Proposal [non-constitutional]: Injection of funding to the Arbitrum Research and Development Collective

Proposals
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Abstract - The ARDC has faced challenges due to the significant drop in the price of ARB tokens, reducing the purchasing power of their initial funding from $3.06M to less than half. Initially, the community was hesitant to sell ARB tokens, resulting in the decision not to convert them. As a result, the remaining funds are insufficient to cover the planned six-month term. The ARDC is requesting an additional 1,200,000 ARB to support operations through August and September, ensuring they can fulfill their mandate. Any surplus funds will be returned to the ArbitrumDAO Treasury.

Rationale - The Proposal aims to ensure that the ArbitrumDAO satisfies its payment obligations to ARDC members that were duly elected by the ArbitrumDAO.

Timeline - The proposal will move to a Snapshot vote on the 25th of july.

Overall Cost - 1,200,000ARB

Request for Additional Funding for the ARDC

[1] Background

Following the establishment of the Arbitrum Research & Development Collective (‘ARDC’) for an initial 6-month term, we have encountered challenges due to the price fluctuation of ARB tokens. In the proposal passed on Tally and executed on 25-Jan-2024, 1.76M ARB was transferred to the multi-sig wallet worth approximately $3.06M USD at the time (with ARB priced at around $1.74). Currently, the price of ARB is approximately $0.75, resulting in a significant reduction in the purchasing power of ARB, now valued at less than half its original amount.

At the time, there was community hesitance in relation to OTC’ing the ARB supplied to the ARDC. Hence, this was not done to respect the community sentiment at the time.

ARDC Members currently get remunerated accordingly as per their election that was held via Snapshot:

  • Delphi [72k Worth of ARB/month];
  • Blockworks [72K Worth of ARB/month];
  • Chaos Labs [53,333 Worth of ARB/month];
  • L2Beat [50k ARB for the entire term, in monthly tranches];
  • OpenZeppelin [125,000 Worth of ARB /month].

Due to this volatility, the 1.76M ARB is insufficient to fund the ARDC for its full 6-month term. Currently, the multi-sig wallet holds 163.32k ARB priced at $124,000. To address this, we propose an injection of over and above the original amount requested, which will help fund the ARDC through August and September. This additional funding will enable the ARDC to fully execute its program as originally intended.

Any excess ARB which will not be utilised will be returned to the ArbitrumDAO Treasury.

[2] Proposal Details:

Additional Funding Request: We request an additional 1,200,000 ARB to supplement the existing funds used to support the ARDC.

Return of Surplus Funds: Any surplus funds remaining after the completion of the ARDC’s term will be returned to the DAO.

[3] Conclusion:

The ARDC’s primary mandate aligns with the strategic priorities of the ArbitrumDAO, particularly in terms of governance optimization, risk management, research, and security. By providing additional funding to the ARDC to compensate for the negative price movement of the ARB token, the ARDC will be able to fulfil its initial mandate as originally intended.

2 Likes
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Hi @Immutablelawyer, thank you for your post.

I would like to point out that the amounts stated in the ARDC’s Tally proposal are all denominated in ARB, rather than USD

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Hey @raam ,

This refers to the caps that were voted for each vertical (ARB amount to not be exceeded). At the voting stage, the DAO voted in favour of service providers which denominated their asks in USD, payable in ARB (as can be seen from the application Forum Post here: Arbitrum Research & Development Collective: Elections & Applications).

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yes, I have seen that. However, isn’t the Tally proposal meant to act as the ultimate source of truth?

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It is the ‘ultimate source of truth’. Service Providers that applied at the time of the elections did not exceed the caps voted in favour of by the DAO. The Tally proposal also provided that the choice of who the Service Providers (and ancillary terms thereof) would be effected via Snapshot (and they were).

There is no issue here w/the proposal text, elections or otherwise. The issue is that, at the time, as proposers, we faced backlash for even suggesting to OTC the ARB. Now, ARB has gone down by circa 2.5x since the proposal.

This injection is necessary to satisfy our legal obligations to these service providers and to effect their payment.

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Thanks, I appreciate the context. Could you kindly share where in the Tally proposal it states that ancillary terms are agreed on snapshot? I can’t seem to find it.

Based on the original ARDC tally proposal that was passed by the DAO, all payments to the Security, Risk, Research members, and the DAOadvocate are denominated in ARB, and these terms were clearly on the agreements that the elected members signed with the Foundation as well.

That said, it is completely up to the DAO’s discretion on whether the ARDC should be further funded… I’m just making sure that we get the facts right

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"4. Member election (7 business day period following end of Amendment Period):

A Snapshot with rank-choice voting will be put up per vertical including the list of all eligible candidates:

  1. Snapshot for DAOAdvocate election;
  2. Snapshot for Risk Management-Oriented Member election;
  3. Snapshot for Security-Oriented Member election;
  4. Snapshot for Research-Oriented Member election."

Naturally, delegates reviewed the applications that contained the USD Denominations, and voted accordingly.

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Considering the initial ARB amount allocated to the ARDC was 1.7M ARB, allocating an additional 1.2M ARB as suggested here would mean almost doubling the costs of the ARDC initiative for the Arbitrum DAO. While I believe the DAO should be prepared to sustain unforeseen expenses, the scale seems excessive.

The lack of consistency between the Snapshot vote and the Tally vote is what creates the problem. I personally understand both positions, but I think publishing the Tally vote indicating the ARB amounts implies involved parties acknowledging the volatility risk.

Perhaps we could find a middle ground where both parties absorb part of the negative volatility impact.

