[Non-Constitutional] Arbitrum Token Swap Pilot Program

[LuukDAO]

Abstract
The Arbitrum Token Swap Pilot proposal is the next step toward the long-term effectiveness and sustainability of ecosystem support programs in the broader Arbitrum ecosystem.

In this initial pilot phase, we prioritize mature protocols on Arbitrum, the so-called Arbitrum Blue Chips, of which 19 have been identified. The pilot aims to swap with 3-7, with a maximum swap budget of 2M ARB and a cap of 0.5M ARB per project.

We foresee token swaps as a complimentary mechanism to the current incentive programs for Arbitrum DAO to participate in the development and success of its ecosystem projects.

Motivation
One of the primary limitations of the initial incentive programs is that they were all one-directional, with Arbitrum treasury allocating ARB to projects and only receiving network transaction revenue in return. While project growth resulting in additional network activity does provide some upside for Arbitrum treasury, the effects will likely take years to accrue to a point where the net resources flow of the Treasury is positive, only once Arbitrum and the applications on top reach maturity.

Token swaps provide a robust mechanism for value alignment and bidirectional upside between organizations. In addition to potential financial benefits, they come with governance and utility perks associated with tokens.

Moreover, Treasure DAO’s recent move from Arbitrum to ZKsync has shown that bidirectional, long-term alignment is even more critical, especially for protocols that play an essential role in the ArbitrumDAO ecosystem and have received significant ARB incentives.

By embedding Token Swaps as a vital element of Arbitrum Ecosystem Development and critical programs such as LTIP, Arbitrum can continue pro-actively incentivizing ecosystem growth while receiving additional upside and leverage in the most promising project’s building in its ecosystem.

The detailed Token Swaps to DAO Token Swaps as Ecosystem Enablers report, produced by LuukDAO and JashFi through the Thank ARB Firestarters Program powered by Thrive Protocol, offers insights from over 50 DAO token swaps, which are the basis for this pilot proposal.

Rationale
The Token Swap Pilot contributes to Arbitrum DAO by:

• Increase bi-directional alignment with top ecosystem projects.
• Gain valuable insights into strategies for ecosystem development, which can inform grant and incentive programs like STIP and LTIPP.
• Create incentives for protocols to remain loyal to Arbitrum through a token swap program. In the pilot phase, reward those who held on to (at least 50%) of their initial ARB airdrop.

Steps to Implement

Projects eligible for a swap
During the initial Token Swap discussion, it became clear that stakeholders and delegates value the ecosystem alignment and contribution nearly as much as the financial upside. To optimize Arbitrum ecosystem alignment and longevity, the Token Swap Pilot prioritizes projects with significant past engagement with Arbitrum.

Only projects that received the initial ARB airdrop and still hold at least 50% of their tokens, participated in one of the STIP or LTIPP programs, and have a token available on Arbitrum Mainnet will be eligible for this pilot.

19 projects that fall within this category have been identified. These projects still hold over 27,2M ARB in their treasury and have received significant rewards from the incentive programs. The complete list can be viewed here.

Any project that does not fall within the above categories will not be eligible for the Arbitrum Token Swaps Pilot. Still, if the pilot is successful, it may be an addition to future grant programs and expanded to prior STIP or LTIPP grantees.

To determine the exact swap size, the following parameters will be considered by the Committee members:
Airdrop Size:
Airdrop % Sold:
Incentive Rewards received:
Market Cap:
FDV:
Lifetime Fees Generated:
6 month Fees Generated:
Lifetime GAS consumed:
6 month GAS consumed:
% of protocol usage on Arbitrum:
Project Treasury Size currently:
Token Pool depth on Arbitrum:
Token Utility:
ARB utility plan:

Swaps will be executed through Hedgey Finance’s Token Swap solution, the most used DAO token swap solution.

Note: If insufficient projects are willing to participate in the exchange, we’ll explore alternative
eligibility requirements and submit an additional Snapshot vote to ratify these changes.

Token Swap Budget
The Arbitrum Token Swap Pilot will have a Token Swap budget of up to 2M ARB, which the Pilot Council will manage through the MSS multi-sig.

• The initial pilot program is anticipated to conduct between 3-7 token swaps.
• Each swap is capped at a maximum of 500,000 ARB, comparable to some previous swaps executed on Arbitrum One by GMX and its partners.
• The minimum swap size will be 100,000 ARB.

