I think a lot of people doubted @thedevanshmehta idea and direction with the RWA program. it took a lot of time & political dancing for him to get that proposal to pass. We now have Blackrock and Franklin Templeton applying to STEP.
We should reward this success by funding the research and methodology he suggests here. If nothing else, it signals that we reward success with greater opportunity.
Does anyone disagree with this in PRINCIPLE?
Update on the Token Swap program: we’ve received a Firestarter grant to produce a Token Swap report and iterate on this draft proposal for Arb DAO.
I’m excited to work with @thedevanshmehta to progress this program further.
About me: I’m LuukDAO, a full-time DAOist since 2019, and Web3 builder since 2017. In the past, I led PrimeDAO, a DeFi collective building tools for DAO to DAO coordination. We created Prime Deals, a dealmaking platform for DAOs in 2022, and went deep down the Token Swap rabbit hole, facilitating almost 10 Token Swaps, including deals between PrimeDAO and Gitcoin, BalancerDAO, and Paladin. We also conducted much in-depth research on DAO-to-DAO coordination with Blockscience.
Currently, I run Kolektivo Labs, a boutique venture studio, and lead Public Goods coordination for Celo and the Tokenomics Workstream for SafeDAO.
Our aim for the Token Swap report and Program
We will produce an in-depth report on the history, taxonomy, and potential use of Token swaps for Arb DAO through the Firestarter grant. The insights gained during the report’s creation will be used to produce an updated Token Swap Program proposal that answers all questions asked in this thread and more.
We plan to at least cover the following topics in the Report:
Seeking input
We’ll be interviewing individuals who have played a role in a Token Swap in the past, are part of Treasury teams of other projects, or would be interested in conducting a token swap with Arb DAO in the future.
If you’re part of any of these groups, or have other insights/input you want to share, please contact me via @LuukDAO on TG or a message through Twitter.
I’m excited to share that we’ve completed the publication of our Token Swaps as Ecosystem Enablers report, which includes a tangible breakdown of how Token Swaps can be leveraged for the long-term development of the Arbitrum ecosystem.
Based on the insights gained and Arbitrum DAO’s current state, we’ve crafted a new Token Swap program proposal from scratch through the Firestarter program of ThankArbitrum by Thrivecoin. I’m sharing the draft below.
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:
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.
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
I’m just catching up on the treasury swap program and sharing some feedback that I shared with @thedevanshmehta initially.
At Hedgey, we had a DAO-to-DAO token swap product (we actually did the first D2D token swap on Arbitrum back in 2022) with dozens of swaps between DAOs and have a lot of thoughts on it.
On the topic of treasury diversification, I don’t think D2D swaps do a good job of diversifying Arbitrum’s treasury. This won’t be diversifying Arbitrum’s treasury into stable coins (a good diversification) but instead into other volatile assets that will be nearly impossible for the DAO to sell. Will there be an active manager with at-will ability to sell tokens? What negative sentiment would that bring on the DAO if it sold a protocols tokens? I think making super clear guidelines for what the DAO can do with tokens it receives and outlining the group that will be in charge of carrying out those actions would be important here. Otherwise it’s Arbitrum diversifying into an asset it wont be able to exit.
As far as partnerships go, I do think there’s a benefit in having more participation by protocols in Arbitrum governance and swaps could be a good path to doing that. I think you’d have to mandate some type of universal lockup period (on both sides) with governance enabled and expected if the goal here is a partnership with ecosystem protocols.
The last note would be on making clear guidelines on where swapped tokens are sourced from by protocols. Will it be DAO owned tokens or is it open to founder / labs tokens?
