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

Archive Incentive Framework (Round 1)
42

Lido already has the deepest liquidity in the arbitrum ecosystem, and has the highest stake percentage on the ethereum network. I don’t think Arbitrum should fund any of its liquidity incentives. We should fund upcoming and promising projects instead of defi behemoths who’s position is already cemented. Some points:

  1. Lido already controls almost 33% of the total stake, which is a bad optic for ethereums credible neutrality, even if its spread between x operators there are a lot of governance problems.

  2. Already have the highest LST liquidity on ARB.

  3. They collect 10% commission on 14 billion! dollars worth of ETH. They surely have money to fund their incentives, just like they did in the past.

  4. Grant Size is so disproportionate its almost an insult to the others.
    We can do better folks… we could fund projects who need money to grow. Its a lot of money for them, and a drop in a bucket for lido.

12 Likes
43

GM, OP delegate here, just joined up to comment in this thread as I think the threat of Lido compromising the credible neutrality of Ethereum L1 is something that impacts all the rollups built on top of it and so is important to both of our communities. I’m really pleased to see so many commenters here calling out these same concerns.

For those of you who aren’t so familiar with this issue, I think it is worth pointing out that Lido are trying very hard to frame the narrative as if the risk they pose is not as clear cut as it really is.

Both frontalpha

The some concerns about Lido’s dominance in the staking space are valid there is a lot of nuance

and dgusakov

DYOR, but don’t forget to consider mature research and opinions, and not only loud shouts.

have linked to an article titled Is Lido good for Ethereum? by EridianAlpha that they are trying to present as just an unbiased otherside to the centralization argument.

What they don’t point out is that he is paid by Lido: Lido Community Lifeguards Initiative - #21 by EridianAlpha - Proposals - Lido Governance .

In my opinion this is no different to asking an employee of a tobacco company for their opinion on health risks of smoking; an oil company exec about whether we should worry about the risks of fossil fuels on the climate; or a Purdue Pharma rep about whether OxyContin is dangerously addictive.

If you want ‘mature research and opinions’ I would suggest listening to Ethereum Foundation researcher Danny Ryan’s recent episode of Web3 Builders: https://youtu.be/Y0ddkSa1ZuI . Though I’m sure many of you are very familiar with the warning’s he has been presenting for some time now.

In my opinion one of the easiest to understand risks he describes is:

“What happens when a regulator realizes that three people control the vote? I’ve got three doors to knock on. Easy.”

This is in reference to the fact that, although they are by name a ‘DAO’ in almost all of their proposals on Snapshot, 3 addresses have had enough voting power to render all other participants irrelevant.

Finally, lots of people here are pointing out the amount of funds they are asking for, and as a delegate for a kinda competing rollup I certainly don’t think it’s my place to comment on that, other than to point out that they asked for 1m OP last year, a proposal which we pushed back hard on before it got anywhere near to a vote.

In my opinion @hanniabu has said it most elegantly:

Arbitrum should not bankroll Lido’s attack on the network.

I hope that this is the mentality that prevails when considering this proposal.

MinimalGravitas

8 Likes
44

I do not believe this proposal is worth funding, and would urge those who are voting on this to not support this type grant.

  • The stated goal of the project is “maintaining and improving wstETH liquidity on Arbitrum DEXes vs ETH and stables”. With further explanation mostly geared towards a 1-sided benefit to wstETH. The goal of these grants is to use the funds to grow the Arbitrum ecosystem, and I don’t see where a clear benefit to Arbitrum is spelled out in this case. To me, strengthening Arbitrum’s DEX network would be better served incentivizing a robust marketplace across multiple assets. Subsidizing a specific token is not going to help the broad DEX network grow.

  • wstETH is already the largest liquid staking token on the network. As such, I’m questioning if it really needs further assistance. Any funding will just extend it’s domination against competitors in it’s space.

  • The request is for 10% of the entire grant fund. The opportunity cost should be considered here. Any benefit to Arbitrum gained by this will not outpace the lost benefits that funding a group of other projects with these same funds can achieve. All these funds going to wstETH is going to be a minor, and temporary, boost mainly to wstETH traders due to how proportionally little this is to what is already being funded. The ROI will be higher taking this type of funding to smaller projects that can have a chance to grow the Arbitrum space.

In summary, I simply don’t see much benefit to using such a large portion of the grant funds on an already dominant project like this. I think if Arbitrum is going to commit to growing the ETH Liquidity Token space, or DEX space in general, it should focus on up-coming-projects. Or projects that look to build the space on the whole, not singular tokens. I just fail to see how providing liquidity to wstETH benefits the Arbitrum chain on the whole.

The above I have tried my best to frame as Arbitrum-centric as possible. However, I think one more thing needs to be said — Lido’s systemic risk to Ethereum brought up by others should not be hand-waived or overlooked. Arbitrum is not just competing with other L2s across the Ethereum network, but competing against other blockchains and the general world market on the whole. A huge part of Arbtrium’s success is tied to Ethereum’s success. Lido’s staking dominance has posed a known threat to the decentralization and security of Ethereum, as documented numerous times by core devs and the community. Arbitrium’s reliance on Ethereum should be factor when these grant decisions are made, and it’s dangerous for the Arbitrum DAO to fund projects that benefit itself at the risk of harming Ethereum.

6 Likes
45

I cannot support a grant for a protocol that places the credible neutrality of the entire Ethereum network at risk for the sake of a small amount of additional profit

1 Like
46

Do we have any updates regarding the 1:1 matching with LDO? D2.finance is inclined to support the proposal, regardless of its size, provided there’s a 1:1 matching.