Non-Sales Clause
Arbitrum DAO and the third-party DAO will swap tokens with a 3-month lock. After the three month lock, the tokens will unlock 10% monthly for ten months. If no Arbitrum Treasury Management team is in place within nine months of executing the token swaps, the Pilot team will propose a solution for managing these tokens before they unlock.

All tokens received by Arbitrum will be kept in its main Treasury (0xF3FC178157fb3c87548bAA86F9d24BA38E649B58).

Pilot Program Implementation (timeline)

The Token Swap Pilot Council
The initiative will comprise 3 voting members and 1 non-voting facilitating member.

The following 3 voting members are nominated as they provide a deep understanding of ArbitrumDAO and Token swaps.

• 1. @LuukDAO, for producing the initial research and various Token Swaps programs
• 2. @GFXlabs, for being an active LTIPP and STEP Council member
• 3. @CastleCapital, for doing in-depth airdrop research and being an application advisor in LTIPP.

The non-voting member (except in case of a tie) will be 4. @thedevanshmehta, who supervised the token swap research and performed a similar role in the STEP program.

Phase	Deliverables	Staff	Time	Budget
Pre-Swap/ Application Period	RFP for interested projects to apply with details on number of ARB tokens the project would be interested in swapping, information about the project’s treasury and runway, information about the token utility and governance, and a plan for what it would do with the ARB received from the Token swap.	WG0 Members: Devansh Mehta and LuukDAO	3 weeks	21,000 ARB
Execution / Review Period	The Council will review each application based on quality and recommend which projects and what quantities to swap. These recommendations will be put to Snapshot for ratification by Arbitrum DAO	Voting Members: WG0 Lead LuukDAO,Castle Capital, GFX LabsFacilitating Member: Devansh Mehta	4 weeks	56,000 ARB
Post-Swap/Monitoring Period	Work with the Arbitrum Foundation for KYB of selected projects and with projects to ratify the deal with their team, community, and governance. Update and track deals in Dashboard after all execution is complete (those failing KYB or not getting approval will be removed from the list) through a Dune Dashboard to track its and third-party holdings of swapped tokens. Create a detailed Pilot Report with learnings to be published in week 6 of the monitoring phase. When token Swaps are larger than 400K ARB or otherwise deemed necessary, facilitate sourcing of delegates to represent Arbitrum’s interest in the counterparty DAO Facilitate WGs to decide on future of program and integration with other ecosystem support programs.	WG0 Lead: LuukDAO	16 weeks	53,000 ARB

Conflict of interest rules
The dealmakers are not allowed to be involved in a token swap if they have direct or indirect exposure to the counterparty; this includes holding over 0,001% of the total supply of the token personally or through the affiliated company and having a direct, active working relationship with this protocol.

Program KPIs
This pilot’s objective is to better understand the impact and logistics of DAO token swaps as a value-alignment tool for growing Arbitrum DAO’s ecosystem.
The following KPIs are identified for the pilot:

• Execute at least three swaps and document the process and learnings
• Gain a better understanding of the change of behavior and perception of ecosystem players following a token swap with Arbitrum DAO
• Provide a comprehensive summary of the pilot and support future incentive programs, allowing them to leverage Token Swaps in their program design.

Overall Cost - The total cost to implement the AIP
Total Cost: 2,130,000 ARB

• Token Swap Budget: 2,000,000 ARB. The entire budget does not need to be spent. Any unused funds will be returned to the DAO.
  Implementation Budget: 130,000 ARB. All staff involved are paid 3,500 ARB per week for their involvement.

1. Application period: 21,000 ARB will be split equally between LuukDAO and Devansh for drafting the application form in week 1, and helping protocols apply in weeks 2 and 3.
2. Review period: 56,000 ARB, split equally between all four committee members for four weeks, to negotiate token swap deals and put forth recommendations for approval on snapshot.
3. Execution (~6 weeks) and monitoring period (~10 weeks) to formulate continuation of the program - 53,000 ARB to 1 member (LuukDAO).

Helpful links:

• DAO Token Swaps as Ecosystem Enablers Report 3
• DAO Token Flow Report - July 2024 1
• Earlier thread on the token swap proposal

[GFXlabs]

We think this makes a lot of sense, and also want to stress the entire budget may or may not be utilized, depending upon the size of the universe of quality tokens.

