Proposal: Institutional $ARB Buyback via Bond Issuance

Governance Governance Discussion
1

Proposal: Institutional $ARB Buyback via Bond Issuance

Summary

This proposal outlines a sophisticated, multi-pronged strategy for the Arbitrum DAO to initiate a significant $ARB token buyback program. By partnering with a leading institutional asset manager, the DAO can execute this program funded through the issuance of innovative debt instruments, such as zero-coupon convertible bonds. This initiative is designed to not only reduce the circulating supply of $ARB and create sustained buying pressure but also to signal unwavering confidence in the long-term value of the Arbitrum ecosystem to the broader market.

1. Executive Summary: Paradigm Shift in Treasury Management

The Arbitrum DAO currently oversees a substantial treasury, with assets recently reported to exceed $1.3 billion. While prudent diversification into yield-generating, real-world assets like U.S. Treasury bonds has commenced, a more dynamic and accretive use of capital is warranted to directly enhance the value proposition of the $ARB token.

This proposal advocates for a strategic pivot from passive treasury management to an active, value-enhancing strategy. By issuing convertible bonds, the Arbitrum DAO can raise capital efficiently, without immediate interest payment obligations, and deploy it to systematically acquire $ARB from the open market. This action will have a dual effect: demonstrably reducing the token’s circulating supply and creating a powerful signal of institutional conviction in Arbitrum’s future. This approach moves beyond simple buyback announcements, which have faced community scrutiny in the past for lacking imagination, and instead presents a structured, sophisticated financial maneuver befitting a market leader.

2. The Mechanics of a Debt-Financed Buyback

The core of this proposal lies in the issuance of zero-coupon convertible senior notes. Here’s a breakdown of the process:

  • Partner Selection: The Arbitrum DAO will partner with a reputable institutional fund with proven expertise in digital asset markets and structured financial products. This partner will be responsible for the issuance and management of the debt instruments.
  • Bond Issuance: The partner will issue convertible senior notes to qualified institutional buyers. These notes will be “zero-coupon,” meaning they do not pay periodic interest. Instead, the return for investors comes from the option to convert the bonds into $ARB tokens at a predetermined price and date in the future.
  • Capital Deployment: The proceeds from the bond sale will be used to execute a phased and transparent $ARB buyback program on the open market. This will be conducted over a defined period to avoid sharp price movements and ensure optimal execution.
  • Token Retirement: A significant portion of the acquired $ARB tokens will be verifiably retired from circulation, permanently reducing the total supply and enhancing the scarcity of the remaining tokens. A smaller portion could be allocated to a strategic reserve for future ecosystem incentives.

This model is inspired by Strategy (formerly MicroStrategy), which in February 2025 raised $1.99 billion via zero-coupon convertible notes to acquire 20,356 BTC - boosting market confidence through transparent, debt-backed purchases.

3. The Strategic Imperative: Proactive Value Creation in a Mature Market

The Arbitrum ecosystem has reached a significant stage of maturity, accompanied by a substantial circulating supply of nearly 5 billion $ARB tokens. In this established environment, proactive and sophisticated capital management is no longer an option but a strategic necessity. The core question for the DAO is how to best deploy its considerable resources to directly enhance the fundamental value and long-term attractiveness of the $ARB token.

  • Addressing the Scale of Circulating Supply: With a large token float, the market can absorb significant selling pressure. A continuous, structured buyback program introduces a powerful and consistent source of buy-side demand. This acts as a stabilizing force, rewarding long-term holders and creating a more resilient token economy that is less susceptible to market volatility.

  • Evolving Beyond Passive Treasury Management: While initial steps to earn yield on treasury assets are prudent, the next evolutionary step is to use the treasury as an active tool for value creation. A buyback program directly impacts the core asset of the ecosystem, signaling that the DAO’s primary focus is on strengthening the $ARB token itself, rather than solely generating external returns.

