[FINAL] Lodestar Finance STIP Addendum

DAO Grant Programs STIP Bridge Addendum
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  1. Amount requested in arb?

  • The Lodestar Finance DAO is requesting 325,000 ARB tokens. This is a 14% lower ask to what our protocol would be eligible following the STIP-Bridge request recommendation, this reduction due to the fact of our TVL is lower at the moment of the writing of this addendum which is the metric outlined in the original STIP to guide request size.

  • While TVL is one metric, it is highly influenced by HNWI. The STIP did have a positive impact on Lodestar Finance in term of user growth and retention: the amount of unique users and daily active users has risen substantially from pre-STIP levels and users who were introduced to our unique emission flywheel remained active in shaping the protocol’s liquidity at elevated rates compared to pre-STIP. We value the growth in our core users who engage in regular market activity, protocol governance and gauge participation. The STIP brought many of these types of users to Lodestar and we look forward to building on what worked in the previous STIP to continue this growth.

  1. Amount received during STIP?
  • The Lodestar Finance DAO received 750,000 ARB tokens from the Arbitrum DAO during the STIP program.
  1. What date did you start the incentive program and what date did it end?
  • The STIP incentives distribution started on Lodestar on Monday 13th November and ended on the week of the 28th March.
  1. Could you provide the links to the bi-weekly STIP performance reports and Openblocks Dashboard?
  1. Could you provide the KPI(s) that you deem relevant for your protocol, both in absolute terms and percentage change, month over month, for the first of each month starting from October 2023 until April 2024, including the extremes?

  • The Lodestar Finance STIP execution ranked among the most efficient of the program according to the onchain data according to the Open Block data analysis:
    OpenBlock Labs STIP Incentive Efficacy Update (12/29)

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  • One of our key KPIs as mentioned in the introduction is the participation in our emission gauge. During the initial STIP program, 5% of the ARB incentives were distributed to gauge participants. As we can see in the graph below, the amount of stLODE voting at each epoch has grown significantly during the STIP period and stayed above pre-STIP once ended:

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  1. Any lessons learned from the previous STIP round?

  • The Lodestar DAO used 95% of the initial STIP grant to incentivise market participants while using 5% to introduce the Arbitrum community to our unique gauge system.

  • We believe that more of the STIP incentives should be directed to the protocol’s emission gauge, this time directly through integration with Redacted’s Hidden-Hand platform instead of a direct airdrop to voters.
    Users who were introduced to the flywheel, thanks in part to the STIP incentives, were engaged users. Those users leveraged lodestar’s liquidity and participated in positive user behaviour that is value adding.
    Through the data (shown in the KPIs), we can see that users introduced to the Lodestar flywheel were retained within the ecosystem after the STIP at significantly higher rates than those who only participated in the lending markets. These users had positive behaviours such as having advanced/leveraged positions (generating protocol fees), creating positions that connect apps across the Arbitrum ecosystem (interoperability) and allowed them to control the incentive structure of the protocol (governance).

  • You can read more about our emission gauge and a case study on its efficiency through this link: The Lodestar Hidden Hand Market — a Three-Month Review | by Waffle | Apr, 2024 | Lodestar Finance

New Plans for STIP Bridge

  1. Do you plan to use the incentives in the same ways as highlighted in Section 3 of the STIP proposal?

  • We will be using the incentives of the STIP-Bridge in the similar way, twice-weekly snapshots and distributing ARB incentives to all market participants equally based on the cumulative ETH value of their position (supply + borrow).

  • For this STIP-bridge program, we will incentivise gauge participants through Redacted’s Hidden-Hand platform.
    Our plan however is to increase the proportion of STIP incentives directed to the emission gauge participants from 5% of the request to 15%.

  1. How will the incentive distribution change in terms of mechanisms and products?

  • The Emission gauge voting incentives will shift from a weekly reward airdrop to a weekly distribution through our Hidden Hand market:

    • the ARB bribes will be distributed to each market (borrow and supply side) proportionally to the base emission speed of LODE incentives that can only be changed via Snapshot governance.
      • For example, the USDC.e supply market receives 8% the base LODE emissions: 8% of the bribes dedicated ARB tokens will be deposited to the USDC.e supply Hidden Hand bribe market.
      • All our emissions speeds are available in our documentation: LODE Emissions | Docs

  • In order to foster partnerships with other protocols in the ecosystem (such as FRAX for the previous grant program), we will be matching users and protocol bribes on Hidden Hand.