[thedevanshmehta]

Great to see the proposal up! It’s gone through a significant amount of iteration over the last few months and keen to see how delegates respond when we go to a vote. I especially love the narrowing down to 19 projects, based on those who;

1. Received the airdrop
2. Held on to more than 50% of it
3. Took part in STIP or LTIP

@LuukDAO

Moreover, Treasure DAO’s recent move from Arbitrum to ZKsync has shown that bidirectional, long-term alignment is even more critical, especially for protocols that play an essential role in the ArbitrumDAO ecosystem

Luuk touched on it here but would reiterate that Arbitrum alignment would be a significant criteria in who the committee selects. In this iteration we want to prioritize projects that are ARB first rather than multichain first and held on to majority of their airdrop rather than sold.

@LuukDAO

@CastleCapital, for doing in-depth airdrop research

Here is their insightful report on the arbitrum airdrops - What did DAOs do with their $ARB airdrop?

Excited at the treasury holding tokens other than ARB to support and legitimize the great projects building on our chain!

[CastleCapital]

Thanks to @LuukDAO and @thedevanshmehta for the bulk of the upfront work on the proposal.

We believe this is a great opportunity to further align protocols with the DAO.

Very much looking forward to seeing delegate feedback on a different avenue for engaging protocols.

On top of the previous research shared:

@thedevanshmehta

Here is their insightful report on the arbitrum airdrops - What did DAOs do with their $ARB airdrop?

We also produced a Dune which is still live.

Very much interested to see what delegates (particularly protocols) think about the eligibility criteria and what changes to it could bring.

@LuukDAO

Only projects that received the initial ARB airdrop and still hold at least 50% of their tokens, participated in one of the STIP or LTIPP programs, and have a token available on Arbitrum Mainnet will be eligible for this pilot.

[pedrob]

gm

Thank you very much for the proposal. I have some comments and a few questions. Spoiler alert: I am strongly opposed to the proposal.

@LuukDAO

One of the primary limitations of the initial incentive programs is that they were all one-directional, with Arbitrum treasury allocating ARB to projects and only receiving network transaction revenue in return.

I do not agree with this statement or the conclusion.

The STIP, LTIPP, and B.STIP programs directed incentives to users, not to protocols — even though the protocols served as the distribution mechanism and benefited from it. The objective (though sometimes unclear) of the programs was to drive activity on the chain, grow TVL, and increase volume, which was successfully achieved in all cases with the program launches.

And no, receiving network transaction revenue was not the only thing Arbitrum gained. Various protocols or new features of protocols were bootstrapped, the deployment of protocols on the chain was incentivized — many of them important during the LTIPP —, the DAO signaled that it is willing to incentivize DeFi use cases and the most important, it attracted sticky capital to the chain to consolidate liquidity and generate a network effect that benefits the entire ecosystem (users, developers, and protocols)

@LuukDAO

Moreover, Treasure DAO’s recent move from Arbitrum to ZKsync has shown that bidirectional, long-term alignment is even more critical, especially for protocols that play an essential role in the ArbitrumDAO ecosystem and have received significant ARB incentives.

I also disagree with this reflection on what happened with Treasure DAO. The reasons they gave for the change were purely related to the underlying technology. On the other hand, they were one of the two largest recipients of $ARB during the TGE. How would that decision have been any different if the DAO had held $MAGIC in its treasury?

@LuukDAO

By embedding Token Swaps as a vital element of Arbitrum Ecosystem Development and critical programs such as LTIP, Arbitrum can continue pro-actively incentivizing ecosystem growth while receiving additional upside and leverage in the most promising project’s building in its ecosystem.

This statement confuses me because ‘ecosystem growth’ is not later mentioned as a rationale or one of the program’s objectives. Nor is it justified with data on how a token swap program lasting 1 year + 10 months could create that effect.

Referring to the rationale,

@LuukDAO

Increase bi-directional alignment with top ecosystem projects.

Given that this is the main objective of the program, I would love for you to define what you mean by bi-directional alignment.

Defining alignment is truly complex. A good debate on this topic is currently taking place as the DAO tries to reach a consensus on Arbitrum DAO’s Mission, Vision, and Goals.

If we go by what the Arbitrum Constitution states, the Arbitrum’s community guiding values are: Ethereum aligned, sustainable, secure, socially inclusive, technically inclusive, user-focused, and neutral and open.

