[Lido] [FINAL] [STIP - Round 1]

[Seraphim]

SECTION 1: APPLICANT INFORMATION

Provide personal or organizational details, including applicant name, contact information, and any associated organization. This information ensures proper identification and communication throughout the grant process.

Applicant Name: Seraphim

Project Name: Lido Finance

Project Description: Lido is the largest liquid staking protocol on the Ethereum network

Team Member and Qualifications: Seraphim (DAO contributor). DeFi expansionist

Project Links:
http://lido.finance/
https://twitter.com/LidoFinance

Contact Information

Twitter: https://twitter.com/MacroMate8

Do You Acknowledge That Your Team Will Be Subject to a KYC Requirement?: Yes

SECTION 2: GRANT INFORMATION

Detail the requested grant size, provide an overview of the budget breakdown, specify the funding and contract addresses, and describe any matching funds if relevant.

Requested Grant Size: 4M ARB

Teem: Till end of January

Grant Breakdown: Grant will be used to incentivise liquidity around wstETH on the Arbitrum network. wstETH already trades on multiple venues on Arbitrum like Kyber, Curve, Uniswap, Balancer etc. Maintaining liquidity on key venues is important for maintaining utility of the wstETH asset.

Funding Address: arb1:0x1840c4D81d2C50B603da5391b6A24c1cD62D0B56

Funding Address Characteristics: 4/6 multisig

SECTION 3: GRANT OBJECTIVES AND EXECUTION

Clearly outline the primary objectives of the project and the Key Performance Indicators (KPIs) used to measure success. This helps reviewers understand what the project aims to achieve and how progress will be assessed.

Objectives:

The first objective is maintaining and improving wstETH liquidity on Arbitrum DEXes vs ETH and stables

The long-term objective, however, is allowing users to mint stETH natively on Arbitrum. This would make Arbitrum the first L2 to allow that, and would be a huge vote of support from Lido to Arbitrum.

However, to achieve that, there needs to be sufficient onchain liquidity for whales to buy/sell and to borrow vs their holdings on Aave. This has been the feedback hence this grant is targeting liquidity and supply caps.

I personally think getting this grant passed will mark a new page in Lido x Arbitrum relationship as ecosystems. It can become be the first step towards achieving native minting on Arbitrum, but it starts with this grant.

Key Performance Indicators (KPIs):

1. TVL across DEXes, 2% depth trade size and volumes.
2. Increase supply caps for wstETH on lending protocols

How will receiving a grant enable you to foster growth or innovation within the Arbitrum ecosystem?:
DEX liquidity

wstETH has benefitted from very high liquidity on Arbitrum in the past. It has contributed to the Arbitrum ecosystem as well by enabling efficient LST trading, which is something mostly associated with mainnet.

This can be clearly seen from very competitive slippage on ETH → wstETH vs cbETH and rETH:

Swapping 1000 ETH → wstETH: -0.01% slippage
Swapping 1000 ETH → cbETH: -4.24% slippage
Swapping 1000 ETH → rETH: -0.16% slippage

However, to preserve the utility of wstETH on Arbitrum, more incentives may be required in the future. This will enable native LSTfi products to develop natively on Arbitrum such as Ethena, Raft, Gravita etc.

Lending Markets
A popular trade in DeFi is looping stETH rewards vs ETH via lending protocols. When that happens or the trade gets unwound, wstETH/WETH buys and sells are routed via DEXes. It is crucial that liquidity is maintained for these trades to occur.

Also, if Arbitrum wants supply caps increased on its lending markets, it requires high onchain liquidity to get risk houses like Chaos labs and Gauntlet onboard. From this perspective, Arbitrum and Lido are well-aligned to foster favourable liquidity conditions for wstETH.

Similarly, various yield-enhancing dapps like Instadapp rely on these looping strategies. Favourable liquidity brings them onboard as well.

Native minting on Arbitrum
The combination of high DEX liquidity, adoption across verticals like lending, yield optimisers etc can lead to Lido DAO allowing native stETH minting on Arbitrum. This is a long-term goal and requires sizeable stETH holders to be more comfortable with L2s, but is in line with the L2-dominated feature of the ETH ecosystem.

Justification for the size of the grant: wstETH has a TVL of $130mil on Arbitrum, which is huge. It’s the most popular asset on lending markets and trades actively on DEXes.

Execution Strategy: The funds will be handled by the Liquidity Committee within Lido DAO. It will pursue the objective of maintaining and improving wstETH/WETH and wstETH/USD liquidity on suitable DEX venues and deposits on lending protocols.

