Establishing a DAO Oversight Committee to bring strategy, process & accountability to treasury management on Arbitrum

[Pepperoni_Jo3]

These are indeed two distinct yet equally important considerations. My suggestion focuses on setting an overall yearly budget for the DAO, which serves to frame the organization’s spending within the context of the target ARB allocation for the year. A portion of this budget would be converted into stablecoins to cover operational expenses denominated in stables and enable diversification/productive use of Treasury. I think you are talking largely about the latter. Ideally, this process would be guided by more detailed analysis and recommendations from a dedicated Treasury Management Committee.

[Avantgarde]

Based on feedback the initial post has been edited/updated to further clarify that:

• The scope of the TM Oversight Committee should be holistic and asset agnostic covering all of the DAO’s treasury management, including that of ETH and not solely concern ARB diversification
• One of the Committee’s deliverables is to draw up a framework that includes setting strategy/goals/vision for Arbitrum’s treasury
• Salary levels are open to feedback and may be offered as a single lump sum similar to the LTIPP Council and STEP Committee (25k ARB) or on a per month basis (like the ADPC) of, say, 5k ARB.
• The ARB price is an important aspect of this process

Thank you all for your contributions to the discussion.

[Avantgarde]

@Pepperoni_Jo3

Problem 1: Misalignment in Funding Requests
DAO programs budget their expenditures in USD terms but request funding in ARB. This misalignment has led to programs either requesting a “budget surplus” or engaging individually in diversification efforts to avoid running out of capital, as observed in the ARDC.

Solution 1: Maintain stablecoins in the Treasury from which programs can draw funds (1). Or alternatively, establish a centralized DAO Treasury Management ™ function to manage ARB-to-stablecoin conversions on behalf of the programs. It seems @ImmutableLawyer is working on a solution in this area?

We would agree that maintaining stables in the treasury is a better approach to ensure predictability, avoid risk of suboptimal ad-hoc conversions, and reduce inefficiency through more stable funding and improved resilience to market conditions.
Would be interested to hear more about the conversion function idea, from either you and/or @ImmutableLawyer. Perhaps we could set up a call to discuss?

@Pepperoni_Jo3

Problem 2: Unproductive ETH Holdings
The DAO is holding millions of dollars worth of ETH that is not being utilized productively, resulting in significant opportunity costs.

Solution 2: Form a group to oversee the productive use of ETH for yield or growth.
I support the Avantgarde Proposal to establish a TM oversight committee to spearhead this discussion. To avoid conflicts of interest, a neutral party like @Entropy should lead the setup, rather than a service provider. There seems to be broad support for this approach, and they have interesting ideas on this topic.

Having a neutral party lead this effort is what we wish for as well, this post merely aimed at getting a holistic conversation started on the topic as we felt it was lacking.

@Pepperoni_Jo3

Problem 3: Lack of productive USDC
The DAO currently lacks USDC allocations that generate yield outside of the 30m to STEP. Some view the ultimate goal of stable yield as funding ongoing DAO operations, while others see deploying USDC as a means to drive growth. There’s no consensus on this.

Solution 3: An impartial party, not a service provider benefiting from DAO’s capital allocation, should lead discussions on diversifying from ARB to stables for productive use and manage an RFP process for service providers.

I recommend expanding the TM Oversight Committee’s mandate to include not only the productive use of ETH but also a comprehensive strategy for diversification. This would allow the committee to provide holistic leadership on the matter. The committee’s work should culminate in a proposal to the DAO, detailing the diversification of a specified amount of ARB into stablecoins and ETH and determining how these funds should be allocated between service providers. This approach allows the TM Committee, rather than the DAO, to make decisions on stablecoin allocations and mandates based on the RFP outcomes. I believe this will lead to more sophisticated and impactful decisions compared to a process where the allocation/selection is determined entirely by the DAO. I’m all about trusting the experts.

Indeed! As we’ve mentioned in other replies here, we view the role of the TM Oversight Committee as a holistic one; covering not only ETH but the treasury as a whole, including the responsibility to lead efforts in setting treasury strategy/goals/vision along with the RFP process for treasury managers, before moving on to oversee the overall umbrella.