What could the DAO demand as alignment from the protocols? That they operate exclusively on Arbitrum? That they don’t join other ecosystems that aren’t aligned with Ethereum? That they must be sustainable or user-focused?

And on the other hand, how could the DAO be aligned (would that be bi-directional?) with the interests or vision of a protocol that has its own objectives?

@LuukDAO

Arbitrum DAO and the third-party DAO will swap tokens with a 1-year lock. After the one-year lock, the tokens will unlock 10% monthly for ten months.

I also don’t understand how a swap with a 1-year lock + 10 months to sell aligns with the long-term effectiveness and sustainability of ecosystem support programs, as mentioned in the Abstract. It seems like a very short time window for a program that aims to have a long-term effect

@LuukDAO

Program KPIs

This pilot’s objective is to better understand the impact and logistics of DAO token swaps as a value-alignment tool for growing Arbitrum DAO’s ecosystem.

Honestly, I don’t think token swaps are a necessary tool for value alignment. The DAO can invest resources to support the protocols it considers aligned or most valuable for the strategic development of the chain without needing to receive part of that protocol’s treasury in return.

I believe the discussion happening in the post about the DAO’s Mission, Vision, and Goals is key, and in that sense, I like what @CastleCapital has proposed

@CastleCapital

The Bigger Picture

In my opinion, the primary focus and destination of resources should be on developing the best technology that aligns with Ethereum’s values. That way, we will ensure that the best Ethereum-aligned and thus, Arbitrum-aligned, protocols are here.

@LuukDAO

Pilot Program Implementation (timeline)

The Token Swap Pilot Council
The initiative will comprise 3 voting members and 1 non-voting facilitating member.

Lastly, if the DAO approves this pilot, I also don’t understand the need for a Council to execute the swap. Since 19 potential applicants have been pre-selected, a window could simply be opened for interested parties to propose the swap, and the DAO could decide through a ranked choice vote. All that would be needed is a program manager

Thank you very much for promoting this discussion. Even though I don’t agree, it’s always positive to have these kinds of debates and explore alternatives for managing the treasury and achieving ecosystem growth, which is ultimately what we all want.

[cupojoseph]

Love this, lets do it.

I would add to the criteria:

• % of protocol usage on arbitrum

We want to incentivize teams that are focused on this ecosystem, not deploying everywhere and trying to extract. Example: I would rather the DAO own Dolomite over Aave, Open Dollar over Maker, and Camelot over Uniswap.

2M is a good starting place for a pilot, maybe even a bit small tbh. actually this should be a 100M fund as soon as possible.

[jameskbh]

Sorry to touch the same points again, but this new proposal does not address some items I mentioned before:

• While that sounds interesting for the DAO, there was any signal from any protocol that this is a good initiative?
• 1 yr locking only enables governance benefits for the protocol, and with the low amount per protocol, it may be not appealing.
• Not all 19 projects are DAOs. If ArbitrumDAO want to have the possibility to steer some governance discussions, how to do it in those cases? Or the list will be shorter than those 19 protocols?

[Tekr0x.eth]

This proposal is very interesting. One question:

You mentioned committee members as part of the review period. What will be their role? How will you pick committee members?

[Cryptocafe]

The Arbitrum Token Swap Pilot Program presents an interesting approach to strengthening protocol alignment with DAO

[thedevanshmehta]

Thanks James for engaging! Here are some quick responses;

@jameskbh

While that sounds interesting for the DAO, there was any signal from any protocol that this is a good initiative?

According to the eligibility criteria, these are the qualifying projects in the pilot program

We got feedback from 3 well known, arbitrum aligned projects in the list who are interested

@jameskbh

1 yr locking only enables governance benefits for the protocol, and with the low amount per protocol, it may be not appealing.

One of the projects in the list actually gave the opposite feedback - “Would say 500k ARB as a cap makes sense but with many of the protocols swaps will be potentially quite oversized.”

in any case, I think best to view this as a pilot that simply opens up the capability for ARB DAO to do token swaps. Similar to how STEP was intended to blocks in the DAO owning T-bills, which given the long process (still not done 3.5 months after our recommendations!) is something we should create the pathway for sooner rather than later, especially if we decide to integrate token swaps into long term incentive or grant programs.

@jameskbh

Not all 19 projects are DAOs. If ArbitrumDAO want to have the possibility to steer some governance discussions, how to do it in those cases? Or the list will be shorter than those 19 protocols?