Protocol Name	Total Sum (1000 ARB)	Description
Gov tokens vs WSTETH DEX pairs	450	Bootstrap most traded gov tokens/wstETH liquidity
wstETH/GMX on Uniswap V3	150
wstETH/PENDLE on Uniswap V3	25
wstETH/PENDLE on Camelot	25
wstETH/ARB on Uniswap V3	200
wstETH/RDNT on Balancer V2	25
wstETH/RDNT on Uniswap V3	25
ETH vs WSTETH DEX pairs	750	Bootstrap wstETH/ETH liquidity
wstETH/WETH on Uniswap V3	300
wstETH/WETH on Camelot	75
stETH/WETH on Curve	100
wstETH/WETH on Balancer V2	100
wstETH/WETH on Kyber	75
wstETH/WETH on Pancakeswap	75
wstETH/WETH on Trader Joe	25
Stables vs WSTETH DEX pairs	1,750	Bootstrap wstETH/stables liquidity
wstETH/USDT on Uniswap V3	1,200
wstETH/USDC on Camelot	150
wstETH/USDC on Kyber	150
wstETH/USDT on Pancakeswap	150
wstETH/USDT on Trader Joe	100
Other	1,050	Bootstrap wstETH deposits and looping
Aave	550
Radiant	200
Pendle	100
Beefy	100
Cian	100

Grant Timeline: Grants will be used by end of January.

Do you accept the funding of your grant streamed linearly for the duration of your grant proposal, and that the multisig holds the power to halt your stream? Yes

SECTION 4: PROTOCOL DETAILS

Provide details about the Arbitrum protocol requirements relevant to the grant. This information ensures that the applicant is aligned with the technical specifications and commitments of the grant.

Is the Protocol Native to Arbitrum?: No

On what other networks is the protocol deployed?: Protocol deployed on mainnet ETH, wstETH is bridged and officially supported on Arbitrum, Optimism, Neutron and Polygon PoS.

What date did you deploy on Arbitrum?: October 2022

Protocol Performance: Lido on Arbitrum has been a massive success on major venues

There is $50mil TVL alone on Aave:

Similarly, Radiant has attracted almost $50mil TVL:

Protocol Roadmap: Lido will continue to prioritise liquidity across trading venues. The next big item is community staking, whereby node operators will be able to join Lido permissionlessly, and hence further decentralise the protocol.

Another item on the roadmap is minting stETH natively on other L2s like Arbitrum. With sufficient liquidity and partnerships, Lido could enable Arbitrum users to do that. This would be a huge deal for the future of L2s.

I cannot stress enough how impactful that would be, but it requires a tighter partnership between Lido and Arbitrum.

Audit History: Lido has been extensively audited by multiple reputable firms: GitHub - lidofinance/audits

SECTION 5: Data and Reporting

Provide details on how your team is equipped to provide data and reporting on grant distribution.

Is your team prepared to create Dune Dashboards for your incentive program?: Yes, Lido DAO has a well-equipped analytics team to do so

Does your team agree to provide bi-weekly program updates on the Arbitrum Forum thread? Yes

Does your team acknowledge that failure to comply with any of the above requests can result in the halting of the program’s funding stream?: Yes

[Seraphim]

Attaching 1inch screenshots with slippage nrs

[MotusCM]

Support this proposal completely. Composability of LSTs will drive DeFi activity. Incentivizing liquidity of LSTs on Arbitrum should be a priority of this grant program.

[meyaf320219]

Apologies, but 5m ARB is way too much for a non-native protocol.

I respect the size of Lido and its contribution to Ethereum, but I struggle to see how such a huge amount will specifically drive value for Arbitrum.

How does this 5m bring in new users or new builders? I would support a proposal that is significantly reduced in size with additional details on what native protocols this will support.

Is this only going to increase Uniswap liquidity or AAVE? Just deeper wstETH liquidity by itself doesn’t bring as much value, compared to if this was specifically designed to create value for other ecosystem projects too.

A proposal of this size should be detailed in how it works with native projects - the fact that there is no detail included does concern me that its mostly motivated by growing Lido and not Arbitrum.

[Seraphim]

I think it’s detailed enough. Pretty much all of that ARB will flow back into Arbitrum DEXes, lending protocols and Arbi-native protocols. It can support a variety of pairs like wstETH/WETH, wstETH/Stables, maybe even wstETH/Gov tokens (too early to say which though).

High liquidity of wstETH is exactly why most LSTfi products on mainnet are building on top of stETH and not other LSTs. By putting all of that ARB back to foster liquidity, you create a flywheel effect of LSTfi products on Arbitrum.