@Pepperoni_Jo3

Problem 4: Undefined Annual Spending Benchmark
The DAO lacks a clear benchmark for annual spending, making it difficult to assess specific program requests within the context of overall DAO expenditure and budget.

Solution 4: Consider framing spending as an inflation rate relative to the current circulating supply, similar to Paper Imperium’s perspective. This would involve the Arbitrum DAO deciding on the number of tokens to introduce into the circulating supply each year.
Programs requesting funding should report the percentage of the overall budget they are requesting and the remaining allocation for the year if the spending is approved.
Addressing this requires coordinated efforts from Entropy, Delphi, Areta, r3gen, the TM Committee, and other key stakeholders. It is crucial to appoint a clear leader to drive this topic forward. With nothing confirmed around the ARDC V2, it’s vital to allocate a budget to continue this important work. @AlexLumley, given your interest in improving service provider scoping and coordination, perhaps this should be a higher priority?

In my view, the end objective from thai coordinated group would be to conduct a snapshot vote for the DAO to determine an ARB budget (e.g., 2%, 4%, or 6% inflation) for 2025. This will enable the DAO to better evaluate the trade-offs in funding different initiatives.

A clear annual spending benchmark tied to ARB’s inflation rate could certainly be beneficial and help provide better context for evaluating program requests. Having a clear dashboard can provide clearer overview of the state of Arbitrum finances (burn rate, return rate, expenditure to date vs budget, etc) which also helps better inform voters.

Thank you @Pepperoni_Jo3 for sharing your thoughts!

[404DAO]

Thank you @Avantgarde for taking charge on facilitating a holistic discussion around a Treasury Management process. We have been following along with the discussion in the forum and are glad to see that initial feedback has already been taken into consideration and changes have been made to the post.

Although we supported Karpatkey’s proposal to diversify the ARB treasury, we understand why other delegates may have been against it. With that said, we welcome this opportunity for the DAO to establish a committee/working group that will draw up a framework for setting strategy, goals, and vision for Arbitrum’s treasury.

Our suggestions are to 1) change the language from “Oversight Committee” to “Working Group”, and 2) to increase the number of members in this group from 3 to either 5 or 7.

The group should be comprised of a well-rounded mix of individuals who have a track record of impact, deep contextual understanding, and subject matter expertise. To that end, we believe that the following individuals (should they agree) are strong candidates for consideration: @thedevanshmehta, @sid_areta, and Paper from @GFXlabs (currently members of the STEP II Steering Committee) and individuals from @Entropy, @r3gen_Finance, or the ARDC. And to round out the working group, we suggest that the DAO elects two additional members.

We look forward to continuing the discussion in the forum.

[Ritu]

Super concept as treasury management is clearly top priority.
I think this is a positive step in establishing a comprehensive and structured treasury management for the DAO.

[kuiclub]

1. The proposal suggests having three members, but I believe three might not be sufficient to cover all the required expertise, especially in fund management and governance. Would it be possible to expand to five members to increase diversity and expertise?

2. The proposal mentions paying each committee member 5,000 ARB per month or a one-time payment of 25,000 ARB. Is the workload and compensation aligned? Should a detailed budget breakdown or a linear unlock process be provided?

3. The proposal states that if someone is on the committee, they cannot apply to become a treasury manager. However, how will conflicts of interest be defined in practice? What happens if a committee member has private connections with a treasury manager?

4. The proposal discusses balancing ARB diversification with market liquidity pressure, but there is no clear reference ratio or target range. For example, how much should be diversified into stablecoins or other assets? How will the strategy adjust to market changes?

5. How will the RFP process ensure transparency and fairness? The proposal emphasizes the importance of the RFP process, but what specific criteria will be used to screen applicants? For instance, will there be details on fees, return expectations, and risk management standards?

Suggestions:

• Beyond short-term diversification needs, could a 3-5 year long-term strategic goal be proposed? For example, what is the desired fund diversification ratio to achieve through this adjustment, and how can returns and stability be balanced?

• Establish a fixed feedback mechanism between committee members and the community, such as quarterly reports or a transparent real-time tracking page, to facilitate community oversight of fund usage.