinion here, a good one. A solution that comes at the right time, a time in which we need to consolidate as a DAO and a time in which we need to be able to both properly discuss and address topics that, so far, have been put on the table (revenue, nature of our incentive programs, staking, spending), with either not enonugh followups or not enough reach in the DAO. Top of my mind, the complex, politically dangerous topics, that only a few folks like L2beat for example have so far discussed in a more robust way.

This is what I would expect from entropy: if approved, take the lead, and the heat, of the controversial topics on top of which we need to find an informed consensus and decide upon as a community.

While I am not sure if they will be able to make it cause i have no crystal ball, I think they have the ability to pull it off.

(and sorry if part of this rant is incoherent with the proposal above, will take the time to re-read it when I have a bit more time).

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I have many many questions about your proposal, despite the fact that it is quite detailed

  1. Why do you think that you need 10 employees, although at the first stage you were content with your team of 3 people?
  2. Why do you think your employees will all be venture analysts?
    Judging by the past work with proposals, they concerned far from spectacular investments.
  3. Despite justifying the employees’ salaries, you still did not indicate the exact salary.
  4. You say that we are in the midst of a bull market. Firstly, this is a controversial statement given the fall of most alttokens. In addition, you are planning your campaign for a year when there will definitely not be a bull market.
  5. Unforeseen expenses for office work are too much, especially at this rate of $465k.
  6. Judging by your portfolio, only one of your proposals has now been accepted, which could potentially save DAO up to $400k. And for your services you want to receive almost $2.8 million. It turns out that DAO will be at a disadvantage from such a proposal.
  7. At the end of the year, the DAO will not be able to understand whether you have done enough for the Arbitrum or not. No clear KPIs
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Thanks for the proposal!

While I agree with several points, I have a few questions regarding the whole scope:

Why do not go for an extension/renewal of the current grant and focus on delivering the current discussions you guys are involved with?

You guys mentioned hiring other contributors to tackle different areas and named a few (marketing, governance, etc). Can you be more specific on what do you plan to achieve?

IMO, the action points listed in here have an overlap with the ARDC and ADPC. Can you detail a plan to avoid conflicts or inefficiencies?

Thanks!

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I have worked closely with Entropy Advisors both in my capacity as Treasure Delegate and on the MSS Proposal’s design. Additionally, I was invited to review this proposal before its publication. The recommendations echo some of my positions and add further reflections based on a second review of the proposal review. Please note that these comments represent my personal perspective and do not necessarily reflect the views of Treasure’s ARC.

What’s up with Arbitrum?

Right now, I believe the DAO is floundering. An organisation with ~$2.5 billion in its Treasury is kept afloat largely by a group of part-time individuals. These are typically either:

  • Delegates who usually have their own protocols to build, OR
  • Service providers who have other clients to support and new businesses to win.

The delegates and service providers are trying their best. However, they are fighting a losing battle against a tidal wave of things to do. We need change urgently.

The DAO lacks the organisational infrastructure needed to stay ahead of the competition and ensure this world-class technology stack gets the success it deserves. We have Delegates and Programs, but we lack the full-time senior leaders and established teams required to turn the DAO into an engine that can MOVE.

Our current model has led to:

  • Delegate information overload: As a delegate, it is difficult to know what to pay attention to amid a tidal wave of requests for input.
  • Governance overload: Too many low-budget proposals run directly through governance. This distracts leaders of our ecosystem from making their projects, and therefore the Arbitrum DAO, a success.
  • Lack of coordination: Coordination across the DAO is poor. Take Treasury Management; clearly, this is needed in some form. However, service providers lack clear individuals to engage with on this important topic. This is frustrating for everyone. In the meantime, nothing is getting done.
  • Lack of impact: Major programs have lacked the dedicated resources they needed to become industry-defining. Take User Incentives (STIP, LTIP, STIPb). Despite the hard work of the people involved, these programs have lacked the firepower needed to conduct continual review, refinement, experimentation, and iteration. As a result, at times it has felt like “spray and pray” with no clear long-term strategy or framework to ensure high ROI on spend. A similar pattern will occur across other programs unless full-time support resources are onboarded to consistently execute on the DAOs’ behalf.

Arbitrum needs to take a breath and consider the long-term organisational structure it wants to adopt, or it risks being left behind.

