Summary [Updated on March 14, 2025]
On December 21 2024, the Arbitrum DAO voted in favour of establishing two committees - the Treasury Management Committee (TMC) and the Growth Management Committee (GMC), who were tasked with spearheading treasury management efforts involving 25M ARB and 7,500 ETH, respectively, within the ArbitrumDAO’s treasury.
This proposal presents GMC’s preferred allocation choices with accompanying risk assessments performed by LlamaRisk. After assessing all 45 applications, the GMC is proposing to allocate 5,000 ETH to Lido to be staked for wstETH, and deposit this 5,000 wstETH into Aave V3 on Arbitrum to act as liquidity for LST/LRT looping, and lastly, lend 2,500 ETH on Fluid to support ETH based DEX and lending liquidity.
Objectives
As highlighted in the original Treasury Management V1.2 proposal, the purpose of the Growth Management Committee (GMC) was to provide a path for the Arbitrum Foundation to deploy 7,500 ETH from the DAO’s treasury to achieve 2 things:
- Generate low-risk yield on otherwise idle ETH
- Spur ecosystem growth
Moreover, given this is the DAO’s first tranche of funds, we really wanted to ensure the DAO starts with a really strong and stable foundation, while securing key partnerships from the very beginning. Thus, we focused on selecting extremely high quality partners with low risk strategies that allowed the DAO’s funds to maximize its reach and impact within the Arbitrum ecosystem.
GMC’s Preferred Allocations
Total Allocation: 7,500 ETH
Number of Allocations: 4
Allocation 1:
Protocol: Lido
Allocation Amount: 5,000 ETH
Basic Strategy Description: Deposit and stake 5,000 ETH with Lido to receive wstETH
Expected Benefit(s):
- 3.20% ETH/stETH yield (30D Avg.)
- Highly liquid & composable receipt token that can be extended across other applications (wstETH)
- 20% “Reward Share” from Lido’s Reward-Share Program, effectively giving the DAO a higher yield on our ETH deposits into Lido
Allocation 2:
Protocol: Aave
Allocation Amount: 4,200 stETH (in wstETH) [Previously 5,000 ETH]
Basic Strategy Description: Supply 4,200 stETH (in wstETH) to Aave V3 on Arbitrum to encourage LRT borrowing against wstETH in collaboration with Lido, Aave, Renzo, and Kelp
Expected Benefit(s):
- 3.20% ETH/stETH yield (30D Avg.) + est. Aave wstETH supply yield of 0.62% + 0.82% in wstETH deposit incentives
- Additional incentive programs from Lido, Aave, Renzo, and Kelp, to drive wstETH, ezETH, and rsETH deposits to Aave V3 and more generally Arbitrum. This should also hopefully increase supply rates for wstETH on Aave
- Allows the DAO to repurpose funds from Allocation 1 (wstETH) to further improve the DeFi ecosystem while accessing a higher yield
Further Details Regarding Incentives:
In cooperation with Lido, an incentive program to grow wstETH deposits on the Aave Arbitrum instance has been designed.
The incentive program consists of three 30-day phases, each with increasing targets and budgets to encourage sustained growth in wstETH deposits on Aave. After 90 days this program will be reassessed and may be renewed. For each phase, the reward mechanism operates in two modes:
- When deposits are below the target: Depositors earn a fixed 0.82% APY.
- When deposits exceed the target: The daily reward amount is distributed pro-rata among all depositors.
The program features a 15% Month-over-Month growth target with an expanding budget to support continued growth in wstETH deposits on the Arbitrum Aave instance.
| Period (Days) | Budget (wstETH) | Fixed APY | Deposit Target | Daily Reward |
|---|---|---|---|---|
| 0-30 | 36.23 | 0.82% | 53,014.48 | 1.191 |
| 31-60 | 41.66 | 0.82% | 60,956.66 | 1.389 |
| 61-90 | 47.91 | 0.82% | 70,111.66 | 1.597 |
Renzo
Renzo is to provide 0.30% yield in REZ to users who deposit ezETH distributed every 30 days , provided certain conditions are upheld.
Kelp
Kelp is to provide x2 KERNEL points to users who deposit rsETH. These rewards will be claimable during Kernel’s TGE. Whilst the point yield is speculative, it does provide an alternative to Renzo’s governance token derived yield.
