- Can you provide a link to your previous STIP proposal (round 1 or backfund)?
- How much, in the previous STIP proposal, did you request in ARB?
500,000 ARB
- What date did you start the incentive program and what date did it end?
Start: January 16th, 2024
End: March 29th, 2024
- Could you provide the links to the bi-weekly STIP performance reports and Openblocks Dashboard?
https://forum.arbitrum.foundation/t/notional-finance-bi-weekly-stip-backfund-updates/20434
OpenBlock Labs
- 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?
| KPIs | |||||||
|---|---|---|---|---|---|---|---|
| 2023-10-01 | 2023-11-01 | 2023-12-01 | 2024-01-01 | 2024-02-01 | 2024-03-01 | 2024-04-01 | |
| TVL | $327,314.24 | $264,792.40 | $1,432,825.23 | $1,500,963.62 | $9,937,351.81 | $15,469,954.99 | $7,269,958.45 |
| Amount borrowed | $252,668.49 | $171,124.30 | $2,781,036.58 | $3,011,027.99 | $31,418,634.81 | $55,077,465.54 | $16,483,824.47 |
| Daily Active Users | 6 | 3 | 66 | 6 | 22 | 33 | 41 |
| Daily tx count | 18 | 6 | 187 | 10 | 83 | 70 | 123 |
| Daily protocol revenue | 6.75 | 1.16 | 65.22 | 66.56 | 583.98 | 1439.59 | 1348 |
| MoM change (%) | |||||
|---|---|---|---|---|---|
| Nov | Dec | Jan | Feb | Mar | Apr |
| -19.10% | 441.11% | 4.76% | 562.06% | 55.67% | -53.01% |
| -32.27% | 1525.16% | 8.27% | 943.45% | 75.30% | -70.07% |
| -50.00% | 2100.00% | -90.91% | 266.67% | 50.00% | 24.24% |
| -66.67% | 3016.67% | -94.65% | 730.00% | -15.66% | 75.71% |
| -82.81% | 5522.41% | 2.05% | 777.37% | 146.51% | -6.36% |
- [Optional] Any lessons learned from the previous STIP round?
Yes, we learned a lot from the previous round of STIP. Here’s a summary of some of the key takeaways:
STIP incentives were highly effective at increasing primary KPIs.
Prior to the STIP, Notional on Arbitrum had ~$1.5M in TVL and ~$3M borrowed. Notional’s STIP incentives greatly catalyzed the growth of these metrics. At peak, Notional’s TVL grew to over $20M and the amount borrowed grew to over $60M.
STIP incentives drove attention to leveraged liquidity and away from leveraged vaults.
In our original STIP application, we put 100% of our incentives on providing fixed rate liquidity on Notional. This created a lot of fixed rate liquidity. But it had the side effect of taking attention away from Notional’s core leveraged vault products which borrow from Notional and deploy capital into external protocols to earn yield. The end result was that users focused much more on providing fixed rate liquidity than on utilizing fixed rate liquidity through Notional’s leveraged vault products.
We think this end result suggests that it would be better to distribute incentives more equally between providing fixed rate liquidity on Notional vs. using leveraged vaults.
Leveraged liquidity user retention was not good.
We split Notional users into three groups: depositors (only supplied capital, didn’t borrow), leveraged liquidity users, and borrowers (posted collateral on Notional to borrow against it). We found that the retention among depositors and borrowers was much higher than for leveraged liquidity users.
We think that this is another reason to tweak our incentive distribution method for the STIP Bridge. By directing some of the incentives away from providing fixed rate liquidity and toward different products, we think we can achieve greater retention and more sustainable protocol growth after the conclusion of the STIP Bridge.
Overall user retention was majorly impacted by poor leveraged liquidity retention.
The majority of the usage that we attracted with the STIP was for leveraged liquidity, which experienced low user retention. In fact, most leveraged liquidity users exited shortly after the conclusion of the STIP because they came specifically to farm the incentives, and when the incentives were gone, they had no reason to stay.
To prevent this from occurring with the new grant we’re proposing a significantly different distribution methodology that will de-emphasize leveraged liquidity and directly incentivize the user behaviors that resulted in higher stickiness and retention.