This should be a holistic process, and I would urge caution in resisting the temptation to make incremental quick fixes. For example, the introduction of oversight committees may provide a partial fix. However, it does not address the fundamental problem of a lack of unified vision for the structure of the organisation we want this DAO to be.

Why Entropy is important

Sam and Matt are among the most intelligent, diligent, and knowledgeable individuals I have ever worked with. More than that, they truly care about making Arbitrum a success.

I see Entropy as the tip of the Spear for Arbitrum—a team dedicated to driving progress forward and turning the DAO into an organization that can execute.

They have the capability, respect and network needed to progress important conversations and make our vision for a future DAO structure a reality. They want to do this work, and the six core focus areas highlighted (effectively: Project Management, Governance, Change management, Communication, Procurement and People) represent the essential ingredients needed to conduct the large-scale change program I believe this DAO needs.

What I don’t agree with

Directionally, I am 100% in support of the Entropy team.

However, it is worth recognising some inherent challenges with a proposal of this nature.

  • Scaling team: They are pitching for a contract without a team in place to fully deliver it. That is unusual. However, it does not derail this proposal, given that hiring a world-class team for Arbitrum is an essential part of this work scope. A-Team players attract A-team, and voting FOR should indicate a conviction that the Entropy team can recruit top talent in service to the DAO.
  • Undefined Deliverables: This proposal lacks clear deliverables or KPIs. This might feel strange, but it is natural, given the proposed services’ fluid nature. Funding a service provider in this way requires trust that the team can turn an overarching aim into concrete outputs.

However, details matter. For this reason, I would recommend the following commercial adjustments:

  • Salary Budget = Actuals. Monthly payments for Entropy will be directly tied to the Entropy wage bill. These payments can be invoiced to the Foundation at the end of each month, with an upfront buffer to ensure timely payroll while invoices are processed. This approach alleviates some of my concerns about the large requested salary budget, as Arbitrum will only pay for the actual services received.
  • “Marketing” removed: I’m unsure whether this is needed. I would rather see a marketing function stand up as part of the DAO’s new organisational structure or OpCo versus allocating a budget to Entropy to perform this role.
  • Reduce bonus to 1 million: Whilst the DAO will ultimately decide the bonus level, the upper threshold is still high. This proposal may be more palatable if the upper threshold is set to 1 million ARB instead.
  • “Margin / Contingency” removed: This is a significantly sized contract and the other budgeted items should adequately cover miscellaneous Entropy expenses. Year 1 profitability should not be guaranteed regardless of impact, but be driven by the unlocking of an Arb bonus if the Entropy ships great work.

Despite some commercial reservations, this proposal’s transformative potential for the DAO is undeniable. I trust the Entropy team and am eager to see them continue their relentless efforts to help Arbitrum win.

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I agree with most of what @Pepperoni_Jo3 has written. I’m also concerned that the plan is to hire 10 people. I’d much rather see smaller teams which allocate funds to community applicants to do jobs rather than larger teams growing to do the work themselves. I believe that is the intention here, but jumping to a 10 person team immediately is quite aggressive.

One other suggestion is that the bonus should use a different mechanism. We have no clue how much ARB will be at decision time.

  1. I’d recommend using a percentage of the total contract based on the outcome of a vote. Example, The bonus could be 0-100% of total contract. An algorithm, maybe simple tiers, select what percentage and that could be selected with the knowledge of ARB value at that time.
  2. There should be some sort of vesting or lockup on the bonus.

I am supportive of this directionally. Looking forward to seeing the process make this proposal a key advancement for Arbitrum overall.

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We will be full-time Arbitrum DAO and our work may be dynamic based on the DAO’s changing goals. That said, we appreciate this call out, and think it is important to paint a picture of what Entropy’s success will look like:

