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 Trader Joe, with STIP incentives their objectives were:
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To grow and support the liquidity of native Arbitrum builders
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To grow and support the liquidity of multi-chain builders that are Arbitrum-aligned
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Onboard new builders to the Arbitrum ecosystem
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Increase user discovery of Arbitrum protocols
For measuring success of the STIP, they set KPIs:
According to the metrics reported by OBL, the numbers are very encouraging:
They have met their targets in terms of TVL and have significantly increased their DAU, both metrics maintaining levels substantially higher than those before receiving incentives. On the other hand, in terms of volume and fees generated, they also saw great results during the incentive distribution period. However, these values have since returned to the levels prior to the STIP.
One thing we noticed when analyzing the bi-weekly reports is that many more pools were incentivized than were included in the final report (Trader Joe STIP Wrap-Up Analysis) and that there were significant deviations in execution compared to the initial proposal and the actual distribution of incentives.
The explanations given were that the reports only included pools that had incentives for more than four weeks in order to have conclusive data on the effectiveness of the incentives. The deviations were attributed to detecting inefficiencies in the distribution of incentives, changes in STIP conditions during the program’s execution, and fluctuating market conditions. For more details on the response and other questions, you can check the Trader Joe’s channel in the LTIPP / B.STIP Discord.
Something to point out is that the JOE/ETH pool had allocated 5.29% of the received grant (80K ARB). They committed to not incentivize this pool during the bridge.
We agree that applications for incentive distribution should not have fixed and strict emissions, as changing market conditions may require flexibility. What we advised the applicant, and what was subsequently followed, was to determine objective criteria for deciding which pools would receive the incentives. This way, in the biweekly reports, the reasons and criteria adopted for redirecting incentives from one pool to another can be explained.
What we appreciate about the addendum is that the applicant has learned from the use of STIP incentives and has decided:
- Less diversity in market selection and less short-period incentivization.
- Focus on larger core pairs and blue chip tokens which are ideal for Liquidity Book and its unique take on manual market making.
Finally, they set two KPIs with which the DAO can evaluate the success of the incentives, and whose progress will be monitored through bi-weekly reports:
- TVL for incentivized LPs: Achieve a 25% growth in TVL.
- Onboarding at least 4 new protocols/builders to Arbitrum.
Conclusions
The results shown during the incentive distribution are positive, with the applicant having achieved the objectives set for the STIP. We believe they have correctly identified shortcomings and challenges in the allocation of incentives to establish a more flexible scheme focused on their core pairs and blue chip tokens.
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.