Incentives
This strategy benefits directly from the Lido wstETH deposit incentives, and will indirectly benefit from the Renzo and Kelp deposit incentives.
| Reward Type | Value | Rewards to who | Benefits treasury funds? |
|---|---|---|---|
| wstETH Deposit Rewards | 0.82% APY | wstETH depositors | Directly |
| KERNEL Points | x2 Points | rsETH depositors | Indirectly |
| REZ Tokens | 0.3% APY | ezETH despositors | Indirectly |
Expected Returns
Based upon our modelling of the effects of the upcoming incentive programs and some minor Aave parameter adjustments which are planned, we expect wstETH deposits to generate the following returns:
| Source | Yield (APY) |
|---|---|
| Lido staking rewards | 3.10% |
| Aave protocol yield | 0.62% |
| wstETH deposit incentives | 0.82% |
| Total yield | 4.54% |
Allocation 3:
Protocol: Fluid
Allocation Amount: 2,500 ETH
Basic Strategy Description: Lend 2,500 ETH on Fluid’s Arbitrum platform
Expected Benefit(s):
- 1%-2% native ETH yield
- Support the growth of Fluid’s highly capital efficient DEX and lending protocol by providing ‘sticky’ ETH liquidity for users to borrow
- Due to Fluid’s design, every $1 of ETH we lend, the Arbitrum ecosystem can benefit from up to $39 in liquidity
- Provide necessary liquidity to increase caps and onboard more LSTs and LRTs to Fluid’s Arbitrum instance
[Added as of March 14, 2025] Allocation 4:
Protocol: Camelot - Updated submission can be found here
Allocation Amount: 800 stETH
Basic Strategy Description: Deposit 800 stETH (as wstETH) as single sided liquidity into the wstETH/ETH liquidity pool on Camelot V3.
Expected Benefit(s):
- Earn 2.56% APY from wstETH yield, trading fees, & xGRAIL (30D Avg.)
- Allows the DAO to repurpose funds from Allocation 1 (wstETH) to further improve sticky DeFi liquidity
A risk Assessment (LlamaRisk) finds that risks include liquidity concentration risk and smart contract risk.
Note: The decision to provide single-sided wstETH liquidity came from discussions with and detailed analysis by the Camelot team, as they are aware of the difficulties associated with the DAO and the Arbitrum Foundation actively managing a concentrated LP position. Nonetheless, the strategy still successfully improves wstETH liquidity on Camelot and the Arbitrum ecosystem as a whole.
Justification
The GMC was impressed by the quality of inbound applications from protocols across many different verticals (full list can be in a subsequent section of this post). While the GMC wanted to venture further down the risk curve in order to increase yield, help bootstrap up and coming protocols, bolster Arbitrum native/aligned protocols, among other desires, it determined that a strong/conservative foundation for the DAO’s treasury strategy made the most sense until the DAO becomes more capable of actively managing positions.
For example, many proposals included LRT-based strategies. While the GMC did want to encourage the growth of LRTs, we did not think the direct exposure to LRTs was appropriate for the first tranche of fund deployments. Instead, we chose a sector that indirectly benefits LRTs by deepening wstETH liquidity to enable LRT looping strategies. In a different example to help explain the rationale behind our preferred choices, many applications included vote-locked/escrowed tokens as a portion of the yield, but it’s difficult to envision how these reward tokens would be managed in practice. A large number of applicants requested the DAO take on leveraged positions, which would require active management to manage liquidation risk. We also received applications from centralized entities, but felt the allocation would be most beneficial for the Arbitrum ecosystem if given to protocol applications that indirectly benefit a variety of other protocols on Arbitrum.
