[Non-Constitutional] Funds to Bolster Foundation’s Strategic Partnerships Budget

Proposals
1

Abstract

This proposal requests 250 million ARB with the main objective to enable The Arbitrum Foundation to further foster key strategic partnerships. All expenditures will follow The Arbitrum Foundation’s well-established practices and evaluation criteria when pursuing partnership deals, as detailed in a high level manner here and here (these guidelines apply mainly for the Foundation Grant Program, however, it offers insight into what the Foundation looks at when giving strategic grants or establishing strategic partnerships). Should the proposal be approved by the ArbitrumDAO, the Foundation will update its upcoming annual transparency report due in Q1 2025 to include and detail this additional budget.

Motivation

In line with its mission as laid out in its bylaws, The Arbitrum Foundation is committed to fostering ecosystem growth through strategic partnerships. All agreements are designed to support projects that can grow the Arbitrum ecosystem and provide value to the ArbitrumDAO. By seeking projects that advance or contribute to the adoption of Arbitrum technology, the Foundation aims to grow activity on the Arbitrum networks.

Agreements typically last for a few years with the intention to align a project’s interests with the long-term objectives of the Arbitrum ecosystem. This results in significant capital locked in commitments and reserved for projects based on the agreed performance milestones. This restricts the Foundation’s ability to pursue new partnerships and stay ahead of the competition. Given the aggregate size of Foundation’s current budget, it is difficult for us to pursue multiple large deals simultaneously.

Challenges

The Arbitrum Foundation runs two funding programs:

  • Arbitrum Foundation Grant Program
  • Strategic Partnership’s Program

Both programs invite applicants from the ecosystem while actively pursuing new opportunities by participating in competitive bids to prospective partners. In both cases, The Arbitrum Foundation signs milestone-based agreements with the recipient that are often multi-year contractual commitments. To date, agreements for our strategic partnerships program typically exceed 2M ARB with an average duration of 2.1 years.

Table: Capital Commitments to Grants, Strategic Partnerships and Infrastructure Service Providers (as of June 30, 2024)

Jan 1 - Jun 30 2024 Future Capital Commitments
Spend1 Signed Agreements2 Pre-agreement Offer
USD ARB USD ARB USD
DeFi & Fintech $4,211,916 3,277,700 $8,785,000 1,842,500 $89,000,000
Gaming $6,691,353 9,579,703 $1,200,500 6,510,000 $13,900,000
Infra Service Providers $28,181,124 42,941,326 $8,372,988 0 $5,585,000
NFT $1,265,825 377,900 $1,300,000 10,017,000 $0
Other 3 $3,576,582 1,235,343 $2,054,525 240,000 $0
Total $43,926,800 57,411,972 $21,713,013 18,609,500 $108,485,000

1 Actual spend in the first half of 2024 including payments made in ARB converted to USD using the ARB spot price at the time of payment
2 Numbers include both confidential and non-confidential grants. Details of non-confidential grantees are publicly available here.
3 “Other” category includes items that fall outside the scope of Fintech & DeFi, Gaming, Infra Service Providers, and NFTs

The above table provides an overview of The Arbitrum Foundation’s outstanding capital commitments since inception, as of June 30th 2024. Based on the stage of commitment, we can classify all existing deals into two categories:

  • Signed agreements. The Arbitrum Foundation and the grant recipient or service provider have entered into an agreement. Most grant recipients will be entitled to grant payouts as milestones and/or other criteria are reached. The amounts in the table reflect the value of future financial obligations related to signed agreements.

  • Pre-agreement offer. An agreement has not yet been reached but is in negotiation. The Foundation has reserved funds to ensure we can act upon the commitment when an agreement is reached. The amounts in the table reflect the full value of the agreement.

In both cases, The Arbitrum Foundation must have adequate reserves immediately available before it can make an offer to a potential partner. Given the competitive landscape, The Arbitrum Foundation must be able to make multiple offers to different partners at the same time. Also, the Foundation must be prepared for all offers to be accepted and reserve amounts accordingly even if negotiations fail at a later stage.

With the above in mind, The Arbitrum Foundation is at a distinct disadvantage from extending competitive offers to strategic partners due to the size of our overall allocation from the DAO. The three major financial challenges currently facing The Arbitrum Foundation from extending continued support to ecosystem expansion are:

  • Tight budget. Relative to competitors, the budget that the Foundation can allocate for strategic partnerships is small and puts the Arbitrum ecosystem at a significant disadvantage. For example, if we consider allocations relative to token supply, Starknet has allocated ~20% to its Foundation and grants, Optimism has 25% for ecosystem funding, ZkSync has 19.9% for ecosystem initiatives, while The Arbitrum Foundation has 7.5% allocated, but to date, The Arbitrum Foundation has only had access to approximately 1.8% because of the vesting contract. Making competitive offers requires a lot of capital that we have not been allocated relative to other Foundations.