Specifically, we plan to reduce the amount of incentives given to fixed rate liquidity providers from 100% to 30%. And we plan to use the remaining 70% of incentives to directly incentivize lenders who don’t borrow, borrowers who are not leveraging on Notional, and leveraged vault users.
We believe this will improve retention for all users we attract for two reasons:
- We directly target users that have demonstrated to be sticky.
- We incentivize organic usage which creates organic utilization of fixed rate liquidity. This should hopefully lead to higher organic fixed rate liquidity yields that will keep LPs around after the incentives roll off.
New Plans for STIP Bridge
- How much are you requesting for this STIP Bridge proposal?
250,000 ARB (50% of original grant)
- Do you plan to use the incentives in the same ways* as highlighted in Section 3 of the STIP proposal? [Y/N]
No. As discussed in question 6, we learned that our previous incentive distribution was very suboptimal.
Specifically, we plan to reduce the amount of incentives given to fixed rate liquidity providers from 100% to 30%. And we plan to use the remaining 70% of incentives to directly incentivize lenders who don’t borrow, borrowers who are not leveraging on Notional, and leveraged vault users.
We believe this will improve retention for all users we attract for two reasons:
- We directly target users that have demonstrated to be sticky.
- We incentivize organic usage which creates organic utilization of fixed rate liquidity. This should hopefully lead to higher organic fixed rate liquidity yields that will keep LPs around after the incentives roll off.
We believe that this will significantly improve the long-term affects of the STIP Bridge distribution on Notional’s KPIs of TVL and Open Debt.
- [Only if answered “no” to the previous question] How will the incentive distribution change in terms of mechanisms and products?
In our original STIP grant, we allocated 100% of the incentives to fixed rate liquidity providers on Notional via on-chain rewarder contracts. We propose to amend this as follows:
- Allocate 30% of total incentives to fixed rate liquidity providers using the same distribution mechanism.
- Allocate 30% of total incentives to lenders who don’t borrow. We will track this behavior off-chain and then do periodic airdrops to qualifying users.
- Allocate 20% of total incentives to leveraged vault users. We will track this behavior off-chain and then do periodic airdrops to qualifying users.
- Allocate 20% of total incentives to non-recursive borrowers. We will track this behavior off-chain and then do periodic airdrops to qualifying users.
As discussed in question 6, we believe that this distribution plan will result in higher organic usage and higher user retention than the STIP distribution because it explicitly disqualifies leveraged liquidity users from 70% of the total incentive distribution.
- 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?
All contracts used to distribute incentives in the STIP will remain the same in the STIP Bridge. Here is a list of the rewarder contracts by currency:
| Currency | Contract Address |
|---|---|
| ETH | 0x3987F211d4BA25B6FF163B56051651bF6c6c5e54 |
| DAI | 0xE5b58DE62b71477aE4e10074fee48232DD7A2350 |
| USDC | 0xFc24ACF5BD2aFEe3efBd589F87B6610C9D162645 |
| wBTC | 0x8BC5600582c6c17194e4478C311d3133cf9361D2 |
| wstETH | 0xd2Da21d240F093A38A143426D3cd62326FC496cc |
| FRAX | 0xA8cA4FA84933106a92D4fec68C8B5A057703e862 |
| rETH | 0xda99cd202bCac9f9c945fF2954e08EAec63B067d |
| USDT | 0xe670942CE88d0ac8E655d30E5EF0229e969de26C |
The multisig used to claim the ARB rewards is 0xbf778Fc19d0B55575711B6339A3680d07352B221
- 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 had a very positive experience with the STIP. My primary piece of feedback for the application process was that it would have been good to have more contact with delegates while we were drafting our STIP application. This would have helped us better understand whether our request was in line with delegates’ expectations and whether there was anything we could change which would have made our application more attractive. The DAO has already responded to this feedback by adding the adviser role in the application process which I think will help a lot.
With respect to the actual execution of the grant, we could use more help with distribution and discoverability. If the Foundation or DAO were able to help channel attention to different projects that have received grants or make it easier for users to find different opportunities that would be very beneficial. During the STIP Backfund, we did this with some other projects by using a Layer3 campaign. But if Arbitrum itself were able to lend some of its weight to initiatives like this it would be very impactful for grantees.