I support this idea. But in addition to the idea itself, we need to figure out the financial side of the deal:
Thanks for the updated proposal @LuukDAO
We can see the value in Treasury Swaps but only when there is a clear & tangible strategic benefit for both parties. A clear example of this was Aave <> Balancer as mentioned in your Ecosystem Enablers report. Unfortunately, outside of similar examples to the above, there is little evidence to suggest such programs are truly beneficial to either DAO. This is also highlighted quite clearly in your research report when analysing the status of each prior token swap
We are also concerned about providing ARB tokens to protocols that do not have a sufficiently decentralised governance structure. A lot of protocols lack any onchain governance infrastructure where treasuries and token activities are handled by the team, foundation, or multi-sigs, meaning there is very little input from tokenholders of these protocols. On the hand, how does the ArbitrumDAO expect to handle all tokens from the treasury swaps and who will be in charge of this? This once again, will likely require additional funding
Furthermore, ARB is significantly more liquid than most other tokens in the Arbitrum ecosystem. Therefore, it’s very likely that protocols will utilise ARB to fund expenses as it means they suffer from less slippage and they can forego putting selling pressure on their own token. Now if the Arbitrum DAO ever decides to sell tokens of other protocols, it would be rather controversial and sends a strong signal
Lastly, we would love to hear some justification over the costs for staff. 5k ARB / week is a significant amount of money
Thanks
Strongly support the proposal as revised, with notes on budget.
I think this is a key item to reply to, as right now there is no clear path to exercising those governance rights.
I think the costs of the initiative should be aligned with DIP, hence reducing the budget to a maximum of 12000 - 16500 ARB per month, hence 3000 - 4125 ARB per week.
Arbitrum DAO has clearly a tendency to overspend and whilst we should not shy away from competing with other DAOs for quality governance, we should not squander funds either.
Thanks for the quick input, especially given your relevant background in D2D coordination!
Agreed that diversifying into Stablecoins has a bigger effect on reducing volatility through diversification. This should be explored and executed separately from this proposal.
While many tokens traditionally trended down, as most Token swaps were executed in a downward market, this does not have to be the case. Promising protocols on Arbitrum, especially if supported in their development by Arbitrum DAO through incentive and support programs, can outperform ARB.
Another key element is establishing long-term alignment, where the initial STIP - LTIPP programs distributed ARB to end-users, leaving no long-term token relationship between participating protocols and Arbitrum DAO.
In my view, swapping a portion of Protocol Tokens should be weighted off against only distributing ARB tokens to protocol one-sided to accelerate their growth and commit them to Arbitrum.
Ideally, a Treasury Team would operate the Financial department of Arbitrum DAO and define strategies to utilize and devest from Protocol tokens. The current draft suggests a 1-year lock-up period of tokens on both sides to give room for the Treasury Team to shape up.
Great question. This depends on the token swap strategy we use. At first, I would imagine primarily swapping with more mature protocols (which also relates to your liquidity concerns). Hence, these tokens would likely be voted on through third-party governance and come from a DAO Treasury.
However, there may be cases where a Core team wants to offer Founder/Labs/Partnership tokens to Arbitrum DAO. This is outsize of the scope of an initial pilot, and might be something the prospective M&A team could have some relevant input on.
Gm @cp0x - thanks for your input!
The primary aim is to align long-term incentives. If a Protocol contributes meaningfully to the Aribtrum ecosystem by attracting capital and users, it will need to be able to earn some “upside” in its growth. The ARB tokens would allow Protocol to build and influence Arbitrum’s growth and expand its treasury if ARB outperforms.
Honestly, meta-governance is challenging. Initially, we don’t think it’s realistic for Aribtrum to participate actively in and have representation in all governance systems. As such, the pilot proposes to delegate our voting power only to selected delegates for projects that swap over 750,000 ARB (could be changed to another amount). We can make an application process for this with the delegate keeping a Meta-Governance Delegate Thread noting why and how they voted in the third-party DAO proposal) and a process for Aribtrum to change its voting power to another delegate if it doesn’t feel adequately represented.