  • Save the DAO at least $3m through proposal iterations, clawbacks no one is currently analyzing, and initiatives like the MSS that reduce operation expenditure.
  • Earn the DAO at least $3m of additional revenue through proposals like raising sequencer fees, onboarding partners that will increase activity on arbitrum and subsequent revenue, assisting treasury managers to get their proposals to a place they feel comfortable posting them to begin earning yield on the treasury asap, and other means. We expect this number to far exceed $3m.
  • Steward a minimum of 10 DAO programs free of ad hoc charges. Examples include the MSS, a stylus sprint proposal we are working on that requires active reviewers, etc. This is in contrast to current programs that have to include charges for conducting preliminary research, retroactive reporting, and proposal authoring in order to properly reward contributions. As an arbitrum exclusive entity, we will do this type of work without charging the DAO (/ grants programs) beyond the proposed amount here.
  • Continue our outreach work to onboard 3rd parties by bringing at least 3 significant partners into the ecosystem who otherwise would not have deployed within Arbitrum.
  • We will strive for at least 6 parties to attribute their proposals’ success to Entropy by the time our first-year engagement ends. This was accomplished already once with @kluas and Hack Humanity’s GovHack EthCC proposal, but we continue to provide ongoing support to proposal authors that will surface over the coming weeks/months.
  • Author at least 2 research reports similar to the fee mechanism that helps provide the DAO insight into problems we identify. This will be done on a case-by-case basis and as needed, but will not be forced just to reach the KPI.
  • Onboard 8-10 excellent top minds in crypto who channel their brain power full-time to Arbitrum DAO.

We will remain flexible in where our work is directed to ensure that it is going toward the most value-added initiatives aligned with Arbitrum DAO’s goals, regardless of what those might be over the next year.

Thank you for your thoughtful and balanced response. We acknowledge that some aspects of the proposal require taking a bet on us being successful as executors, and we know we will exceed your expectations. We are beyond appreciative of your willingness to take the time to fully understand the whole proposal and support it.

  • Although we were bootstrapped with a grant from the foundation, we did not have the ability to hire beyond 3 employees to maintain runway given the size of the grant. Notably, we likely have another employee starting soon. We believe that we would have been able to linearly scale our initiatives and success with more talent on our team. Arbitrum DAO is exploring 10s of verticals and has already spent ~435M ARB. That is all to say there is an extremely large surface area of initiatives to cover and areas to explore that drive value to the DAO and protocol. In the initial grant proposal for the foundation, we outlined our plan to use the first few months to operate with a bare minimum team, nail down our place within the ecosystem, prove ourselves, and then go to the DAO for further funding and expansion.
  • We will need to offer top talent competitive salaries that enable them to choose full-time Arbitrum DAO work through Entropy in place of offers from places like VCs, protocols, research firms, and other governance firms. The Delphi report was presented simply as a comparison and is also supported by other compensation surveys. For example, Pantera’s 2023 compensation report found the following median salaries for mid-career hires: marketing (120k), finance & accounting (142k), BD (149k), and operations (101k).
  • We can’t define the role : salary exactly given the negotiation power we’d then lose. For example, if we define marketing: $150k, but are able to acquire an exceptional individual for $75K, now we can hire an additional employee. Defining it here makes us beholden to it as potential employees could use that in negotiations. Additionally, salaries for the same role can vary greatly depending on the quality of the candidate.
  • When scaling a company, it is impossible to fully predict every expense. While it may seem large, this is a margin that allows our team to remain flexible and appropriately respond to not only unforeseen expenditures but also any potential changes to the DAO’s priorities.
  • While we await Chaos Lab’s research on our proposed minimum fee increase, we are confident that if passed this proposal alone would bring the DAO an additional $5-15m per year. This is in addition to other efforts that drive value to Arbitrum such as onboarding partners, assisting treasury managers to get their proposals to a place they feel comfortable posting them to begin earning yield on the treasury ASAP, and research reports that help provide the DAO insight into problems. It is worth noting we have only been operating for ~3 months, and for the majority of that time only having 2 employees. Without extrapolating, we are confident that the total value driven to the DAO will far exceed $3m with a larger team and 12 months.
  • Please see our response to @englandzz above for detailed KPIs.
  • Part of our agreement with the Foundation was a stipulation to come to the DAO by the 3-month mark to request additional funding in return for the services outlined in the proposal and continued exclusivity to Arbitrum.
  • As mentioned, our primary goal is to help Arbitrum DAO continue its path toward efficient and effective operations. Given the number of current initiatives and the several others in the pipeline, a well rounded team is necessary to properly execute the goals of the DAO. This will include analysts to craft more proposals, individuals with strong networks that can bring in valuable partnerships, data analysts to assist in creating detailed reports and analysis, etc.
  • While there is minimal overlap, Entropy’s ability to serve Arbitrum DAO in a full time capacity will be a complement to both of these programs and can assist them with their current efforts. We already have recurring calls and open lines of communication with several members of the ARDC and APDC that will help ensure that inefficiencies are prevented. The ARDC is primarily tasked with analyzing proposals rather than driving them. The APDC, thus far, has been focused on legal frameworks. We don’t expect our scope primarily focused on catalyzing change and aligning stakeholders to overlap greatly. Our goal is to focus on areas where we can add the most value through our unique skillset. Sometimes the type of work might overlap in skills with, e.g., the ARDC, etc., but only if there are capacity constraints on their side or need to move extremely quickly.