[lucaDSQ]

@Seraphim

LSTfi

d2.finance is welcoming more liquidity for LSTfi to increase scalability on our vaults.

Is Lido happy to commit to matching the same size (5M in your proposal) of incentives of LDO? e.g. helping to foster deep liquidity on Options protocols?

[iamnico]

The Arbitrum team and community does not need to pay for the liquidity of Lido.

If Lido wants liquidity then they should pay for that themselves with their DAO.

This is not a sustainable way forward for web3 and the Lido team lacks any competences to actually be a positive change.

[peter]

@Seraphim

5M ARB

yeah. Let’s Arbitrum grant destroy the decentralization.

[medocons]

Wow 5 mil. ARB grant for short term (literally 4 months) incentive?

[hanniabu]

– NO –

Lido is a systemic risk to Ethereum.

They have the goal of monopolizing Ethereum via staked ETH at all costs with no intentions of limiting.

It has become clear that they are malicious actors and Arbitrum should not support them, let alone fund their takeover.

[Seraphim]

12 months, not 4 months.

[hanniabu]

Lido has said many times they have the best liquidity so they clearly don’t need this funding

[meyaf320219]

The framework states that all requests must be used by January 31st 2024.

Apologies, but this proposal not only is a huge cost to Arbitrum, but it also opens up a can of worms about centralisation risk.

I would like to see Lido work with other liquid staking providers to form a joint proposal - it is crucial that Arbitrum does not provide such a huge advantage to Lido when they are already over the 30% staking ratio.

This is a huge risk and as the leading L2 Arbitrum should not be a further catalyst for centralisation.

[medocons]

While there is no hard deadline on the end of incentive programs, funds are expected to be distributed as they are received, and programs should aim to end before the end of the incentivization period on Jan. 31, 2024.

[whereismymind]

Well its undeniable the market for LSTs are flourishing and they definetely bring some tangible value to DeFi – however, the size of the grant, is completely disproportionate for your presence and impact on Arbitrum im afraid.

You are a non-native protocol asking for the biggest grant (by far), so it is very difficult that you will find unanimous support, I’d suggest revising the proposal.

[ArbDefender]

Check the dates for distribution, most are applying for end January 2024 not end of 2024

I dont think this proposal is good, 5M tokens (10% of the whole incentive program) for something that wont bring anything new and no new grow, and help more to centralized the role of Lido in the staking ecosystem, where it should be the opposite.
In the same proposal its stated that the rewards will flow to exchanges that are also applying for grants, so stETH pools will have ARB flowing to them already if Balancer, and others obtains their grants.
The request of the grant is “Primary objective is maintaining and improving wstETH liquidity on Arbitrum DEXes vs ETH and stables” and then you go to show that you can swap millions with 0.01% slipage, so what do you need to improve? In any case in your presentation cbETH and rETH should improve their liquidity to match yours and rewards should go to them.

[Seraphim]

Ser I have shown the slippage on a small trade size. Once real size gets pushed, slippage is significant and is blocking large traders from trading on Arbitrum.

Arbitrum can potentially capture a large chunk of LST trading away from mainnet, but it needs deeper liquidity to accommodate larger size. That’s why ARB allocation to DEXes is so important.

[ArbDefender]

It is important indeed, and ARB allocation to DEXes will flow since DEXes will get grants and will allocate to wstETH pools for sure.
Lido could get some as well to put some extra on top of that but i think 5M ARB its overreaching, its 10% of the whole incentives. I think you should recalculate in here and more people will agree with the proposal.

[Seraphim]

“This program is designed to fund incentive programs running from October 2023 through the end of January 31, 2024. While there is no hard deadline on the end of incentive programs, funds are expected to be distributed as they are received, and programs should aim to end before the end of the incentivization period on Jan. 31, 2024.”

There is no hard deadline. Most protocols aren’t close to getting a sizeable allocation like Lido, therefore I suggested 12 months instead of spraying 5M over 4 months which might be wasteful. If Arbitrum foundation insists, happy to just go through over 4 months period of course.

I will reiterate that there is $130mil in wstETH on Arbitrum. That is a huge sum of money unlike most projects in the space, which is why 5M ARB is appropriate (in my opinion ofc).

[medocons]

@Seraphim

There is no hard deadline. Most protocols aren’t close to getting a sizeable allocation like Lido, therefore I suggested 12 months instead of spraying 5M over 4 months which might be wasteful. If Arbitrum foundation insists, happy to just go through over 4 months period of course.

Or maybe to adjust your timeline and grant requested. Other projects has been asked to do so.