With the small amounts in the pilot, we don’t know if it makes sense for ARB DAO to have an active delegate in the protocols we swap with.

As one of the projects i reached out to said, “A reminder the deals really are more signaling, tokens (should be) locked on the books of both protocols.”

[thedevanshmehta]

@Tekr0x.eth

You mentioned committee members as part of the review period. What will be their role be? How will you pick committee members?

In this iteration we nominated the committee members in the proposal itself, who are

• WG0 @LuukDAO who wrote the proposal & research report on token swaps
• @GFXlabs who was part of both LTIPP and STEP committee
• @CastleCapital who did research on the ARB airdrops and was an application advisor in LTIPP

I think this is a balanced committee that can do a good job in giving recommendations! And also feed insights into a future incentives program given their past involvement in those.

The roles are divided into pre-swap, execution and post swap, which we’ve elaborated on in the pilot program implementation section.

Broadly, @LuukDAO & I will be active in pre-swap creating the RFP and getting projects to apply. All committee members will then review applications for a month and negotiate the best deal we can with interested protocols. Finally, Luuk will monitor the program post swaps and come out with recommendations for its continuation or integration into other programs by the DAO

[thedevanshmehta]

@cupojoseph

We want to incentivize teams that are focused on this ecosystem, not deploying everywhere and trying to extract. Example: I would rather the DAO own Dolomite over Aave, Open Dollar over Maker, and Camelot over Uniswap.

This is a great point and exactly what we would focus on in the pilot Thanks for the positive feedback, definitely hoping the pilot will set up best practices that make it easy to integrate token swaps as a vital part of arbitrum ecosystem support programs. No more free money, give us your token in return!

@cupojoseph

• % of protocol usage on arbitrum

@LuukDAO can comment on this criteria more specifically.

@pedrob

Thank you very much for the proposal. I have some comments and a few questions. Spoiler alert: I am strongly opposed to the proposal.

Really appreciate the engagement even if we don’t fully agree! The long feedback process (1st version was posted in April 2024) has resulted in a more scoped out and specific proposal which iswasneeded. Criticism improves proposals which is a win for arbitrum!

I’ll let @LuukDAO get into the specifics except to note a few general points;

• As a DAO, we need to start getting a non-zero amount of a grantees tokens in exchange for our support. You might disagree with this, which is fine. I still think it the best way for ensuring that Arbitrum DAO captures an asymmetric upside in case our ecosystem support programs succeed and a grantee shoots off into the stratosphere.

• We’ve seen with STEP just how long the legal pathway can take for the DAO to even own its own t-bills. Opening up this capability sooner rather than later increases the design space for our future grant and incentive programs (which is needed with both questbook and thrivecoin funds coming to an end and LTIP/STIP in a reflection period).

• With STEP we’ve already learnt that delegates do not want to vote on individual service providers or deals. An expert committee negotiating with token swap recipients & the DAO ratifying their recommendations is a more legitimate process than a free for all vote like in STIP. Feedback from interested protocols is that “(token swap) deals really are more signaling.” I also believe a committee representing Arbitrum is more likely to get us a better deal than a direct vote so the RoI for an implementation budget is positive.

[jameskbh]

Thanks for the reply!

@thedevanshmehta

With the small amounts in the pilot, we don’t know if it makes sense for ARB DAO to have an active delegate in the protocols we swap with.

As one of the projects i reached out to said, “A reminder the deals really are more signaling, tokens (should be) locked on the books of both protocols.”

Depending on the MC of the protocol, the DAO position would not be that small.

My initial comment about the selected protocol being a DAO was related to the notion that this program wants to create more alignment. If the other project is not a DAO, the relationship becomes purely financial on ArbitrumDAO side (the only action possible is to sell the tokens). If the project is already multichain (nothing wrong about that, tbh) the position is even less relevant.

@LuukDAO

Non-Sales Clause
Arbitrum DAO and the third-party DAO will swap tokens with a 1-year lock.

If we don’t care if the protocol is a DAO or not (at least for the Pilot), we should edit this for clarity.

[SEEDGov]

Hey, thanks you for this proposal!!.