  • Vesting. The Foundation can only make offers based on the ARB that has vested to date. This is because the ArbitrumDAO can clawback the funds at any time and we must have the ARB available to pay milestones. The Foundation is committed to being solvent at all times, so our assets should always exceed our contractual liabilities.

  • Capital lockup. All committed ARB in a milestone-based agreement must be allocated until the agreement terminates. For example, we could run into a situation where a grantee has not yet hit their milestones, but we need to assume they will and hold the potential payout in reserve. Additionally, some agreements require capital lockup (like RWAs), in projects where the funds belong to the Arbitrum Foundation, but they are utilized by the strategic partner’s protocol.

Together, The Arbitrum Foundation does not yet have access to its full budget which has caused issues over the past year, but even if the vesting was complete, our budget still remains the smallest amongst all rollups. This impacts all programs run by The Arbitrum Foundation including strategic partnerships, technical advancement, educational and community activities.

We believe the most straightforward approach to ensuring The Arbitrum Foundation can pursue competitive deals is by increasing our budget for strategic partnerships.

Proposed Solution

Funding Request: 250 million ARB

In light of the above mentioned challenges, we believe that there are several reasons why increasing our budget to specifically better support strategic partnerships is essential:

  • High costs of pursuing partnerships. Strategic partnerships are essential for the Arbitrum ecosystem’s growth, and these partnerships often come with significant capital investments from the Foundation. For example, onboarding RWAs is both challenging and capital-intensive, as experienced by the DAO as well.

  • Expanding Orbit Chains. Despite more than 50 chains publicly announcing their intent to build using Orbit since the launch of the Arbitrum Expansion Program in January 2024, the rollup as a tech stack ecosystem is still in its early stages. Additional funding is required to enable The Arbitrum Foundation to pursue major Orbit partnerships and allow the Arbitrum ecosystem to access new markets, use cases and communities. Additionally we should note that sometimes part Orbit chain grants could be rebates on the revenue that they contribute to the Arbitrum DAO, creating a mismatch between the Arbitrum Foundation allocating resources and the DAO collecting chain fees.

  • Gateway to DAO. The DAO has previously contributed to onboarding partners via programs like STEP, however, the experience has been that most institutions are not inclined toward engaging and participating in public forums, and even when they do it is after extensive conversations with The Arbitrum Foundation and its service providers, who are making them aware of the opportunities and encouraging them to get involved. As front line enablers, The Arbitrum Foundation actively builds relationships with partners and encourages all partners to engage with the DAO. Most recent examples include Securitize (via BlackRock BUIDL) and Franklin Templeton.

  • Proven track record. The Foundation has a proven track record of managing and allocating funds effectively for various initiatives, as evidenced by the 2024 Biannual Progress Report and successful collaborations with industry leading projects. Additionally, The Arbitrum Foundation has capitalized on emerging opportunities such as LRTs, RWAs and onchain gaming, ensuring the Arbitrum ecosystem remains competitive and innovative.

We also believe the current vesting schedule for our entire budget is still critical to remain as is for setting expectations for the Arbitrum Foundation and holding us accountable for how we execute our mission statements. This sets a good example that all programs approved by the DAO must remain accountable and should not assume they can receive all their funding immediately.

With the above in mind, we are requesting 250 million ARB from the Arbitrum DAO. The amount will solely focus on agreements fulfilling the following 3 criteria:

  • Key opportunities exceeding 2 million ARB
  • New agreements signed after approval of this proposal
  • Contractual commitments lasting 1 year or longer

Some foreseeable capital-intensive areas include, but are not limited to, expanding the Orbit Chain ecosystem, securing new RWA opportunities, and onboarding well-known TradeFi institutions on Arbitrum. Tokens will only be allocated on an as needed-basis and will only be exchanged as contractual obligations need to be fulfilled.

The Foundation plans to expand on the special strategic partnership allocation in our future Transparency Reports. Our goal is to enhance visibility into how these collaborations are structured and how resources are allocated, giving the DAO a clearer understanding of the impact on the Arbitrum ecosystem. At the same time, we remain committed to respecting any confidentiality provisions stipulated in such agreements. By balancing transparency with confidentiality, the Foundation aims to balance both the sensitivity of onboarding traditional institutions to Arbitrum and also providing updates to the DAO on how the funds are being spent.