The initial criteria would be the successful execution and tracking of the Token Swaps**. I agree that we can establish more success factors**, although the actual effect would only become visible over a longer time frame. Some success criteria I can think of are the percentage of protocols that token swapped also having additional incentives approved to them, the number of protocols that token swapped that remain active in Arbitrum, and the number of protocols that token swapped who delegated their ARB tokens. I am open to more suggestions here!
This is my first draft proposal to Arbitrum DAO, so I am happy to understand the budgeting standards better. I understand that the current standard is a reward of ~100 USD an hour in ARB. When the proposal was drafted, ARB was around 50c, so we took approximately 200 ARB per hour in our budget. The budget is based on the assumption that 10-18 swaps would occur, which means a lot of work and relationship management. If we reduce the size of the pilot to, for example, only swapping with the top 5 protocols, we could reduce the program costs by about 30-40%.
I want to note that payments from DAOs does not equal receiving a “Salary.” No perks are provided to DAO contributors, and contributing teams accrue additional legal and conversation costs. From my standpoint, paying $100 an hour is honestly too little for the type of hyper-specialized work needed to meaningfully progress Arbitrum or any other large DAO. With the additional time that must be spent on proposal writing and governance participation, I believe a range of $150-$200 USD is the bare minimum high-tier contributors should receive. If not, it remains better for talent to work for Labs / Foundation, which in my opinion slows down ecosystem development and decentralization.
Hi @WintermuteGovernance - thanks for going through the proposal and report!
In nearly all cases, Arbitrum will have to make assumptions of future performance and liquidity of tokens, which is also a part of the Alpha / Upside for Arbitrum. One way to start a program is to limit the maximum swap size to an amount that can be liquidated onchain with a maximum slippage of, let’s say, 5-10%. Alternatively, protocols may have to offer Aribtrum DAO favorable conditions, such as a price discount, based on their onchain liquidity. If we pair this, we need the liquidity to be on Aribtrum; we might create a positive flywheel for growth.
I go into more detail in the comment above - but leading and operating a DAO Token Swap program is a lot of work (also unpaid parts such as Governance involvement and forum threads such as this), requires specialized skills, and is not without risk. Contributors to this program don’t have a fixed income stream beyond this initial scope, while even at the proposed rate being paid comparable to mid-tier analysts in Western markets without any perks.
Main feedback: 1. We have to ensure the tokens we receive perform well and can be liquidated in the future. 2. Need clarity on who will manage tokens and govern. 3. The operations budget seems high.
If we feel that Token Swaps should be piloted as a coordination tool for Aribtrum DAO and its incentive programs, I can imagine the following reduced scope:
Aim to swap with 3-5 mature protocols with onchain liquidity on Arbtrum and active decentralized governance. These protocols can come from the Arbitrum Blue Chip category (Held airdrop + received STIP + received STIP background).
Have a 1-year token lock on both sides and, as part of the swap, include who each side will delegate their voting power to during this initial period.
Establish clear success factors for the program that will be useful for future Arbitrum incentive programs.
Reduce the swap budget from 10m AR → 2m ARB
Reduce the operational budget from 200,000 ARB → 130,000 ARB
I would love to hear if this scope seems more aligned. If so, I can start a clean thread with this scope! @WintermuteGovernance @cp0x @WintermuteGovernance @DisruptionJoe @lindsey
Great notes all around 
Having read all the comments in this topic, and also considering the upgraded version at the post 24, I still don’t see a great upside for ArbitrumDAO on this:
It probably makes more sense to have a better structured incentive program and treasury management so the DAO can be more effective helping the Ecosystem to thrive.
the larger argument here is, if we are already providing multi-millions to protocols for growth via incentives, we should at least capture some potential upside (beyond increased fees) by holding their tokens in the hundred thousands in case the incentive program works and they shoot off into stratosphere
Beyond increased sequencer revenue, how else do you propose capturing value from successful incentive programs for dapps on arbitrum? what other potential avenues are there (beyond ARB) for creating at least the possibility of outsized returns in our treasury?