Lido, Aave, and Fluid represent safe applications that achieve conservative yield and strongly support ecosystem growth. Lido has offered a strong concession in its 20% reward share to the DAO, and has proven to be an essential protocol across a number of DeFi ecosystems. Many protocols on Arbitrum would benefit from a larger supply of wstETH on the network, and by partnering with Lido, we are able to achieve this and form a long-term relationship with a protocol that has made critical contributions to the Ethereum ecosystem. Aave falls in this camp as well, it is a well-established and battle-tested player that is easy to form a treasury management strategy around, and it has exemplified product market fit across a wide variety of DeFi ecosystems. In terms of Fluid, it is one of the fastest growing DeFi protocols, with its marketshare continually trending upwards on Ethereum mainnet thanks to its capital efficient design. Fluid is already seeing strong growth on Arbitrum One, has committed to incentivizing its Arbitrum One deployment, and the GMC believes that this growth can be fueled forward by including them in the DAO’s treasury management program. Fluid’s highest-in-class LTVs will result in maximum ecosystem value add for those users wishing to take advantage of these unique opportunities too.
We want to remind all applicants that this is hopefully the first round of many future allocations. The desire is to continually reinvest ETH and stablecoin revenue into the Arbitrum DeFi ecosystem to increase DAO sustainability as well as supporting Arbitrum’s ecosystem of builders. If you were not selected this round, you will be considered in future allocations assuming the DAO supports it.
Risk Assessment (Llama Risk)
LlamaRisk has reviewed these different strategies and finds the risk inherent to each is satisfactorily mitigated to warrant the allocation. In summary, LlamaRisk have identified the following key asset risks and strategy risks:
Incremental wstETH asset risks include:
- Liquidity for the asset is low on Arbitrum, meaning the ETH allocation will have to be staked on mainnet then bridged over using Arbitrum’s canonical bridge.
Incremental Aave wstETH strategy risks include:
- Arbitrum DAO may not be able to withdraw its entire position at all times due to volatility reducing market liquidity. This risk is managed by Aave’s interest rate model, with successful effects demonstrated with the level of withdrawal liquidity of Aave V3’s Arbitrum wstETH market being over 40,000 on February 4th.
- The yield may be lower than anticipated as liquid restaking yield is lower than was expected 6 months ago, meaning limited profit for traders leveraged longing liquid restaking tokens and shorting liquid staking tokens. This is the primary use case for those looking to short wstETH, which is demonstrated by low deposit rates for wstETH on this market.
Fluid strategy risks include:
- Fluid DAO change management processes (e.g. LTV modifications) are not clearly structured and outlined. This could lead to changes to market critical settings going into effect without all participants knowing, which may have unintended consequences.
- A high degree of trust is placed in the core team, with access controls resting in their hands over important functions such as freezing the protocol, users and market modifications. A 7/13 multisig controls these functions, which is owned by the core team. Given that many of these signers are based in India, some degree of operational risk is introduced from frequently arbitrary regulatory rulings in this jurisdiction potentially preventing their continued compliance with the protocol’s best interest. Uncertainty remains, introducing risk.
- As with Aave, pool liquidity risk may prevent the DAO’s entire position being withdrawn in a single transaction during periods of high volatility. Also as with Aave, Fluid competently restores market liquidity quickly through its interest rate model.
Full risk analyses, with guiding processes, are available:
Next Steps
If approved by the DAO, which per the original proposal that passed on Tally requires a Snapshot vote with a simple majority of votes signaling For/Abstain with the quorum equal to 3% of the votable token supply at the time of the proposal going live, the Arbitrum Foundation can begin deploying the 7,500 ETH in accordance with the processes defined in the original applications. This proposal will move to Snapshot on Thursday, March 20, 2025.
If the DAO rejects the choice of the GMC, it will take into account the feedback from the community and alter its choices and proceed to another forum post/Snapshot vote over the coming weeks.
Full list of applications
The entire list of submitted applications can be found here. We encourage voters to evaluate this list relative to the GMC’s preferred choices and vote accordingly.
Disclaimer
The information provided within this forum post is for educational and informational purposes only and does not constitute financial, legal, or tax advice. Nothing within this post should be interpreted as an endorsement, recommendation, or advice to engage in any specific transaction, strategy, or investment. This decision is entirely for the DAO to make, and for the Arbitrum Foundation to subsequently put into action. The information is presented “as is” without any warranties of accuracy or completeness, and each delegate is encouraged to conduct their own due diligence and vote accordingly. DAO members should consult with professional advisors for specific guidance before making any financial, legal, or tax-related decisions. Use of this document is entirely at your own risk.