Our goal with this proposal is not to maintain the status quo, it’s to ensure that we can continue to foster ecosystem growth through strategic partnerships. The funds will not be used for Arbitrum Foundation operating expenses, including marketing, operations, service providers, or existing signed agreements.

11 Likes
2

It is interesting what you propose, and we agree that making a competitive offer requires a large amount of capital. To expand on the information in the proposal and focus more on what would be lost if this request is not approved, could you provide more detail on the types of opportunities we would be missing out on? For example, how would the expansion of the Orbit chain be affected?

1 Like
3

We support this proposal unequivocally.

It’s difficult to understand as a DAO participant exactly how much the Arbitrum Foundation does for the betterment of the DAO. Are they perfect? No. But are they more transparent (and under resourced…) when compared to other foundations in the industry? Yes.

The foundation’s ability to remain competitive in the battle for partnerships is, in our opinion, of utmost importance for Arbitrum’s continued success. It is worth noting that members of our team have historically been critical of the Arbitrum Foundation, as made evident by actions taken over AIP-1. We do not take the decision to top up the Foundation’s budget lightly, but with all things considered, we believe this proposal does more in pushing the Arbitrum DAO forward than any drawbacks associated with its passing.

If a majority of the community is for some reason against this proposal, an alternative approach could be to accelerate the Foundation’s vest in order to free up budget for deals in the short-to-medium term. Considering the lack of overall token supply held by the Arbitrum Foundation when compared to other foundations in the industry, we prefer the proposal as written. However, we wanted to point this out as an option just in case.

4 Likes
4

Won’t comment for now on the specific amount of capital requested, but on the idea.

The foundation and OCL, as of now, have been the intermediary between projects wanting to launch their Orbit and our ecosystem.

While this is permissionless from a tech standpoint, it requires a big BD effort for big projects. If you are bullish on orbit as value proposition on Arbitrum, you likely envision a future in which every app will most likely have his own chain more than not; and we need to think what that means for the most established dApp in crypto, currently multichain, that might want to launch their own chain, or new players with established non crypto presence wanting to get a foothold in here. These cases likely requires a monetary leverage that the Foundation needs to have at their hand, without having to go to the dao for a request for a public discussion that would kill any meanigful deal.

I’m in favour on the idea. No strong opinion on the amount requested, which could be tho the right amount at first glance.

1 Like
5

Thanks for sharing ! I also support the proposal and agree that the Foundation has been doing a lot for the DAO. I also think we should have a bit more information on some of the details such as budget considerations, planning, etc… it could help everyone feel even more confident about this. Looking forward to seeing how this progresses!

2 Likes
6

Two questions:

  1. Funds will be used to further fund grants and support projects on this list. Is this correct?
    Notion – The all-in-one workspace for your notes, tasks, wikis, and databases.

  2. You mentioned Future Capital Commitments. How can you commit to funding a grant if the capital is not secured yet? Is this because of ARB price swings?

Thanks!

1 Like
7

Thanks for the proposal.

I have a few questions:

  1. Is it possible to consider a different financial arrangement as a loan secured by future unlocks or 50 funding/50 loan?
  2. There is a comparison (regarding funding) between different foundations and exosystem initiatives. But the DAO also promote these. How is the comparison with the mentioned chains when raking that into account?

Overall, I agree with the idea but wanted to check different options and have more data.

1 Like
8

I would love to have this list Notion – The all-in-one workspace for your notes, tasks, wikis, and databases. be fully exhaustive and updated before the DAO is asked to make a decision about this. And ideally with the amounts that were awarded to all these grantees. I’m not sure why that isn’t the case since the beginning but would also love to get an explanation on why that’s the case.

3 Likes
9

Appreciate the question.

Opportunities that could be covered with the additional funding include but are not limited to:

  • Established web3 projects planning to migrate from an existing blockchain to Arbitrum
  • Web2 products planning to launch a web3 initiative exclusively on one blockchain
  • Financial institutions planning to launch RWAs on selected blockchains first, aiming to eventually achieve mass adoption

Specifically, the adoption of the Orbit stack may be hindered if Arbitrum Foundation does not actively engage with the above types of projects/institutions to use Orbit as the blockchain technology for their products and increase awareness of and promote Arbitrum’s technology and ecosystem. The impact is not only limited to Orbit chains, but also impacts the other chains like Arbitrum One as there is a synergistic relationship between Arbitrum chains.

