[Non-Constitutional] Arbitrum Token Swap Pilot Program

[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.