2 Likes
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Hi @alicecorsini ,

It isn’t doubling the cost, as the costs are in USD (cost remains the same from a USD Denomination perspective). It’s just satisfying the payments of service providers that delegates voted in the ARDC as per the fee schedules.

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It is almost doubling the amount of ARB allocated to the initiative. Initially, it was 1.7M ARB. If we were to add 1.2M ARB, the total amount allocated to this initiative would be 2.9M ARB.

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Doubling the amount of ARB yes, yet we have no control over market dynamics unfortunately :slight_smile: (neither do the service providers).

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I think we need to come up with some initiatives to help minimize risks like this. Right now, DAOs are the ones bearing the risk. If the price drops, we need to spend more, but if the price goes up, the receiver benefits without having to return the excess amount to the DAO.

I suggest setting up a pool of ARB specifically for payments. We could establish a multisig to handle payments at the end of each month. This approach would help in this case and with future initiatives.

2 Likes
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Ideally @Englandzz_Curia , the ArbitrumDAO would work on a remuneration policy so that it’s not haphazard and piece-meal in its approach when remunerating. OTC’ing all funds is always the most ideal solution in such cases as it completely eliminates any down-side risk (lest we forget though that sometimes, you request 100$ worth of ARB at the on-chain voting stage, and by the time that vote passes, it’s 95$ worth of ARB). An ideal remuneration policy would be enshrined in the Constitution as a best principle approach in my opinion so that there’s consensus around its adoption and ratification as well.

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The real solutions here is service providers must be invoicing in ARB if they are getting paid in ARB imho. If they want to get paid in stablecoins then the DAO needs to be buying stablecoins or borrowing against our assets to get some. If Arbitrum DAO was a company it would be able to finance these efforts easily with loans and lines of credit. We’re giving away our upside.

1 Like
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It’s an unenviable situation to be in, and if i remember right didn’t Questbook did also ask for (and receive) additional funds due to the ARB price drawdown?

I have one question and a comment on this proposal;

  • If the ARB price had gone up, would the excess funds have been returned to the treasury or utilized by the ARDC members?
  • There is an unhealthy dynamic where providers ask for more ARB when the price is low to fulfill their duties, which results in even more ARB flooding the market, which causes the price to drop further. We need other avenues to break out of this cycle

Curious to hear from the ARDC members themselves, especially the DAO advocate, on what the situation is and the right course of action here.

4 Likes
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Questbook did ask for additional funds but this hasn’t materialized as proposal yet.
Also i would like to notice that the drawdown we had, in questbook, was not due to us holding arb in our treasury: the change in price of arb happened, drammatically, during the tally vote. Which means, when the vote started we did request the amount of ARB necessarily to cover the $4M of the program plus some more for the buffer, and by the time the vote ended it was way below that value. It would have been impossible for us to hedge, sell or do any action to materialize the $4M we needed, unfortunately.

2 Likes
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Yes, as per the proposal, all excess and unutilised ARB would naturally be returned to the ArbitrumDAO Treasury (Even with this proposal);

Re. the above, it’s a multi-faceted issue that spans across various tasks currently being worked on by certain contributors [i] Lack of Treasury Diversification, [ii] lack of a consensus-based remuneration policy (coupling USDC/USDT payments w/locked ARB/ARB Voting power which is an idea that @Sinkas came up with in ETHcc, [iii] There is also an issue w/the ARB voting power during the Tally vote - will be having a chat w/Tally re. whether it’s possible to use Oracle-based pricing to extract a USD-Amount from the Treasury, as opposed to a fixed ARB amount which is subject to USD-Value fluctuation.

1 Like
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This appears to be a failure to effectively manage the treasury for the ARDC initiative. All organisations with cross border employees and service providers deal with this challenge and there are well understood FOREX strategies to avoid financial missmanagement.

My understanding is that the service provider contracts were denominated in USD (why was this not simply denominated in ARB?) while the treasury simply held the ARB (hoping/assuming the relative price would stay the same or go up). Once the ARB was recieved on 25 Jan 2024 the ARB should have had a strategy in place to manage for market fluctuations (its not uncommon for crypto currency to be volitile). A simple and prudent strategy would have been to convert to USD stables in order to meet the requirements of the inititive - note: other more complex treasury mgmt solutions could also have been used goven the supporting derivatives markets for ARB and USD stables. Subsequently, at each monthly payment the USD stables in the treasury should have been used to buy ARB back from the market and pay the service provider.

The failure to manage the treasury against the budget is the issue here which I would like clarity on how this situation has arisen, why it has taken till the treasury is unable to make the next payment to attempt to resolve and how it would be managed should the requested ARB be approved for continuing the program?

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I think we’re conflating two things here:

  1. I do agree that we currently lack optimal treasury management; yet on the bright side, there is currently a proposal up on the forum w/ @karpatkey and @gauntlet to tackle this issue which I agree has plagued our operations for the past year a bit. Hence, I agree, yet this will hopefully be worked on should the DAO implement this well-needed initiative.

  2. The asks were not denominated in ARB because this would not have attracted the high quality service providers that we actually did attract. At the end of the day, they have a business to run and expecting SPs to take downside selling pressure (i.e. not knowing whether they will get paid 100$ or 70$ is naturally not ideal). On the bright side, most SPs (if not all) have actually not sold their arb - yet this is their decision, and it’s unfair to force it on them.

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Hi @plizo , thanks for your comment.

To confirm, all service provider contracts with the AF were in fact denominated in ARB, pointing to the Tally proposal (Tally | Arbitrum | [Updated] Proposal to Establish the Arbitrum Research & Development Collective) where everything is denominated in ARB.