3 Likes
10

Thanks for your question. The main budget constraints and considerations are outlined in the proposal and these are items such as: the tight budget compared to other Foundations, the capital locked in ongoing commitments and the current vesting schedule.

Additionally, please see below a high-level overview of how the AF ensures proper planning and budgeting:

  1. Token Vesting Schedule: AF develops its financial plans to align with its token vesting schedule. This ensures that the Foundation is only making financial commitments that it can 100% fulfill as tokens vest and that it is not relying on unvested tokens.
  2. Capital Allocation: AF allocates a defined percentage of its capital to cover ecosystem growth initiatives including strategic investments and partnerships, operational expenses and to build long-term treasury reserves. AF monitors this allocation and makes adjustments based on macroeconomic conditions and strategic outlook.
  3. Liquidity & Risk Management: AF implements policies to safeguard against changes in macroeconomic conditions and ensure it can operate on an ongoing basis. These policies include strategies such as denominating ecosystem growth spending in the native ARB token, negotiating milestone payment based agreements and maintaining reserves to ensure sufficient runway.
  4. Reporting & Approvals: All financial plans and budgets are approved by the Board of Directors. AF provides comprehensive financial reporting to the Board of Directors on a regular basis, to ensure all activities are properly accounted for and to flag any variances to financial plans.
11

Thanks for your questions.

Funds will be used to fund opportunities with the following criteria:

  • Key opportunities exceeding 2 million ARB
  • New agreements signed after approval of this proposal
  • Contractual commitments lasting 1 year or longer

The public notion page lists grantees that received grants from the Arbitrum Foundation Grants program that have a grant size less than 2M ARB and it does not include strategic partnerships. Due to confidentiality, Arbitrum Foundation will not be able to disclose the current deal pipeline of strategic partnerships applicable to the funding. Arbitrum Foundation may be able to disclose some of these deals retroactively upon execution of agreement if the partner and Arbitrum Foundation both agree to publicly disclose.

Arbitrum Foundation does not commit funding projects with grants unless there is sufficient capital in its own Treasury. The Future Capital Commitments listed in the proposal are fully backed by the current Treasury. The Foundation and its Board of Directors operate ethically to ensure all commitments are met. However, not all committed grants will necessarily be paid out for two reasons: 1) not all grantees will meet their milestones, and 2) not all pre-signing commitments will be finalized. To ensure all commitments can be fulfilled if required, the Foundation has blocked significant funding from the current Treasury. This proposal aims to unlock additional funding so the Arbitrum Foundation can continue making grant and partnership offers. Without further funding, the Foundation may have to pass on upcoming opportunities.”

2 Likes
12

Thank you for your questions.

We are not sure if you are suggesting a different financial arrangement from the DAO to AF or from AF to strategic partners, thus we are going to answer both scenarios:

  1. Loan from the DAO to AF: A loan would not help the AF to increase its budget and be competitive. As mentioned in the proposal, The Arbitrum Foundation has 7.5% allocated (on a vesting schedule) which is far below competitors, sitting at circa 20%.
  2. Loan from AF to strategic partners: We considered alternative financial structures, however, projects are generally looking for grants and not loans since grants provide the necessary support without the burden of repayment. We believe that offering loans instead of grants would put the ecosystem at further disadvantage, potentially slowing down negotiations and reducing our ability to compete with other ecosystems that have larger, readily available budgets and are giving out funds via grants only.

The introduction of loans, in either case, would pose additional operational overhead and limit the capability for the AF to execute towards ecosystem growth initiatives.

The partnerships targeted by this program are not suitable to be directed by DAO-led programs since institutions or big partners are less inclined toward engaging and participating in public forums, and even when they do it is after extensive conversations with The Arbitrum Foundation and its service providers, who are making them aware of the opportunities and encouraging them to get involved. As front line enablers, The Arbitrum Foundation actively builds relationships with partners and encourages all partners to engage with the DAO.

13

The notion page mentions only grantees that received grants from the Foundation Grants program and it does not include often larger strategic partnerships that require strict confidentiality from our counterparties. The Notion page is already up to date. Regarding specific amounts that each Foundation grantee received, unfortunately we cannot disclose this since this would put the Foundation at a clear disadvantage when negotiating grant amounts with recipients and may also create friction between grant recipients themselves by knowing how much each received.