    • What this means is that when anyone bribes a market, the base ARB distributions on Hidden Hand for every market (described above) will be lowered proportionally in order to match the bribe’s value 1:1 in ARB.
    • If no bribes are deposited during an Epoch by a partner, then the ARB weekly voting incentives will be distributed evenly across all the markets

  • This change in the incentive distribution targets our main KPI for this STIP-Bridge program:

    • stLODE voting participation: for example, 4 week moving-average of total stLODE utilisation measured 90 days following the conclusion of the bSTIP versus 4 week moving average of total stLODE utilisation prior to bSTIP
    • Growth of partnerships in the ecosystem: comparing the moving average of total weekly bribes from partner protocols before and after the bSTIP
    • Daily active user growth over the duration of the grant period and following the conclusion of the bSTIP
  1. Could you provide the addresses involved in the STIP Bridge initiative (multisig to receive funds, contracts for distribution, and any other relevant contract involved), and highlight if they changed compared to the previous STIP proposal?
  • The Lodestar DAO would use the same multisig address as for the first round of STIP incentives, running through a 3 / 4 multisig at this contract address : arb1:0xfA62A3A0722a0aF7739c23a361E2285F5B75ecE7
  1. Could you share any feedback or suggestions on what could be improved in future incentive programs, what were the pain points and what was your general evaluation of the experience?

  • We believe that the STIP Program is an excellent first step to improve the attractiveness of the Arbitrum Chain, while maintaining its leadership in the Defi race.

  • We are looking forward to see the implementation of a global grant framework for protocols to request incentives from the DAO instead of periodical programs such as the STIP, LTIP or STIP bridge.

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Hello @LodestarFinanceDAO ,

Thank you for your application! Your advisor will be SeedLatam Gov @SEEDGov

Please join the LTIPP discord and ping your advisor in the general chat so they can create a new channel and start communicating with you.

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Hi @LodestarFinanceDAO we are waiting for you in the discord!

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The Lodestar DAO updated its STIP-Addendum following its advisor’s recommendation.

We remain available to answer any question the community would have

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Dear @Matt_StableLab and @SEEDGov , confirming that this addendum is final

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Following feedback on the proposal to establish the STIP Bridge, it was agreed to involve the LTIPP Advisors in this process with the mission to “help applicants gain insights into their proposals. This not only guides applicants through the process but also ensures that the DAO will review better proposals.”

Despite the inclusion of Advisors, this process does not involve the Council, leading us to believe that this addendum places a significant burden on the delegates who must review all the proposals. One of the reasons for the LTIPP was precisely to avoid this excessive burden. Moreover, the optimistic model adopted in this phase could raise concerns about the real control the DAO will have over these proposals, as reviewing six months of data for each applicant is time-consuming.

For this reason, we decided to accompany each application we reviewed with a brief report. We ask the delegates not to take this as an in-depth or definitive basis for deciding your vote, but rather as a high level overview that can potentially raise questions for your own analysis.

Regarding Lodestar, they their KPIs were:

During the execution of the incentive program, we believe their metrics improved and goals were met. Deposits grew from 15 million to a peak of 24 million in March.

Their user base also expanded, which as OBL data shows, remains stable to date, which is positive.

What is truly concerning is how the TVL has declined since the incentives were discontinued, even falling to levels below those before the distribution began.

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One thing that the Lodestar team has acknowledged is that they should have focused more on what to incentivize. Therefore, in this addendum, they propose allocating a larger percentage of the distribution to their emission bribe gauge flywheel. For more data on their answers, please check the Discord.

They highlight that there was a x5 increase in user participation in this system, and that participation has been maintained even after the incentives ended.

For this reason, they are targeting a specific type of user to be part of this flywheel:

User with leveraged position >> earns LODE >> converts LODE to stLODE to get governance power >> Uses governance power to boost emissions to his supply and borrow side to increase his profitability.

Lastly, they highlight the experience they had in their partnership with FRAX. Therefore, it is interesting that they plan to use part of the ARB from the incentives to match potential bribes from partners.

Conclusions

We believe that the incentive distribution has met the goals set at the time of request, although we have concerns regarding the sustainability of the attracted liquidity.

As we have seen, the Lodestar team plans to redirect 10% (from 5 to 15%) of the incentives to their emission bribe gauge flywheel, in order to encourage more users to try their system and stay in the long term.

We noticed in all the applications we reviewed that there is a significant drop in TVL during the last month. We believe there are multiple reasons for this, and there isn’t enough time to conduct a thorough and conclusive analysis of the long-term effectiveness of the STIP.

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I would like to express my strong support of this STIP addendum. The Lodestar team continues to exemplify what good looks like when it comes to engaging the project’s community and finding ways to innovate on the product suite.

There was a clear step change in platform use during the initial STIP, and while top line TVL has fallen off (not unique to Lodestar), the plan to increase the next batch of ARB incentives to the bribe system is astute. Leaning into their novel use of the bribe model by expanding the scope of their partnerships with both Hidden Hand (via direct integration of ARB) and the resulting protocols that choose to bribe will enable Lodestar to increase its exposure to other communities and further cement itself as a premier lending protocol on Arbitrum.

Lodestar is clearly deserving of this STIP extension, and has a deep respect for the program and how to responsibly allocate the ARB it is given. I know this from my extensive time in their Discord server, on their Spaces, and following their reports.

Thank you.