We’ve been following the ongoing discussions, and while we acknowledge that this iteration of the initiative shows some improvements over the previous one, we share some of the concerns raised by other delegates. Additionally, we have a few questions and suggestions for consideration:

@LuukDAO

To determine the exact swap size the following parameters will be considered:

Airdrop Size:

Airdrop % Sold:

Incentive Rewards received:

Market Cap:

FDV:

Lifetime Fees Generated:

6 month Fees Generated:

Lifetime GAS consumed:

6 month GAS consumed:

Project Treasury Size currently:

Token Pool depth on Arbitrum:

Token Utility:

ARB utility plan:

Have you thought of a calculation or formula that involves some of these variables in determining the size of the swap?

@LuukDAO

Each swap is capped at a maximum of 500,000 ARB, comparable to some previous swaps executed on Arbitrum One by GMX and its partners.

The proposed amount seems prudent. However, when we consider examples like GMX, even at the maximum allocation, it would represent only 6.25% of their current ARB holdings, which, from our perspective, may not be attractive to them. We understand that the limit is likely tied to the overall budget of 2M ARBs, which could be reasonable for a pilot program. That said, it may not be wise to discourage major protocols from participating in Arbitrum by restricting them to relatively insignificant amounts.

@LuukDAO

Non-Sales Clause

Arbitrum DAO and the third-party DAO will swap tokens with a 1-year lock. After the one-year lock, the tokens will unlock 10% monthly for ten months.

As other delegates have pointed out, having such a short lock-up period seems counterintuitive if the goal is long-term strategic alignment. We suggest implementing a minimum lock-up of 2 years, with a maximum of 4 years, while incorporating mechanisms that allow for early termination of the agreement in cases of force majeure. Additionally, exploring renewal mechanisms for the swap—similar to how swaps between nations are handled—could further strengthen the initiative.

@LuukDAO

Conflict of interest rules

The dealmakers are not allowed to be involved in a token swap if they have direct or indirect exposure to the counterparty; this includes holding over 0,001% of the total supply of the token personally or through the affiliated company and having a direct, active working relationship with this protocol.

Is there any conflict of interest (COI) to disclose between the four members proposed in this post and the 19 pre-selected protocols?

It would be important to have this clarified before the proposal is put to a vote, especially since, unlike other programs, both the protocols and contributors have already been pre-selected.

@LuukDAO

Still, if the pilot is successful, it may be an addition to future grant programs and expanded to prior STIP or LTIPP grantees.

Regarding the continuation/expansion of the program, our primary concern is that only a limited number of protocols on Arbitrum meet the following criteria:

• Significant TVL and user base
• Large market capitalization
• Proven, battle-tested applications with mature governance
• Revenue generation with long-term sustainability potential
• Strong liquidity depth for their token
• A sufficiently large treasury

Given these factors, it seems unlikely that the scope of swaps can be expanded beyond 5-10 protocols without introducing significant risks, at least under the current circumstances.

@LuukDAO

If no Arbitrum Treasury Management team is in place within nine months of executing the token swaps, the Pilot team will propose a solution for managing these tokens before they unlock.

What should we expect from the counterparty protocol? Considering they will have control over ARB tokens, it’s crucial to discuss whether we expect them to have adequate treasury management solutions in place before the tokens are unlocked.

@LuukDAO

Only projects that received the initial ARB airdrop and still hold at least 50% of their tokens, participated in one of the STIP or LTIPP programs, and have a token available on Arbitrum Mainnet will be eligible for this pilot.

Shouldn’t we assess how these protocols have managed grants in the past? Specifically, whether they adhered to the original plan (and if not, whether they adequately justified or communicated any changes) and whether they complied with reporting obligations. This would provide insight into the responsibility and diligence with which their teams operate.

Additional aspects to consider include:

• Whether the protocols generate sufficient revenue to ensure long-term sustainability
• Whether token holders benefit from this revenue through a distribution mechanism
• The percentage of tokens already unlocked versus projected unlocks

In summary, our current position is as follows:

• We have reservations about swapping ARB tokens at current prices and the potential upside of the tokens to be received.
• Given the proposed swap sizes, we believe the impact on alignment would be limited if the swap involves protocols that already hold large amounts of ARB. However, this might be more attractive to those protocols that received smaller allocations during the TGE.
• As mentioned earlier, there should be clear guidelines for dissolving the agreement, functioning as a “clawback” in force majeure situations (e.g., an exploit, cessation of operations, or a governance attack).
• We do not believe this initiative contributes meaningfully to treasury diversification. Diversifying isn’t just about reducing the concentration of native assets in our treasury, but how we do so. If we’re swapping for assets of protocols strongly aligned with Arbitrum, particularly those who are native, their tokens are likely to be highly correlated with ARB’s price. In principle, true diversification would involve acquiring assets with lower correlation, which this situation does not offer. That said, this initiative could still serve as a controlled experiment in fostering collaboration and investment in other ecosystem protocols.