That’s why we are having several meetings, working groups, and the current detox season: to have a better structured incentive program.
I’m probably wrong, but I don’t see how swapping tokens and having them locked for at least one year does provide sustainability for an interested protocol. Helping with marketing, incentives, security, etcetera, does.
Just as a thought exercise: Why would Camelot or GMX apply for this Program?
Do they want more ARB to participate in governance? (for the 1st year) Maybe
Do they want the Arbitrum DAO involved in their governance? (when it exists) I’m not sure
Do they believe that ARB will outperform their own token in 1 year, so this swap makes sense? Also, not sure on that one.
In short, my thoughts are that token swaps can be one of the tools used for an upcoming incentive program if it makes sense. As a standalone proposal, it doesn’t seem so.
I really second this. From the standpoint of protocols, with the current conditions (ie: lock, sell after 1y only in 10% tranches) it doesn’t make too much sense.
Beside this, mobilizing the tokens from the dao standpoint is quite complex. First, we are talking about coins that have a relative low cap and relative low liquidity. GMX, the biggest of the pack, has a 250M cap, with around 20-25M in liquidity in dexes (eyeballing, non precise number, don’t @ at me).
Even just advertising in 1y that the foundation is mobilizing whatever amount of gmx to be sold would be likely have some effect on the market.
If i look at camelot, having an 18M cap, the effect can be even bigger.
And all other native projects have likely an even lower market cap.
I don’t see this being feasible tbh. I think it would be way better for the DAO to be able to invest in the protocols. We need a legal entity to do so, but we are getting there with the opco.
I agree that it does not make for a proper treasury diversification, but it enables a series of positive feedbacks:
I think the new operational budget proposed is much more reasonable, even though as the used cars salesman that is my inner animal spirit, i am always worried when i see somebody slashing 40% of their ask without blinking.
Thanks for the feedback!
Arbitrum DAO should indeed have a token swap program, to expand the types of ecosystem support we provide projects on our chain. Projects should know that by building on arbitrum, they can avail of plural forms of support from the DAO all the way from small grants via questbook, larger liquidity incentives, DAO as their customer (STEP) all the way up to a token swap.
The earlier implementation budget of 200k ARB was based on having to make 10-18 deals. The reduced scope to 130k ARB is for a smaller amount and number of deals. While not perfectly linear, the workload is definitely less with fewer swaps.
Thanks for sharing your perspective @jameskbh @JoJo @ggmatch
The program aims to provide a supplement/alternative to solely distributing incentive rewards in ARB to protocols.
Token swaps as an ecosystem development tool are primarily focused on long-term, bidirectional economic and influence alignment.
From my perspective, the Treasure DAO Saga is the perfect example of why we should iterate on our tools and experiment with Token Swaps. Treasure received 8M in ARB airdrop and sold nearly everything. Without any ownership in Treasure, A. Arbitrum DAO had no leverage or influence in them jumping to another ecosystem, and B. It has 0% upside in their future success (although if they continue to grow, it will be largely because of their early rewards and growth on Arbitrum).
I’m convinced that progressing with a (small) pilot now can significantly impact the future of the Aribtrum DAO. Not only can the Token Swaps play a role in the future of Ecosystem Incentive programs, but they can also play a role in Orbit chain development.
The reduced scope of only focussing on the top protocols with a swap budget of 2M ARB means there is significantly less risk (as these protocols are also more mature), and the pilot’s operating costs are also lower.
If some stakeholders feel willing to support the pilot, I’ll update the draft with the new numbers and some extra info and start a new thread to move that toward a vote in the coming weeks!
We agree that token swaps can be a valuable tool for building strategic relationships. However, they should not be viewed solely as a substitute for incentive programs. Instead, this approach should be integrated into a broader framework that includes both treasury management and spending strategies, ensuring a holistic and balanced financial plan rather than a standalone initiative.