1 Like
14

Some early thoughts
I’m supportive of this proposal. The uniquely decentralized structure (which I generally like) of Arbitrum makes it difficult for the Foundation to compete directly with more centralized orgs. This proposal has the potential to strike a happy medium.

I think it’s important that this program be actively deduplicated and aligned with GCP.

I’d like more detail into how the Foundation plans to approach transparency. The bar should be even higher in terms of reporting than it has been in the past, given the increased size of the program.

1 Like
15

We fully support this proposal.

We believe the Arbitrum Foundation has done a great job thus far given an already tight budget. An extra 2.5% of the total supply puts their total allocation at 10%, a budget still significantly lower than competitors. Competition is certainly heating up and we need to be able to retain and attract large partnerships that generate value for the Arbitrum ecosystem.

1 Like
16

Thanks for your question. As mentioned in the proposal, the Foundation plans to expand its transparency report due in Q1 2025 to include details around this additional budget. The objective here is to provide visibility on how these funds are allocated, while also respecting confidentiality requested by any of the potential partners. We cannot report any confidential information, as doing so would breach agreements with these partners, and it could negatively impact the ecosystem if we disclose information protected by NDAs or other strict confidentiality arrangements in public forums. We’ll be happy to share details such as total amounts committed, amounts committed by vertical, etc, but if we share more specific details it risks breaching confidentiality which would make it more difficult to land partnerships with larger enterprises.

And to your question about the GCP, the Arbitrum Foundation will have a dedicated team member to coordinate potential collaborations with the GCP Foundation.

17

This proposal is now on Snapshot for a temp check: Snapshot

There will be a governance call to discuss this proposal on Tuesday, 24th September at 12:00 UTC:

Funds to Bolster Foundation’s Strategic Partnerships Budget - governance call
Tuesday, September 24 · 12:00 – 12:30pm
Time zone: UTC
Google Meet joining info
Video call link: https://meet.google.com/fch-ubfr-uio

1 Like
18

The Arbitrum Foundations brings up many good points. We’d like to further the discussion.

  • Would the requested 250m ARB will be in addition to their vested 750m total allocation?
  • What is the timeframe for deployment of this capital?
  • The below is a great point and would be important to institutional partnerships like Blackrock, Franklin Templeton and many others. But how would ARB tokens be used in partnerships with TradFi firms like these? Do firms highly value incentives like this - are other foundations offering heavily incentivized deals with these type of institutions?
  • Given that many of the partnerships and grants are milestone-based and extend over multiple years, why doesn’t the Arbitrum Foundation consider incorporating vested tokens into agreements with companies and protocols? This approach could increase spending and enhance partnerships, provided that we don’t commit more than what will have vested by the specified date.
1 Like
19

First, I will say that I am grateful to the fund for its work and support them.

But as for the specific amount for the fund, I have several questions:

1. Planning.
It would be good if you presented a table of how much has been allocated, how much has been spent, what are the plans for payments (there are some), how much we have left in the budget and what are the long-term plans (for 3-5 years). Otherwise, it is difficult for me to estimate the need for exactly 250 million ARB, given that the entire budget was 750 million.

2. Comparison of statistics
As for the statistics, it is worth indicating how much in $ has actually been allocated to other projects.

Chain Funds
Arbitrum 427,500,000
ZkSync 501,480,000
Starknet 800,000,000
Optimism 1,073,741,824

Also, if we talk about the fact that only 1.8% is allocated at the moment, then other chains have the same story - no one lets you spend all the money at once - each chain has its own budget.
For example, in Optimism, only 50 million OP is allocated per year to the Governance Fund until 2027.
I think this should be discussed honestly.

3. Transparency.
I am also interested in the question of how decisions are made on projects. I see this list, but the data on expenses is not open and this is a significant disadvantage. It turns out that the community must allocate 250 million to the fund without knowing what exactly these funds will be used for, except for the general concept. I would like more openness and transparency in these transactions.

Summary:
Taking into account these points, I believe that the proposal is not sufficiently defined, there is a lack of significant data on planning and transparency of current activities on agreements and project financing.

2 Likes
20

I’m voting in favor of this proposal, as expanding strategic partnerships is vital for the growth of the Arbitrum ecosystem. However, I want to emphasize the need for a lot of transparency on how these 250 million ARB will be allocated. It’s crucial that we understand exactly where these funds are going and how they’re contributing to ecosystem growth. Also, it might just be me, but I feel we’re spending too much on gaming.

1 Like