**Non-Constitutional: Terms of Tenure for STEP Program Manager**

Proposals
1

Abstract - On June 12th 2024, the DAO held an election for the role of STEP program manager to oversee ~$30 million diversified into liquid, stable and yield bearing RWAs .

Steakhouse Financial won the vote with 60% in favor of their selection. However, the tally vote earmarked 100k ARB as payment to program manager for one year (which converted to $86,581) while Steakhouse quoted a fee of $174,000 in their application. This proposal seeks input on the right way forward, with the options to

  • Approve only a 6 month contract from available funds
  • Earmark additional funds so they complete their one year tenure
  • Not have a program manager, which will result in liquidation of the RWAs and
  • Conduct a new RFP to select a program manager for one year at $86,581
  • Abstain

Motivation - On April 10th 2024, the DAO approved 35 million ARB for diversification into RWAs. Of this, 100,000 ARB was budgeted for the role of program manager. The Arbitrum Foundation got an average price of 87 cents per ARB, resulting in $86,581 to pay the program manager.

conversino

In their application, Steakhouse quoted $174,000 per year. Given the funds received from the 100,000 ARB sale ($86,531) are less than the amount necessary to pay for a full year of the Program Manager’s services, we need to either shorten their term to 6 months or approve an additional 6 months pay (from yield earned via the program). We can also declare the earlier election null and void while putting out a call for program managers willing to serve at $86,581 for a year. If there is no program manager to oversee investments, assets are liquidated and returned to the DAO.

Rationale - While writing the Tally proposal, I budgeted 100k ARB for the program manager role based on a quotation received from another provider and the prevailing ARB price at the time.

Steakhouse financial and the other applicants prepared a budget in dollar value, not ARB. As a result, i under-budgeted the program manager role in the STEP program and now need approval from the DAO on provisioning either a shortened tenure of 6 months or additional funding to complete the one year. The additional funds will be requested from the yield earned on the RWAs (estimated at between $1-2 million per year) to prevent ARB liquidations. Alternatively, we can hold a new RFP seeking program managers at a fixed price of $86,581 for the year and invalidate the earlier election.

Specifications - The STEP program is one of the largest diversification initiatives at any DAO, seeking to diversify our treasury while simultaneously growing the RWA ecosystem. Given the complications that can arise in managing the large sums of money, it is imperative that the DAO have a capable program manager to recommend liquidations,conduct firedrills, monitor interest payments to the DAO treasury, and track underlying changes in service providers.

Steps to Implement - After ratification of their role as STEP program manager and whether it is 6 months or 1 year, the Arbitrum foundation will sign an agreement with Steakhouse Financial and begin investments into selected RWA providers.

Timeline -

  1. Post on forum

  2. Upload on Snapshot (Thursday, 12th September)

  3. Foundation negotiates agreement with Steakhouse and pays the first 6 months of their payment from the initial 100,000 ARB budgeted for in the STEP proposal

  4. After RWA yield is returned to the treasury, this proposal is taken to Tally requesting balance of $87,419 (provided one year tenure is approved in the snapshot)

Overall Cost - If the entire one year tenure is ratified, the cost to the DAO is $87,419. If 6 month tenure is approved, the cost is needing another election for program manager in a shortened time. If the proposal is rejected, we liquidate all $30 million and return assets to the DAO. If a new RFP is held seeking program manager services for $86,581 for a year, we delay the start of the STEP program and possibly get a less capable pool of applicants at the lower price point.

Work done in shepherding this proposal is paid for through a Thrivecoin firestarter grant to the Arbitrum treasury and sustainability group.

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2

Before jumping on the topic, quick question.

At the time of tally (20th of march) the 100k arb were worth around $180k usd.
At the end of tally (10th of april) the 100k arb were worth around $140k.

To have this, converted, worth $86k, we need to have had a conversion that happen not before the 17th of june I believe.

The step program manager application thread was posted the 23rd of april; it doesn’t specify that costs of applicants should have been posted in arb, but i also understand that would have just not been the right move for request to external financial professionals to quote their service in a crypto currency not pegged, or anything that was not usd. Matter of the fact the example you provided was in usd.

The first application came in the 21st of may, and already quoted prices in usd.

My question is: why was there this huge delay in converting the arb in usd?

Also, this is something that we need to address as a dao and is not specific to only this program: if an entity is requesting arb to pay another entity in a non arb denominated way (usually usd), the funds MUST be converted right after being received in a tally vote, obviously compatible with the tools used (ie: aera). We can’t just keep going in circle on this.

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3

The foundation dollar cost averaged the ARB over a 7 week period to minimize any price shocks to the market. I am not sure when the first liquidation was though, I believe it was in either May or June.

completely aligned here, it is ironic that despite predicting fairly accurately what costs would be incurred in a program manager through the sample quotation, we still landed up in this fracas.