[cp0x]

I am glad that our comments led to this thoughtful version of the proposal.

I think it is worth discussing the moment if suddenly none of the proposed projects want to participate in this exchange. In this case, it is necessary to add some work on discussions with the projects, what exactly they are not satisfied with our proposal and how it can be improved.

Do I understand correctly that for all projects we will have a common approach with a freezing/vesting period?

[Bob-Rossi]

@LuukDAO

Non-Sales Clause
Arbitrum DAO and the third-party DAO will swap tokens with a 1-year lock. After the one-year lock, the tokens will unlock 10% monthly for ten months. If no Arbitrum Treasury Management team is in place within nine months of executing the token swaps, the Pilot team will propose a solution for managing these tokens before they unlock.

All tokens received by Arbitrum will be kept in its main Treasury (0xF3FC178157fb3c87548bAA86F9d24BA38E649B58).

I would agree with what a few others said on this part, that while I’m understanding of it being a pilot program I think selling at the end of the year is a little short sighted. Especially since we are paying ARB for the administrative task behind this.

Suggestion on this: Instead of a mandatory swap back 1 year down the road, is the better option maybe having a DAO vote to keep the tokens at that point? I’m not sure if that causes issues with the other parties. But as a general point I can see a scenario where the program runs for the 1 year and it’s generally well received. Which at that time we want to renew the program while also selling tokens that we’d want to keep otherwise.

Overall, I’m fairly open to seeing anything that can diversify the treasury of the DAO.

[EzR3aL]

I want to share two views on this proposal.
One is mine as an independant delegate in the Arbitrum DAO while the other is from the view of APE (Aave Protocol Embassy), and active Arbitrum Delegate formed by Aave DAO participants like Delegates and Service Provider.

Personal view:
This proposal is great, it brings in a lot value, is strengthening partnerships and the ecosystem overall. It is showing alingment with these protocols and hopefully everyone can benefit from these kind of actions.

APE member view:
The proposed criteria to be eligible for a token swap seem to be only focusing on “Arbitrum first” projects. While on the on hand I do understand this approach, this also creates a problem. The Arbitrum DAO is missing out on other protocols that may have not been natively deployed on Arbitrum but did this at a later stage, like Aave did.
Aave is the biggest lending protocol on Arbitrum, its has most liquidity locked in Defi on Arbitrum (Source: Defillama) and is already an active participant in the Arbitrum DAO with APE (Aave Protocol Embassy Delegate Communication Thread).

Loosing this kind of opportunities give the DAO a bad look imho.
And I am sure there are also other great protocols that may would be active in governance after a token swap. Which would help the DAO to create a better balance, because currently this is not the case.

[GFXlabs]

@Tekr0x.eth

You mentioned committee members as part of the review period. What will be their role be?

Realistically, a lot of boring diligence work.

Which candidates have value accrue to their token in a legally or technically enforced way? Then show the work.

Which candidates are or credibly could generate positive cash flow? Then show the work.

Are any candidates strategically important enough to justify a swap on grounds other than finances? Then show the work.

How would Arbitrum know or be able to influence changes to any of the above? Then show the work.

There are undoubtedly more high-level questions as well. Some examples of more specific questions to inform those high-level categories are already listed by Luuk in the post.

It shouldn’t be taken for granted that a token swap would happen at all, but this limited universe of assets seems like a good place to look, and small enough list to be manageable, since you have to understand the governance structure, technical implementation of governance, and the project’s business model.

[LuukDAO]

Hi @Bob-Rossi - To clarify, there is NO mandatory swap back happening. The unlock, by default, will stream the vested tokens to the respective treasuries.

It does mean that respective governance/treasury teams, from that point onward, can theoretically start selling tokens, although this is not the intended nor projected outcome!

[LuukDAO]

Hi @cp0x - thanks again for the input!

Correct, all projects will have a common approach to freezing/vesting.

If insufficient projects are willing to participate in the exchange, we’ll explore alternative
eligibility requirements and submit an additional Snapshot vote to ratify these changes.

Adding the above note to the Proposal now!