Thank you so much for the extremely thoughtful comment @Pepperoni_Jo3. Thanks for the thoughts as well @DisruptionJoe. We really appreciate the overall support and are happy to iterate this proposal to make it stronger. We will adjust and respond accordingly over the next 24 hours.

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Summary
The proposal is well intentioned but appears to have significant flaws as written. First, it lacks the substance to provide confidence in the budget justification. Next, it lacks operational structure and definition, while the proposal itself promises to manage operations for the DAO.

It may make more sense to scale the team and responsibilities at a slower pace (5 FTE) to grow more naturally than forcing an excessively large commitment without first knowing the operational requirements.

The team has demonstrated a handful of promising efforts in the past three months, but this work at Arbitrum does not yet indicate a commitment of 10 FTE @ $279,100.00/FTE/year is prudent at this time.

Centralization
This proposal centralizes all interim ops with no checks and balances, means to scale beyond one team, or path to easily remove the central dependency when transition time comes. It provides foot in the door that would grandfather a services team indefinitely. Removing the team requires outright termination, which would be impossible if the team performs a majority of DAO operations.

Proposal Work Breakdown
I did not see any clear roadmap with deliverables. Is there a work breakdown with linear dependencies? (ie. a gantt)

No Deliverables
Without roadmap and deliverables, it is impossible to see what will be done and by whom.

No Headcount Projections
Without understanding the requirements and work anticipated, there can be no concrete headcount projections. The proposal therefore lacks how hiring is connected to any particular objectives. Specifically, there are no anticipated roles and responsibilities, proposed comp, or other standard elements in any business plan. The argument against disclosing market comparables in the proposal is fundamentally flawed. In many US states now, role compensation is required to be disclosed, and using information asymmetry across employees in the same org to achieve “efficiency” is an ethically dubious practice that ultimately fails. The answer here is to provide a headcount breakdown with compensation ranges.

The absence of these two necessary components are concerning as the group promises to perform operations for the entire DAO. Yet, they themselves have yet to define their own operations to a point that instills the confidence in a high fee.

No KPIs

Without deliverables, the proposal contains no measures of success to agree upon in advance. Without prior agreement, conflict is much more likely. The author has posted a “picture” of what success would look like. In order to command a fee in excess of 2mm, the author would to best to translate these ideas into a concrete SOW that defines the deliverables and means to measure said performance.

Deferred Compensation Structure Flawed
Without agreeing upon measures of success in advance, and putting compensation to a vote after performance, the proposal sets up the significant likelihood of mismet expectations and conflict. The deferred compensation is also high and has no method to account for the volatility of ARB.

Core Fee Structure is Flawed
The cost structure of 100k until “scaled” to 7, creates an adverse incentive toward growing the team. Generally, the fee is high, considering the absence of defined work to calibrate the fee against. Without knowing what will be done, it is impossible to price the work. We would suggest providing the clear work breakdown and allow this to drive costs and headcount.

The justification of the spend on DAO operations versus ARB incentives is interesting, but is a straw man argument when applied to this proposal as drafted.

No Financial Transparency or Reporting Structure

The team has requested compensation akin to an employee (with a contingency buffer). The team does not propose how they will provide financial transparency and a financial operations structure that provides transparency to the DAO as if they were employees.

No Transition or Unwind Term
The proposal defines a termination and clawback, but does not define in advance, agreed upon transition terms for work handoff.

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I am in favor of this proposal.

The work the Entropy team has done to-date on sequencer fee settings, DAO budget, DAO ops and more is highly valuable. There is no one else taking ownership of and moving forward on these key strategic issues.

It’s important to consider not just the direct cost, but also the opportunity cost of a team like Entropy committing full-time to Arbitrum. Matt, Sam, Pruitt and team are strong operators. The incentive in this case is to spread out across many ecosystems to maximize negotiating power and funding opportunities. I think having a small (yes, 10 is small in the real world) team of top-tier folks focused exclusively on the success of the Arbitrum DAO is worth it.

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Would be great to see some substantive analysis by the delegates and some form of negotiation/due diligence.