  • A Definitive Signal of Institutional Conviction: In the competitive landscape of Layer 2 solutions, perception and market confidence are paramount. Executing a debt-financed buyback is a decisive and sophisticated maneuver that mirrors the capital allocation strategies of the world’s leading technology companies. It sends an unambiguous message to the entire market: the Arbitrum DAO, backed by institutional capital partners, has deep conviction in the network’s future growth and undervaluation at current prices.

  • Cost-Efficient Capital for Maximum Impact: The use of zero-coupon convertible notes is an exceptionally efficient method of funding. It allows the DAO to secure capital for immediate, impactful buybacks without the recurring drain of interest payments. The cost of capital is intrinsically linked to the future success of Arbitrum, aligning the interests of the DAO, its token holders, and its new capital partners in a shared vision of long-term value appreciation.

4. Core Advantages for the Arbitrum Ecosystem

The implementation of this proposal will yield a multitude of benefits for various stakeholders within the Arbitrum ecosystem:

Stakeholder Key Benefits
$ARB Holders Increased token scarcity, potential for price appreciation, and enhanced long-term value proposition.
The Arbitrum DAO More dynamic and efficient use of treasury assets, a powerful tool for managing tokenomics, and a strengthened governance position.
Developers & Users A more stable and robust economic foundation for the ecosystem, fostering greater confidence and encouraging further development and adoption.
Institutional Investors Access to innovative, crypto-native debt instruments with attractive risk-reward profiles, expanding the range of investable assets in the digital economy.

5. Commitment to Innovation and Market Leadership

By pioneering a sophisticated, debt-financed token buyback program, Arbitrum can once again demonstrate its leadership in the Layer 2 space. This initiative would set a new standard for DAOs in treasury management and tokenomic strategy, showcasing a commitment to financial innovation and long-term value creation.

6. Conclusion: Bold Step Forward

The time for passive treasury management has passed. A proactive, strategic, and well-executed institutional buyback program funded by convertible bond issuance offers a clear path to fortifying the value of the $ARB token, optimizing the efficiency of the DAO’s treasury, and signaling unwavering confidence to the market. This proposal provides the blueprint for a landmark initiative that will not only benefit all Arbitrum stakeholders but also solidify Arbitrum’s position as a leader in the decentralized economy for years to come.

2

It wouldn’t make a ton of sense to do a buyback when ARB is still used as the primary method of financing DAO activities.

A better approach would be to begin capping what percentage of expenses may be paid with ARB. Perhaps start with 90-95% and ratchet that down on a pre-determined schedule over time. Other financing sources – interest on the stable assets and sequencer ETH – are available to fill that gap. And it’s always possible a third or fourth source of revenue materializes as well.

3

We are not entirely opposed to this proposal, but we have several questions and concerns:

  1. We are unsure whether an ARB buyback program demonstrates confidence. On one hand, if the DAO believes ARB is undervalued, then a buyback program has the potential to realize its intrinsic value while signaling to the broader industry that we believe in the token. While the DAO (ourselves very much included) is generally bullish on ARB and its potential, is there consensus at this moment that the token is undervalued? We would need to see research to that effect before determining that not only is ARB undervalued, but it is so undervalued that we must engage in price manipulation in order for it to realize its intrinsic value.

  2. We want clarity on what will occur procedurally if this proposal passes:
    a.) Will the DAO commit to the program before finding a capital partner?
    b.) Will the costs be presented only after the proposal is passed?

These are critical questions that should be decided (or at least discussed) prior to voting on the proposal.

  1. What precedent does this maneuver set for the DAO? Will we engage in periodic buybacks in order to induce scarcity and raise the price of ARB? Will debt-financed buybacks become a regular tool for the DAO? While we are not unequivocally anti-buyback, this does seem like a massive financial decision, the effects of which should be specified in full.

To summarize, we are not necessarily opposed to this proposal. But before giving our support, we would like to see research indicating that ARB is currently underpriced, a plan for how this buyback program will work (list of potential capital partners, costs, etc.) and discussions about the precedent this sets for price manipulation as a tool for ARB.