There is some discussion kickstarted by @Avantgarde to remedy this state of affairs by having short term cash reserves in USDC. The yield from the current STEP proposal is also in the same alley, providing between $1 and $1.5 million per year in USDC to our treasury.

The nub of the matter according to those i spoke with at the foundation (who requested this proposal and vote) was that program managers should not have provided quotations higher than the sanctioned amount on tally in the first place.

Although thats not possible to do unless they also provided a quotation in ARB :face_with_diagonal_mouth:

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we can’t pretend that an external bank / fund / entity quotes us a price in arb. The only viable alternative is request a certain amount of arb in tally, with a buffer, and convert that opex amount right away in usd, so that RFQ can be done and we can know with facts if we can answer yes or no to a certain party.

Now, let’s go back to the main point.

Knowing that the STEP program had, as one of the main goal, growth of RWA assets in Arbitrum, I think it would be important for the DAO to provide the funds we are currently lacking; without doing so, we will be the DAO that wants financial professionals to work in crypto, but lacks basic accounting abilities to cover for expenses.

This also mean that, to me, this is most a one time thing more than a rule: I don’t see a future in which we will replicate this, unless there are strong motivations to do.

1 Like
5

I find it interesting that we are talking about managing money with professionals in one hand but then talking about paying them with future yield in another.

Yes this is a good way to reduce the cost to the DAO by paying the balance out of future yield, which effectively turns this into an IOU situation.

If it is on the DAOs’ shoulders that a late conversion happened based on market conditions to get to a USD value, then it should be on the DAOs’ shoulders to meet that obligation.

At the same time if it was ARB that was requested then it should be ARB that is paid. Because if the market went the other way then it would have been a bonus in pay.

It is honorable to meet the duty of properly paying someone for this important role. This is a big undertaking.

I like the proposal of using interest to pay as it is easier on the DAO (But does reduce culpability if it was the DAO’s fault).

My suggestion to the amendement is that all interest earned is earmarked to fill the remaining debt first (shortage in payment) before going anywhere else.

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Thanks for the comments! The moment interest earned starts trickling in, we would meet the remaining 6 months pay if that option gets approved on snapshot

Steakhouse financial (the selected program manager) never quoted their fees in ARB. From the beginning, they priced their services at $174,000 so even if ARB price went up they would still have received the same amount.

When budgeting for the main tally proposal, it was my error to estimate prices in ARB but receive quotations for the role in USD. Hopefully we can remedy this situation by having more stables in our treasury in the future to draw from, it is not professional to expect service providers to quote fees in ARB.

7

It would have been prudent to protect against a potential drop in revenue by hedging. This could be accomplished by shorting an equivalent amount of ARB, effectively locking in the dollar value to be received. Alternatively, selling immediately is also a viable option, especially since the amount isn’t large enough to necessitate using the DCA method for liquidation. We support the first two options because mistakes can occur. However, Steakhouse should implement measures to avoid these issues in the future, especially if their expenses are calculated in USD:

  • Approve only a 6 month contract from available funds
  • Earmark additional funds so they complete their one year tenure

We’re curious to know if they would have returned a portion of the funds if the token’s price had increased in value.

1 Like
8

Looking at it I think the proposal discussion focuses on 2 issues, suggestions and questions as a delegate:

  1. clarification on the use of proceeds: it is proposed that the proceeds be used first to cover the payment gap to ensure timely fulfilment of obligations.
  2. budget and conversion risk: in the future, is it considered to convert ARB to stablecoin in advance to avoid budget shortfalls?

I have been thinking about why arb dao can’t be strong enough to use arb as settlement, if everyone is considering converting arb to stablecoin in the short term, it invariably adds huge selling pressure to the market.Also these people don’t work when they have less money? Can’t maintain normal operations anymore? You could run for office in the open and I’m sure a bunch of people would show up.

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With everything set up for the program to run for a year, it is a shame to not doing it for a lack of funds for the PM.

If we want to proceed with funding in ARB, we must ensure that all SP make their proposals and are willing to accept to receive ARB.

If not, let’s make everything crystal clear since the beginning.

The solution provided (pay SH with 100k ARB and later with the proceeds of the program) is a reasonable one.

2 Likes
10

This wouldn’t entirely solve the issue, since we passed the tally proposal earmarking funds for a program manager before even holding the election for who it would be and knowing their rate. The tally was based on estimates only and the prevailing ARB price, actuals were only received in the snapshot 2 months after the tally passed.

Steakhouse submitted a quote in dollars only. The plan was for the Arbitrum Foundation to pay the fees of the program manager (in dollars) and return funds from the implementation budget to the DAO

So if the price had increased, i am sure the AF would have returned the funds. you do raise a good point on converting the implementation budget immediately and not lumping it in with the DCA of the entire 35 million ARB for the STEP program.

11

I have heard a funny metaphor from @GFXlabs of the ARB token being a “melting ice cube”. This is outside the topic but the larger goal is creating sinks to absorb ARB, which we dont have.

