Proposal Draft
Title: Pilot Proposal: Arbitrum Token Swap Program
Non-Constitutional
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, eligibility will be restricted to projects that have successfully participated in LTIP / STIP. A total of 111 potential projects have been identified as potential partners. It is proposed that 10-18 projects will ultimately token swap with Arbitrum DAO during the initial pilot, with up to 10M ARB being swapped. We foresee token swaps as a mechanism for Arbitrum DAO to participate in the development and success of these projects while simultaneously increasing their participation in the governance of Arbitrum DAO.
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.
With Treasure DAO’s recent move from Arbitrum to ZKsync, bidirectional, long-term alignment has become even more critical.
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 in the most promising projects 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:
- Increasing the alignment with top ecosystem projects to ensure bi-directional alignment
- Gaining valuable insights into strategies for ecosystem development via treasury diversification for top apps in our ecosystem.
Specifications
Projects eligible for a swap
To optimize for Arbitrum ecosystem alignment, the Token Swap Pilot prioritizes projects with significant past engagement with Arbitrum. This includes the initial ARB ecosystem airdrop, the primary incentive programs (STIP / LTIPP), and the value generated by projects, measured through onchain gas consumption and protocol fees. These data points will be used to cluster projects and identify if and what size of a Token Swap would be valuable for Arbitrum DAO.
Only projects that participated in STIP or LTIP and have a token available on Arbitrum Mainnet will be eligible for this pilot.
The following parameters will be considered:
Airdrop Size:
Airdrop % Sold:
STIP Rewards:
Backfund Rewards:
LTIPP Rewards:
Market Cap:
FDV:
Lifetime Fees Generated:
6 month Fees Generated:
Lifetime GAS consumed:
6 month GAS consumed:
Project Treasury Size currently:
Project Treasury Size at the start of the year:
Token Utility:
ARB utility plan:
Based on the initial Airdrop, STIP, and LTIPP data, three project categories have been created: Arbitrum Blue Chips, Early Growers, and Emerging Growers.
Arbitrum Blue Chips: Frontrunners and leaders of the Arbitrum Ecosystem that received and held at least 50% of the ARB airdrop and received both STIP and STIP Backfund rewards.
11 Arbitrum Blue Chips are identified, of which 6 have a Market Cap of 50M or higher.
Early Growers: Projects that received STIP and STIP Backfund rewards, showcasing their impact, but did not receive an initial ARB airdrop. 28 early growers are identified.
Emerging Growers: Projects that received LTIP rewards but did not receive an initial ARB airdrop. 72 emerging growers are identified
Combining these three categories, there are 111 potential projects to swap tokens. Any project that does not fall within the above categories will not be eligible for the Arbitrum Token Swaps Pilot. Swaps will be executed through Hedgey Finance’s Token Swap solution, the most used DAO token swap solution.
Ecosystem Swap Strategy
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. As such, the initial Arbitrum Token Swap Pilot will prioritize ecosystem alignment and aim for the following approximate swaps per category.
-
Align interest further with the Arbitrum Blue Chips, swapping up to 50% of the Token Swap budget with the most value-aligned and mature project in the Arbitrum Ecosystem.
-
Optimizing for early movers that have proven to deliver, swapping up to 25% of the Token Swap budget with Early Growers based on the swap parameters with moderate cut-off requirements (expected to have 20-30% pass rate).
-
Nurturing the best Emerging Growers, swapping up to 25% of the Token Swap budget with the best-performing Emerging Growers based on the swap parameters with aggressive cut-off.
The initial pilot program is anticipated to conduct between 10-18 token swaps.
Token Swap Budget
The Arbitrum Token Swap Pilot will have a Token Swap budget of up to 10M ARB, which the Pilot Council will manage through the MSS multi-sig.
To allow for broader ecosystem alignment, the following maximum swap amounts per project are set:
Arbitrum Blue Chips: Up to 1M ARB
Early Growers: Up to 333K ARB
Emergy Growers: Up to 250K ARB
Non-Sales Clause
Arbitrum DAO commits to a 1-year non-sales clause on all received tokens. The third-party DAO gets 100% in ARB locked for one year. After one year, both DAOs can sell up to 10% of the received tokens monthly into the open market at the discretion of its governance or Treasury Management team. If a party wants more than 10% liquidity in a given month, it should offer an OTC swap to the other DAO valued at the current market price for at least three weeks to the respective DAO treasury teams. All tokens received by Arbitrum will be kept in our Treasury.
Pilot Program Implementation
The Token Swap Pilot Council
The initiative will comprise 3 voting members and 1 non-voting facilitating member.
The 3 voting members are one nominated member who produced the research (LuukDAO) and two members elected from the pool of former LTIP council members and advisors.
The non-voting member (except in case of a tie) will be Devansh Mehta, who supervised the token swap research and performed a similar role in the STEP program. Responsibilities include coordinating with applicants, communicating rejections, posting on the forum decisions made by the committee, shepherding proposals past governance, and any other work accountable for the program’s success.
Roles & Responsibilities
| 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. Snapshot election for 2 additional council members to be reviewers | WG0 Members: Devansh Mehta and LuukDAO | 3 weeks | 30,000 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, 2 elected members from pool of LTIPP council and application advisors Facilitating Member: Devansh Mehta | 4 weeks | 80,0000 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. When token Swaps are larger than 750K 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. Recommend withdrawal of a swap from a project to the DAO | WG0 Lead: LuukDAO | 18 weeks | 90,000 ARB |
Conflict of interest rules
The elected 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.
Overall Cost
Total Cost: 10,200,000 ARB
- Token Swap Budget: 10,000,000 ARB. The entire budget does not need to be spent. Any unused funds will be returned to the DAO.
- Implementation Budget: 200,000 ARB, all staff involved are paid at the rate of 5000 ARB per week of their involvement
- Application period: 30,000 ARB will be split equally between LuukDAO and Devansh for drafting the application form in week 1, conducting elections for other council members, and helping protocols apply in weeks 2 and 3.
- Review period: 80,000 ARB, split equally between all 4 committee members for a month of their time, to get recommendations on token swap applicants approved on snapshot.
- Execution (~6 weeks) and monitoring period (~12 weeks) - 90,000 ARB to 1 member (LuukDAO)