[FINAL] Umami Finance STIP Addendum

Umami Finance STIP Addendum

Information about STIP

  1. Can you provide a link to your previous STIP proposal (round 1 or backfund)?
  1. How much, in the previous STIP proposal, did you request in ARB?
  • 750,000
  1. What date did you start the incentive program and what date did it end?
  • Start: November 13th 2023 End: March 29th
  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? If you don’t know what KPI might be relevant for you or how to properly define them, please refer to the following document:
  • Started with $3,046,121 TVL in Umami’s GLP vaults and ended with $10,635,955 TVL in Umami’s GM Vaults
  • $10m TVL retained after STIP ended
  • Partnered with multiple projects including: GMX, Galxe, Defi Edge, Timeswap

TVL of vaults GLP+GM Vaults

DATE 01/11/23 01/12/23 01/01/24 01/02/24 01/03/24 01/04/24
TVL ($M) 4.1 5.4 5.3 5.7 11.3 11.1
TVL % 0% +34% +2% +8% +98% -2%

DAU

DATE 01/11/23 01/12/23 01/01/24 01/02/24 01/03/24 01/04/24
DAU 22 198 145 96 53 53
DAU % 0% +800% -27% -34% -45% 0%

The successful migration from GLP to GM Vaults is evident in the rapid growth of TVL during the launch phase. The sustained TVL post-STIP incentives indicate a strong product-market fit and user appreciation for the product’s performance. Notably, the significant TVL increase happened post-incentive start date which underscores that users are drawn to the vaults based on their ability to successfully create yield with single asset exposure using GMX’s GM pools.

  1. [Optional] Any lessons learned from the previous STIP round?
  • Implementing oARB emissions, inspired by Dolomite’s system, proved effective in boosting liquidity and securing ARB supply. However, the system faced hurdles, particularly regarding the availability of ARB from vesting contracts. Rapid issuance of oARB tokens initially yielded high returns for early depositors, but challenges arose towards the end of the period. As more depositors opted for the non-ETH investment 40-week option, we encountered delays due to the need to taper emissions.
  • This experience highlighted the importance of closely monitoring token availability and adjusting emissions to ensure a sustainable and consistent user experience. Additionally, while the requirement for increased ETH and ARB investment faced backlash from farmers accustomed to direct emissions, it was a critical aspect contributing to the success of our strategy. Mandating a vesting ARB and ETH investment commitment helped reduce the number of users taking advantage of the high emissions rate, allowing savvy users to achieve increased yield in a shorter timeframe.
  • Overall, this experience provided valuable insights for future iterations that protect the ARB community, emphasizing the need for flexibility and adaptability in incentive programs.
  • Going forward we will target a direct incentive approach with dynamic incentives based on where TVL is needed within our vault system.
  • Without an oARB system and running two different types of emission schedules we can create a streamlined dune dashboard.

New Plans for STIP Bridge

  1. How much are you requesting for this STIP Bridge proposal?
  • 375,000 ARB
  1. Do you plan to use the incentives in the same ways* as highlighted in Section 3 of the STIP proposal? [Y/N]
  • No, in order to give users a better user experience we have changed the oARB incentive mechanism to a direct ARB emissions system using a simple master chef contract.
  1. [Only if answered “no” to the previous question] How will the incentive distribution change in terms of mechanisms and products?
  • By employing a straightforward masterchef contract and dynamically distributing ARB incentives, we can incentivize TVL on vaults, enhancing the efficiency and scalability of our GM Vaults. For instance, to optimize the performance of the ETH GM vault, TVL should be evenly distributed between the USDC vault and the ETH vault. If the USDC vault requires additional TVL to maximize efficiency and minimize hedging costs, ARB incentives can be utilized to encourage TVL to flow towards the USDC vault creating optimal internal netting.
  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?
  • Multisig to receive the incentives: 0x8E52cA5A7a9249431F03d60D79DDA5EAB4930178
  • Contracts that will distribute the incentives: 0x52f6159dcae4ce617a3d50aeb7fab617526d9d8f
  • Contracts incentivized:

$gmUSDC (WETH) Vault Token - 0x959f3807f0Aa7921E18c78B00B2819ba91E52FeF

$gmUSDC (WBTC) Vault Token - 0x5f851F67D24419982EcD7b7765deFD64fBb50a97

$gmWETH Vault Token - 0x4bCA8D73561aaEee2D3a584b9F4665310de1dD69

$gmWBTC Vault Token - 0xcd8011AaB161A75058eAb24e0965BAb0b918aF29

The multisig used to receive the incentives will be the same, while the incentive distribution contract changed compared to original round 1 STIP proposal. The vault’s being incentivized has changed from GLP Vaults to GM Vaults.

  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?
  • While the overall experience was positive, we did find some difficulties ensuring openblocks data for Umami reflected the updates to our products and incentive system. Although we did update the appropriate forms for the bi-weekly updates a secondary form of communication or procedure should be had with openblocks so that protocol data is up to date when changes are implemented.

Hello @Neotokyocat,

Thank you for your application! Your advisor will be @JoJo.

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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The following reflects the views of L2BEAT’s governance team, composed of @krst and @Sinkas, and it’s based on the combined research, fact-checking, and ideation of the two.

While L2BEAT is also the DAO Advocate for the ARDC, we’re also delegates in Arbitrum DAO and we want to make it absolutely clear that the below reflects our opinion in our capacity as delegates and not as the DAO Advocate.

As Umami Finance STIP application was flagged in the ARDC Research Member STIP analysis as one requiring additional investigation from delegates, we would like to challenge the bridge application so that delegates can form their opinion on whether the DAO should approve or reject additional funding for their inventive program.