1 Like
47

I think it’s counter intuitive to give Lido a grant you have made it clear yourself let me explain as highlighted here by other Arb users as well.

wsteth has the highest liquidity on arbitrum, why do you need a grant to incentivise more of it. Its traded on all the dexes on arbitrum, it’s present in pretty much all the lending markets as well.

Regarding the SocialFi innovation and protocols, if they choose to pivot to LSTs they would go for wsteth as it’s highly liquid I don’t think there is any incentives required.

You have just made a case for other LSTs with your proposal showing that they have a very high slippage, they need to apply for a grant

48

Firstly, thank you for your proposal and for showing a keen interest in the Arbitrum ecosystem.

Introduction and Rationale

The proposal aims to boost Liquid Staking Token (LST) liquidity on Arbitrum by bringing more wstETH into the network. Lido, the largest LST provider with a whopping 32% market share, is requesting a grant of 5M ARB, which is 10% of the total incentives available. Their robust protocol not only allows users to stake more flexibly but also makes these staked assets usable across various DeFi platforms. With an impressive TVL of around $130M on Arbitrum, they are key players in enhancing capital efficiency and facilitating lower fees and faster transactions on the L2. Overall, we find the proposal compelling and well-aligned with the Arbitrum ecosystem’s growth needs.

Major Concerns

Allocation and Incentivization Clarity

  • Unclear whether 100% of the 5M ARB will go to Liquidity Providers (LPs)
  • Ambiguity regarding which DEXs will benefit from the incentives
  • Our recommendation for change: Clearly state that 100% of the ARB incentives will go to LPs and establish criteria for selecting DEXs for incentives.

Grant Duration and Size

  • 5M ARB for a single project seems quite substantial
  • The grant period is set for 12 months, not matching the standard 3-month outline
  • Our recommendation for change: Reduce the total grant size proportionally to a 3-month timeframe while maintaining the same monthly distribution rate.

Minor Concerns

  • The addition of new verticals like SocialFi feels unnecessary
  • Our recommendation for change: Focus on the core goals of enhancing liquidity and capital efficiency, keeping vertical additions for later stages.

Summary

Castle Capital appreciates the efforts put forth by Lido and the sophisticated staking solutions they offer to the Arbitrum ecosystem. If the below recommendations are made, we would be open to support the proposal moving forward. Specifically, we believe issues regarding the clarity of ARB allocation and grant duration need to be addressed.

Our recommendations are as follows:

  • Explicitly state where 100% of the ARB incentives will go
  • Define criteria for selecting DEXs for incentives
  • Adjust the total grant size to a 3-month duration at the same monthly distribution rate

We hope our comments are taken constructively and help refine the proposal for the greater good of the Arbitrum ecosystem.

5 Likes
49

@Seraphim Thank you for these changes! Your submission now meets all requirements to be considered for a snapshot vote.

50

The fact that we would not know how Lido will distribute these incentives until Lido DAO also then votes on it is crazy.

How can the Arbitrum DAO give 10% of the entire programme to a protocol that can’t explain where the incentives are going?

This stinks of arrogance if I am honest.

1 Like
51

Hello @Seraphim ,

Now that your application has been marked eligible, please be advised of the remaining steps in the application process to be completed prior to the Review Period Deadline:

Please complete the following steps required for your application to proceed to Snapshot:

To change your proposal to final, please tag an Arbitrum Foundation Forum Moderator (@ stonecoldpat @ cliffton.eth @ eli_defi) by the Review Period deadline to notify them of your proposal’s readiness to proceed from [Draft] to [Final] status.

Once notified, the Arbitrum Foundation Forum Moderator will adjust your title from [Draft] to [Final] status. Once marked as [FInal], your application post will be locked by moderators and you will no longer be able to edit your proposal.

1 Like
52

Hope Lido’s BD is not too busy with some kind of dating app on BASE to finalize the proposal.
Noticed that they didn’t book a pitching appointment. Let’s say Lido has abandoned the proposal. No?

53

Perfect.

@stonecoldpat @cliffton.eth @eli_defi could any of you guys kindly rename from DRAFT to FINAL? Seems like I am not allowed to do it myself unfortunately.

1 Like
54

I did book it for Friday actually. I should be able to manage dates with CT girls AND the Arbitrum foundation lol

1 Like
55

Post has been marked FINAL and locked.

56

Thanks Matt.

I’ve amended the term and added exact items ARB will be used for. It’s primarily going to go back to LPs and lenders on Arbitrum ecosystem. Also reduced the ask from 5m → 4m ARB.

My hope is that increased liquidity will lift supply caps across lending protocols, which will push more stETH from Mainnet to Arbitrum. For that to happen, liquidity needs to drastically increase to accommodate size.

Also, it’s very likely GMX will choose to integrate wstETH in some shape or form, which will create large demand for hedging activity, which also requires more liquidity.

57

How do you intend to incentivize Uniswap V3 liquidity? Are you planning to incentivize through a third party liquidity manager or incentivize the liquidity positions directly?

58

First of all, thank you for the proposal. Unfortunately, the proposal is requesting a very high grant amount. 4M ARB, expected to be distributed over 4 months, is quite substantial, even for a project like Lido. We do not believe that the concerns raised by other community members in the forum have been adequately addressed.

We’re sorry, but ITU Blockchain votes “Against” this proposal.

3 Likes