With that being said, this is an interesting proposal, and we are intrigued by the proposition of merging traditional finance with DeFi.

Michigan Blockchain | Jack Verrill | TG @JackVerrill

4

I have many questions, especially since I’ve been thinking about a buyback program and how it could be implemented. You’re proposing a different approach that doesn’t require free capital in the treasury for execution — that’s a major advantage.

  1. You propose an interesting model, but why do you believe it should be implemented separately from the TMC (or the upcoming ATMC, which is set to replace it)?
    After all, their mandate is precisely to do something with the ARB treasury to generate value for Arbitrum.
  2. I would like to see a more detailed proposal. Otherwise, it’s difficult to evaluate how beneficial this would be for Arbitrum.
    Alternatively, it would make sense to invite multiple firms to submit proposals or financial models on a competitive basis.
  3. What percentage of the treasury is planned to be allocated to these bonds?
  4. What will the liquidity of these bonds look like? Will they be transferable?
  5. What criteria will be used to define the success of this program?
5

This interesting and creative proposal demonstrates a growing sophistication in how DAOs might think about capital structure and treasury strategy.

That said, we believe that buybacks should not be pursued in isolation, but rather as part of a broader financial strategy. Specifically, we recommend that the DAO first engage in comprehensive financial planning to evaluate whether there is room for buybacks. This is especially important in Arbitrum’s case, given that revenues are generated solely from ETH-denominated transaction fees. While efforts to diversify into non-operating revenues are underway via the Treasury Management Council (TMC), the committed amounts are still too small to be impactful. Additionally, expenses continue to be denominated in ARB, underscoring the need for a holistic approach.

In our view, this initiative should fall under the purview of the Arbitrum Treasury Management Committee and, if approved, be executed under the oversight of Entropy Advisors as part of the consolidated treasury program. Buybacks, revenues, and expenses are fundamentally interlinked and should be coordinated through a unified governance and execution framework to ensure strategic alignment and accountability.

As kpk, we’ve executed buyback programs for multiple DAOs and are very familiar with the opportunities and risks involved. From experience, it’s critical that such programs are designed with the DAO’s long-term financial sustainability in mind, particularly when future revenue streams are still nascent or volatile.

Lastly, we share @cp0x’s interest in better understanding the mechanics of the proposed plan, and would like to echo the following important questions:

2 Likes
6

I’m not sure if what you’re proposing would work the same way. Strategy raised funds to buy BTC using bonds that convert into MSTR stock. That creates buy pressure for BTC and eventual sell pressure for MSTR in the future, when bondholders convert their bonds into MSTR shares.

But in your proposal, we’d have both buy and sell pressure on the same asset, the ARB token. Initially, there would be buy pressure from acquiring ARB, but when the bonds mature, there could be a massive sell-off as bondholders dump ARB on the market.

It feels too risky to me, and I don’t see how it brings real value to the Arbitrum network. It seems more like a pump-and-dump scheme, just spread out over a longer timeframe.

7

Good point regarding buying and selling pressure.

It might be worth adding a token buyback mechanism to this strategy in case the ARB price drops, for example, more than 10% below the bond sale price.
We could also consider how much to allocate for the buyback — the full amount raised from the bond issuance, or a fixed amount of ARB. In the latter case, any leftover USDC could be returned to the treasury and the ATMC accordingly.

This way, we would ensure at least a 10% profit margin for the strategy in the event of a price decline.

8

This is copy pasta. There is literally exactly the same proposal posted on the Aave DAO forum.

2 Likes
9

We tend to agree with GFX here in that a buyback doesn’t make a lot of sense with the way ARB is used today. In fact, it would require the DAO to do serious rethinking of how ARB is issued and form a stricter policy around financing, i.e., limiting ARB dilution and selling sequencer ETH instead, quarterly budgeting, etc.

This is a falsehood. Does the DAO hold assets that are currently valued at $1.3B? Sure, but this changes substantially as they are issued out. It would be more apt to treat these as unissued shares like in a traditional company. It’s very similar actually, these tokens are in private circulation, have no active governance rights, and can dilute existing token holders, and while this may be reductive the similarities remain.