500k contingency? I would hope an “ops” team could do basic financial planning.

How do you know by the end of this if they have done their job?

Delegates are going to be the ones evaluating their bonus.

Are we voting on good feelings or objective metrics?

Feelings change. Facts don’t.

Would be great to see something with legs before we bet the farm…

Could be an avoidable mess coming soon …

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Totally agree with you @cp0x

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The high budget of $2.791M and additional potential bonuses raise concerns about cost-effectiveness and necessity. The lack of clear metrics for success and detailed accountability mechanisms makes it challenging to fully endorse the significant financial commitment required. :man_shrugging:

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The below is an opinion, which is likely severely biased by the fact that I’ve at times found trying to contribute to Arbitrum DAO challenging. In the occasions when I’ve managed to secure their attention, Matt and Sam have been among the people who have really helped to move things forward. I selfishly want more of that capacity.

The concerns and questions raised by @Pepperoni_Jo3, @DisruptionJoe, @JoJo, @Arb4Ever, feel quite relevant. I would need a bit more time to reflect on the details to form a full opinion.

Regardless the below statements are probably the most important thing to focus on here:

and I’d add to focus not just on Entropy’s opportunity cost in committing, but Arbitrum’s opportunity cost in not.

Given that many of us here have only positive things to say about the team behind Entropy and they’ve clearly produced based on the Foundation grant, it feels that some version of this proposal is safe enough to push forward on a very short timeline, as followup to that. I also particularly like the focus on thoroughly understanding stakeholder needs in phase 1 that has been put, before making the DAO proposal.

In other circumstances it would have made sense to scrutinise such a plan a lot more in terms of defining specific outcomes, roles, plans and so on. But given the above arguments it feels that there are enough low hanging fruit in too many directions, while at the same time the environment is quite volatile, that it might be best to allow for a looser more responsive to the circumstances mandate. With all the risks and opportunities that go with that. Given appropriate management practices put in place incl. addressing the points raised also by @cp0x, @0xTALVO.ETH_MTY.

On the previous GovHack @DisruptionJoe had a couple of great talks (this being one) that made such key points as:

  • the impact of not having a great experience for contributors and service providers is that you are filtering out the best talent

There’s an aspect of this proposal, which seems clearly tackles that problem, which feels urgent. And it also applies to both expecting A-player capability, commitment and accountability, but also making sure we treat such A-players accordingly.

I think this point is also important:

But there’s a balance to be struck between working with people native to the DAO as part time or short terms contributors to initiatives and such that might not even on their own accord apply for such roles, but are trusted to be able to execute by the core team and have full dedication to this type of work w/o conflict of interest.

@englandzz raised a legitimate point about KPIs and what success looks like. While it wasn’t in the original post the below I think is a good start to the this conversation:

If delegates agree that the proposal is directionally good, it feels like that then is the point to detail these outcomes on the forum collaboratively and agree on a process of how they would be periodically reviewed and adjusted over the course of the mandate. Which in turn can inform the criteria to judge success more objectively later.

The concern I share is, as @JoJo put it, out of fear of success, where it might lead to unhelpful centralisation, or setting bad precedents, or supporting suboptimal organisational design and introducing complexity for future developments, or limiting access to resources to other service providers. As long as these are reasonably considered, to which the team has seemingly put thought in terms incentives, and checks and balances, and there are already good suggestions by delegates to address them, I feel passing this proposal quickly can be really beneficial for Arbitrum.

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TLDR: The below defines a process for Entropy to draft a superior operations proposal that will allow Governance to scale operations teams while mitigating financial risk, and providing significant performance-based upside to these operations teams. The process below addresses all material criticism of the proposal to date, and would retain @Entropy and other Operations teams in a sustainable manner. If the goal is to bootstrap DAO operations, Entropy should work with other operations providers in the ecosystem to provide a consolidated proposal that will scale and work across the multiple teams. The process below also meets this requirement.

In the real world, a director would first establish OKRs and KPIs in advance of requesting funds. This request would include a roadmap and headcount projections. They would then deploy these funds to achieve the defined objectives and be held accountable at the end of said term. This renewal would happen quarterly, such that while a budget commitment may be made annually, evaluation is made on a quarterly basis.

This proposal is not in accord with even the most modest accountability structures of large organizations or corporations, FAANG, etc.