We would like to emphasize that our posting of the challenge is not a statement as to whether or not this application should be funded, but merely an administrative act to solicit delegate input. We encourage Umami Finance to respond to the comment in the ARDC analysis and provide further clarification on the effectiveness of their incentive program.

Below we quote the mentioned comment:

The oARB incentive mechanism could be seen as Umami selling ETH for ARB by some. Treasury generated ~45K ARB from deploying liquidity within the ecosystem. These funds were used to increase Umami’s vault emissions post-STIP. This seems to have been successful as Umami is one of the few protocols that has maintained/increased its TVL from what was reached during the STIP. Had somewhat of an advantage compared to most other STIP recipients because of the additional grant from GMX. In the Bridge application, doesn’t directly address the possible ethical concerns connected to the oARB mechanism, but has changed the incentivisation strategy to directly distribute tokens.

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I voted to approve funding for this STIP addendum due to strong performance in the first round of STIP. I don’t currently have a strong opinion on the ethics of oARB, but would like to participate in a community discussion to inform my view.

Thank you for your inquiry into Umami Finance and our incentive program. Here are key points addressing the ethical considerations of the approved and successful oARB emissions program:

Firstly, the stated goals of the framework for the STIP (shown below) included experimenting with new emissions strategies to boost engagement, volume, and liquidity within the Arbitrum ecosystem. Our oARB system was designed to explore innovative incentive distribution models and gather unique data on participant values within our incentive program which can be used to inform future incentive programs.

To develop an emissions strategy that protects ARB stakeholders, Umami collaborated with StableLabs and other partners to propose and approve the oARB system. Community feedback was integrated throughout the program, ensuring the oARB system was promptly optimized. Participants had the option to join the ARB emissions without needing ETH, aligning with our ethical intentions and program goals.

The oARB system aimed to ensure sustainable and net positive tokenomics for ARB holders by allowing only ARB holders to farm, thereby incentivizing ARB community growth. We implemented a time-based distribution system to gauge market valuation of different locking time frames. Allowing users to choose shorter locking periods and receive their ARB incentives earlier created valuable market demand metrics, protecting against mercenary farming and enhancing emissions tokenomics for ARB. Increased ETH investments within the Arbitrum ecosystem ensured our ARB emissions leveraged the volume and liquidity generated by the program.

We have committed that ETH raised will not be used to “sell ETH for ARB” as mentioned in the ARDC analysis. Instead, the ETH earned will be leveraged for future emissions, increasing total market participant investment in our protocol and aligning with Arbitrum’s long-term goals. This program established a new valuation system for the incentives distributed, revealing that many users are willing to lock their ARB tokens for up to 40 weeks to receive emissions. This data supports the feasibility of implementing more sustainable, long-term incentive systems that go beyond immediate ARB giveaways.

We embrace this approach to oversight, ensuring the integrity of the ARB incentives ecosystem. We look forward to the DAO’s guidance in fostering a thriving incentive ecosystem for Arbitrum, cementing its role in DeFi innovation.

On behalf of the Arbitrum community members who delegated their voting power to us, we’re voting For this proposal.

Umami Finance achieved solid growth during the initial 750K ARB STIP, with TVL in their vaults increasing 171% from $4.1M in November 2023 to $11.1M by April 2024. Notably, the bulk of this growth occurred in March during the transition from GLP to GM vaults, and TVL has held steady around $10-11M even after incentives ended, suggesting strong product/market fit.

While DAU figures spiked 800% in December before tapering off, the sustained TVL and key partnerships with GMX, Galxe, DeFi Edge, and Timeswap are encouraging signs of lasting traction.

The oARB emissions mechanism, modeled after Dolomite’s approach, proved effective in boosting liquidity and locking ARB supply, though it did face some challenges. Early depositors enjoyed high yields, but as more users opted for the 40-week non-ETH vesting, ARB availability became strained. The ETH/ARB investment requirement did help curb mercenary farming and concentrate rewards to long-term aligned participants.

For the 375K bridge round, the shift to a more straightforward direct ARB emissions model via a simple masterchef contract makes sense given the learnings from oARB. The plan to dynamically allocate rewards to balance TVL between vaults for optimal efficiency (e.g. driving TVL to USDC vault to enhance ETH GM vault performance) is well-reasoned.

We appreciate Umami’s thoughtful post clarifying the rationale and oversight behind the oARB program. The emphasis on experimentation, community feedback integration, and creating a net-positive impact for ARB holders is commendable. Using the ETH raised to fund future emissions and increase protocol investment, rather than to “sell for ARB”, is also the right approach.

That said, we agree with the ARDC analysis that the oARB mechanism warrants further discussion and clear guidance from the DAO going forward, even if Umami is moving away from it for the bridge round. Establishing consistent principles around these incentive structures will be important as more projects look to emulate the model.

The challenges with keeping Openblocks data current also underscore the need for tighter coordination between grantees, the DAO, and infrastructure providers to ensure accurate monitoring - a valuable process improvement for future cohorts.

In summary, Umami’s solid STIP performance, proactive adaptations based on community input, and clear go-forward plan merit the renewal of their funding at the reduced 375K level in our view. The transition to direct emissions shows strong alignment with DAO and delegate feedback.

While we encourage ongoing dialogue to refine the parameters around novel incentive approaches like oARB, we believe the net impact of Umami’s efforts has been strongly positive for the Arbitrum DeFi ecosystem to date. We look forward to seeing the next phase of their growth and contributions to the community.