Also, it seems like a false equivalence to recycle the MicroStrategy structure, use it for Arbitrum DAO, and call it a day like we’ve solved DAO-token-equity relationship. What worked for MicroStrategy won’t necessarily work for Arbitrum, and in fact we’d say it is less likely to work for Arbitrum. As others have said Strategy has a bit of a cyclical relationship with BTC. This would be extremely unbalanced for Arbitrum because we finance with ARB so we would likely always have more sell pressure than buy pressure unless a strict financial plan is in place. Honestly, we’d need the DAO to first nail:

  1. ARB Financing Expectations (how much ARB can be issued out, on what basis may it be issued out, etc)
    a. DAO Contributor Financing (it may be justified to dilute for contributors that have committed time and effort, but we need a more reliable structure here)
  2. Revenue Stream Diversification
  3. Revenue Budgeting
3 Likes
10

Not in favour

While I respect the effort to look at alternatives means for how the DAO manages its finances, at this moment this proposal probably just doesn’t achieve any material goal.

Despite its relative size Arbitrum as a platform is still very much a startup with a need for reinvestment to continue scaling and adding debt to support buybacks doesn’t feel the best way to allocate capital.

1 Like
11

Hi, this is Brook from TiD Research. This is a high-level discussion with many details still to be clarified, but I find the exploration quite compelling.

Instead of framing this as a pure ARB buyback, we could view it as a mechanism to offset the persistent ARB sell pressure caused by DAO expenditures. According to the token flow report, the DAO has spent an average of 3.1M ARB per month (~1% of circulating supply) over the past six months—a meaningful amount.

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However, I agree with @GFXlabs: if the DAO continues to sell ARB to raise stablecoins for expenses, borrowing stablecoins via bond issuance to then buy back ARB, only to sell it again later, is inefficient. A better approach would be to use stablecoins raised from the bond issuance to directly fund part of the DAO’s expenses , thereby reducing the need to sell ARB.

One of the most important factors why Microstrategy can be so successful is that it provides those who are too conservative to hold BTC directly at the moment but still want to be exposed to the potential upside a risk-remote instrument to invest. The bond reduces the risk of capital loss, and the embedded written call option provides upside exposure.

Even though the underlying of the bond is essentially BTC and the asset corresponding to the option is MSTR, but they’re highly correlated and move in the same direction most of the time. MSTR holders seem not too worried about the embedded option being triggered as it’s only possible when the price of MSTR goes up by a lot to cross the conversion price, and the selling pressure following the redemption will be most likely to be absorbed by the organic market demand.

So I do think we might be able to copy the Microstrategy model and apply it on ARB to a certain extent. We can look at the issuance of the bond as a way to give TMC enough time to accumulate yields from stable coin investments.

Ideally, if we can really structure the bond to set coupon rate at 0%, we can use the fund raised to cover the DAO monthly spending and at maturity use the yields earned by TMC to repay. The arrangement might be able to reduce selling of ARB.

Overall I think this is a very meaningful discussion, but there’s a lot to be confirmed.

Convertible Bond Terms & Option Design
Would it be possible to share a set of example terms for the convertible bond? For instance:

  • What is the indicative conversion price and conversion ratio?
  • Given the plan to issue zero-coupon bonds, how do you envision structuring the embedded option to ensure investor appeal without offering a periodic yield?
  • Are there any benchmarks (e.g., MicroStrategy, Coinbase’s convertible bonds, or DeFi-native deals) you’re using to inform pricing and term design? It would be helpful to understand the rationale and trade-offs.

Sizing & Buyback Schedule
Is there a target issuance size under consideration? If the primary goal is to support the ARB price, one reasonable framing might be to offset ARB emissions (~180–200M ARB over 12–18 months). This could help define:

  • The buyback size and schedule: Will it follow a fixed monthly schedule, or adjust dynamically based on emission flow or price volatility?
  • Will there be a public buyback framework to ensure transparency and avoid front-running?