The authors are good at drafting proposals and coordinating, but they are not yet qualified to perform the implementation on their own, nor do they have the expertise to do so. That is a gross oversight of this proposal as composed that requires correction. The proposal itself lacks implementation details and evidences this point.

Therefore, the budget for the “operations team” should be broken out from the implementation of the work. The “operations team” is presently helping to onramp and draft proposals/ perform management. This is separate from the implementation budget, which has gone to support additional contractors (e.g. Chaos Labs). The budget for an ops program should continue to be segmented in this manner.

A Potentially Superior Alternative to Consider

A structured governance process should be established for managing operation team assignments, covering onboarding, offboarding, and unwinding/termination. This framework should support the formation and growth of multiple teams, align with specific KPIs, and allow for gradual team size scaling. Multiple teams should be added prior to any single team reaching 10FTE (To address @DisruptionJoe’s point).

Additionally, financial transparency should be a key component. This would involve a counterparty holding funds for the DAO and making monthly payments based on the actual headcount utilized. Similar to the MSS proposal @Entropy already authored, but with an operational process.

A more effective structure would cover actual monthly headcount costs (e.g., $1,000,000 per annum for five headcount and ops) and require DAO approval for additional project-specific budgets. A blank check approach without a clear roadmap is ineffective and establishes the wrong expectations.

The team would just need to do the following:

Governance

  1. Define how teams are voted in, what a proposal looks like, how a team is removed, what is an unwind term, one quarter, how is handoff handled?
  2. Prepare the first Example operations team submission as @Entropy. The proposal should include the following:
  • Define in advance the headcount projections and salary ranges, request the appropriate budget.
  • Define the reasonable OpEx and include it.
  • Define contingency under what conditions they may draw from it and how to make these requests. (Use a financial oversight committee or a comparable financial auditor).
  • Establish which domains you will manage and objectives.
  • Define a bonus as before, calibrated on the achievement of the domain objectives/intiatives.

Financial Operations and Oversight

  1. Establish an oversight committee structure
  2. Establish the wallet or on chain operations structure between the oversight committee and ops teams
  3. Establish a process for processing monthly payments for headcount to the oversight committee including disclosures on headcount and fees paid.

Executive Management

  1. Define the Domain Objectives for which Entropy/ops will take responsibility for and what will be done (Improving vendor onboarding? Improving financial and operational transparency? Improving Operational Workflows? Building Software to Run the DAO? CollabTech? Increasing Revenue? DX Tooling?)
  2. For each Domain, assign a budget ceiling they will utilize to contract external counter-parties as part of the proposals (e.g. 1,000,000 ARB for DX and DX Tooling). The entire budget does not need to be used, but the ceiling allows for expenditure projections.

Implementation and Contracting

  1. @Entropy would be responsible to draft the proposals, source the necessary vendors/contractors. These individual large 7 figure proposals would go to a DAO vote after the oversight committeee reviews. Each proposal would include clear OKRs and KPIs, along with the particular budget ask.

  2. @Entropy is responsible to deliver the results defined in the proposal, which support their high level domain objectives.

Post-Performance Compensation

  1. Any “bonus” could be contingent on delivering results in these domains. Bonus could be quoted in USD or a fixed fiat equivalent or using the 90 - 365 day moving average. Performance would be easy to measure as they would be tangible within each proposal and fall under each domain. Mutual agreement would be established by the DAO voting and approving the proposals Entropy puts forth.

Risk-Adjusted Operations

In a worst case, Entropy fails to get any approval for their project budgets, and fail at management. The DAO is only out the OPEX.

In the best case, Entropy over-performs, delivers ton of leverage on their 5 FTE by finding the right counter-parties and managing them well. Entropy gets a nice fat bonus and the DAO wins too.

Regardless, a sustainable process is in place to hire and fire Ops Teams, and the OPs Co can adopt it or deprecate it as they see fit down the line.

What this does is two fold. First, it retains the team at a reasonable budget, but accounts for the uncertainty in project execution. It also allows @Entropy the ability to create ideas, draft proposals and manage external teams (their strengths) and gain leverage on their 5 headcount. Second, it also allows the DAO an opportunity to approve and agree on these large operational projects and expenditures. This structure provides a means to accountability and transparency, while still allowing @Entropy a significant upside through a bonus, but only once they make it happen.

The previous proposal gives entropy a budget to hire a small team, but no means to actually deliver on their promises. This sets them up for failure in a year.

We can do better, but it will take some work upfront.

2 Likes