If steakhouse had quoted their fees in ARB and then thrown a fuss at price dropping, would have completely agreed with you.

but they submitted their quote in dollars from the beginning. It was my error in budgeting in ARB for the program manager role but receiving quotes in dollars from all the applicants

Having the ability to draw stables directly through a tally proposal would be a huge benefit, something @Entropy is now working to facilitate. Most professionals in the space would charge in dollars, not ARB, so at least both options should be available

1 Like
12

We voted to earmark additional funds from Yield earned so they can complete the one year tenure

Opportunity cost of time and capital:

  • As it’s already confirmed that the yield earned from RWA portfolio will be enough to cover the shortfall, even if we shorten the contract to 6 month, we still need to do another round of RFP then, and it’s highly likely to have the same group of applicants. It makes no difference to the DAO as we’re still going to pay the same amount of money
  • Liquidation will also likely lead to unnecessary cost

Quality

  • Cutting the budget will also lead to downgrade in quality of PM

In conclusion, we think Arbitrum should continue with steakhouse and pay the shortfall with interest earned.

1 Like
13

Thank you for sharing! I agree that an election in 6 months is not ideal, and that we lose money in yield for every day delayed.

We should also remember that such programs usually pay a treasury manager 1% to manage, which we are able to avoid by doing it ourselves and getting a program manager.

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The FranklinDAO / Penn Blockchain Team voted with the below ranking

  • Earmark additional funds so Steakhouse Financial completes their 1 year tenure
  • New election at $86,581 per year
  • 6 months from available funds
  • Liquidation of RWAs and STEP
  • Abstain

We believe having a shortened 6 month program with another re-election would add unneeded bureaucracy and potentially less continuity if another service provider were elected.

1 Like
15

exploiting for shortening reasons the response from Pennsylvania University cause i voted in the same order (earmark funds, new elections, only 6 months, liquidation of the program, abstain)

Goal is to find the funds to pay Steakhouse for a whole year, to me anything else is unacceptable knowing the effort that was done to create this program growth oriented. Let’s find the money to keep the program running please.

PS please, for the future, write the options in the snapshot in a better way. I understand that there are characters limitations, but a simple option a / b / c etcetera with an explanation of each option in the test would make everything clearer. Took me a few minutes to understand how to properly vote in the way I wanted.

1 Like
16

Exactly, I was a bit confused when voting on Snapshot too. Listing the bullet points might give us a clearer idea of how to vote, especially since there are new users in the forum each time. That said, I think I would vote in the following order:

  1. Additional funds for one year
  2. 6 months from available funds
  3. New election at $86,581 each year
  4. Liquidation of RWAs and STEP program
  5. Abstain
17

This is an interesting proposal, I wonder why no one has proposed to lower the budget by saying that the budget exceeded $174,000 when the ARB went up to $2.4? When the proposals in the Arbitrum DAO involves ARB, why not use ARB as the standard currency? If ARB prices fluctuate and proposals have to be remade, wouldn’t the Arbitrum DAO be a lot of duplication? Based on this consideration, I do not support a new supplementary budget or even reelection.

18

Because of the funding, which led to this situation, why wasn’t it made clear beforehand that the solution should have been ARB denominated. Or a more complete and standardised schedule in future, not supporting supplementary budgets because the form of anyone who gets arb will sell is not promising

19

Thanks jojo appreciate the strong message of support!

Yeah the 32 character limit definitely tripped me up, since i didn’t know it was there and at 3 am i had to come up with new options on the spot while @krst was on the call. i like the idea of having option a, b , c ,d and a clear explanation of each in the main body of the proposal.

The issue here isn’t with the service provider, who provided a fixed quote of $174,000. The issue was on my side in budgeting the amount to the program manager in ARB (although on tally i had mentioned these were estimates only)

in my opinion, approving the steakhouse budget on snapshot and then going back on it is unnecessary. i also think we should be aim to start the program as soon as possible, since every day delay is costing us thousands of dollars in yield

if i could go back in time, i would have written something along the lines of paying the implementation costs of running STEP and the remainder going as investment to the selected service provider.

I might be in the minority here, but i don’t think we should expect service providers to quote in ARB. Their costs are in USD, so what would end up happening is we pay a premium to every service provider who bakes in some volatility when charging in ARB. Can’t yet pay rent in ARB unfortunately :smiling_face_with_tear:

Much more in favor of developing a cash management policy where we keep a reserve of stables in which to pay professionals.

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  1. I think it was our collective mistake initially to make a vote on the manager without referring to the existing funding that we all voted for in Tally.

  2. The second issue that needs to be addressed and that has a lot to do with funding is when to swap ARB for USD. In the case of this vote in Tally, which took place on April 10, the ARB was priced at $1.48, so $100,000 becomes $148,000. Who decides when to swap? Who is responsible for the fact that the program lost more than $50k on the token rate?

Ultimately, it would be fair to hold new manager elections to equalize the chances of everyone who wants to be there.

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