Underwriting & Demand Discovery

  • Would it make sense to build a soft orderbook first by gauging institutional interest in the bond issuance? This would help calibrate demand and optimize pricing.
  • Who would be responsible for underwriting, marketing, and distributing the bonds?
2 Likes
12

Arnold from Lighthouse Labs. Great to see this conversation happening.

Chiming in here, as one of our focuses has been developing how a trustless bond marketplace could work for DAOs and would love feedback from the community.

We have a hackaton PoC, having recently graduated from the Uniswap Hooks Incubator and won a prize from the Arbitrum Foundation and UF.

In our system:

  • Bonds are issued as ERC-1155 NFTs representing zero-coupon bonds.
  • All terms are fully on-chain and programmable.
  • Bonds can be traded via a Uniswap v4 Hook, with market participants free to deploy their own pricing algorithms.

This design enables:

  • Permissionless underwriting by LPs.
  • Bond trading via AMM pools (currently a Uniswap v4 Hook).
  • A credibly decentralized market accessible to all participants.

Circling back to bond issuance:

We believe bonds can serve as a core DeFi primitive, potentially removing the need for buyback programs entirely.

Instead of selling ARB for stables, the DAO could issue bonds for grants and services that traditionally would warrant a lockup or stream.

We already have clear examples where the DAO needs to sell ARB to fund programs — creating significant sell pressure.

Payments expressed as bonds could offer immediate benefits:

  • Foundation could pay in ARB bonds, deferring sell pressure.
  • Recipients: Receive bonds instead of lockups or streams. They can either:
    • Hold the bond and redeem the full amount later,
    • Or sell it immediately on the open market — likely at a modest discount (e.g. ~90¢ on the dollar) — to access stable liquidity upfront, avoiding long vesting schedules and market volatility.
  • Bond Buyers: Typically long-term ARB supporters, who gain discounted exposure to ARB in exchange for absorbing the token’s future risk.

Other thoughts:

  • The DAO could act as an natural buyer of last resort though LP’ing.
  • Stylus is a really good fit since, pricing calcs get expensive very quickly.

Sorry to chime in with a soft sell, but we think there is a lot of overlap here. It’s still very early days but would love gather thoughts from others so we can factor it into our design and thinking!

13

This is not plagiarism. I am the author in both cases and am invested in the growth of my two favorite projects, AAVE and Arbitrum. I proposed a similar discussion in both DAOs because this approach can be applied to both projects. I slightly adjusted the wording to better suit each specific project, but does that really matter? What matters is the potential outcome of the proposed initiative and the benefits it would bring to the project and its token holders.

Token buyback strategies are used for BTC, SOL, and XRP, but that doesn’t mean the initiative is a bad one. Yes, the idea itself isn’t new, and I didn’t invent it. However, I want to propose that a token-buyback mechanism should also be used for ARB. I’m wholeheartedly in favor of the project and am convinced that it will only benefit from this approach.

14

We are not ready to support the buyback today. Like @GFXlabs, @Michigan_Blockchain, @cp0x, @karpatkey and @BlockworksResearch, we need evidence that ARB is undervalued, a full cost schedule, and a clear plan showing how debt service, bond liquidity and possible sell pressure at conversion fit within the Treasury Management Committee mandate and the DAO’s monthly outflow of about 3.1 million ARB. We also ask for a competitive request for proposals to choose underwriters, a public framework for bond size and pacing, and draft terms that spell out conversion price, dilution impact and safeguards if market price falls below the issue price. MicroStrategy’s February 2025 raise shows debt-funded buybacks are feasible only when predictable revenue exists in a different asset, underscoring the need for cash-flow planning here. Unless these details are provided we will vote AGAINST, but we will revisit our stance if a revised proposal answers these questions.

15

Thank you for taking the time to put together the proposal. There does not yet appear to be a proposal for delegates to vote on and instead it is kickstarting a discussion on the topic. With that in mind, we have moved this to the Governance Discussions category, to enable everyone to continue discussing it.