Proposal to Backfund Successful STIP Proposals (Savvy DAO) [FINAL]

We are fully supportive of this proposal as written. We believe that reaching some solution for the backfunding issue is critical to the Arbitrum ecosystem and believe this particular proposal has done excellent work in balancing what is essential and what is practical to put forth a workable solution.

Savvy DAO has done an exceptional job putting this together We have been involved in this process and cannot adequately express the amount of work and thought put into this proposal. Savvy has spoken to every stakeholder and considered all arguments with an open mind. I believe they have sincerely tried to be unbiased and taken precautions only to accept arguments supported by compelling analysis. I believe the process alone is an example of well-intentioned and thoughtful DAO governance.

Arbitrum lives by the strength of its small teams. The Arbitrum delegates were impressed with and supportive of the teams that passed the initial round with a quorum but were excluded due to the 50M cutoff and small print that explained how that cutoff would exclude teams with fewer votes.

There are many reasons to backfund these ~30 projects:

  1. These are primarily the smaller and Arbitrum native teams that governance wants to support. I believe the proposal above has given substantial evidence around this point.
  2. An untested voting process meant that political relationships were a decisive factor in the initial STIP vote. We should expect this type of political imperfection in a young DAO. However, we should not let an imperfect political process lead us to a self-inflicted wound
  3. We should be happy the program was such an unmitigated success. I have not seen the Arbitrum governance and community so alive in a long time.

Backfunding the STIP is cheap. It’s entirely normal for companies and ecosystems to spend to strengthen network effects. Arbitrum is worth $10B FDV — Spotify, Uber, Twitter, Netflix, and Amazon were all spending significantly over $1B per year when they were at $10B.

In this proposal, we are spending a marginal $25M to repair a situation that is disproportionately hurting small, hardworking teams that are the lifeblood of Arbitrum’s ecosystem and network effect. Please do not underestimate how hard it is for a small team to compete with a larger project that has a large amount of incentives. As one example, we estimate that GMX’s $12M of ARB incentives will lead to between $15B and $25B of incremental volumes. How can a small team compete for those volumes if they don’t have incentives because we are waiting to see the data from the first round?

What matters for Arbitrum is the demand story. Investors want Arbitrum to bring on more teams, community members, investors, and customers. Investors want to see Arbitrum grow transactions and volumes. They want to see Arbitrum’s network effect strengthened. They want Arbitrum to regain and retain its title as the undisputed leader of defi built by small, decentralized teams.

Instead, if ~30 small Arbitrum teams feel disenfranchised by the political process (and a few of these teams shut down because they can’t compete with large teams that have a few million of ARB to spend) then Arbitrum will become a less interesting place to invest.

Arbitrum has a golden opportunity to regain its position as the undisputed leader in defi after falling a bit behind Optimism (in large part due to intelligent allocation of OP incentives). It can do this as market volumes and volatility are coming back, which is lucky. We should be focused on giving this our best shot at a reasonable price. It doesn’t really matter if Arbitrum spends 25, 50, or 75bps of FDV (e.g. 25M ARB is 25bps of Arbitrum FDV). What matters is that the program works to attract teams and users that can drive innovation and strengthen Arbitrum’s network effects.

Theia is highly aligned with the Arbitrum ecosystem. We have investments in Arbitrum, GMX, GNS, GMD and Trader Joe. After meeting with a lot of the teams that stand to be left out in the cold by this proposal, we also have an emotional investment in the outcome of this vote.

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The Magpie Ecosystem supports this initiative and the provision of back-funding for successful STIP proposals.

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What happens to potential projects who did (or were planning to) apply for round 2? This proposal seems to give an unfair advantage to projects of round 1, as they get indiscriminately included in this possible extension of grants. It’s possible that delegates who voted in round 1 would prefer other candidates of round 2, but they don’t seem to be able to voice their opinion through the structure of this proposal (other than of course not voting in favor of it).

There was another discussion in Grants Discussions where it was proposed that the program should be extended for a round 2, where projects who didn’t make it in round 1 would have to re-apply along with projects who planned to apply in round 2, which has many opinions in favor.

So the voting options for delegates of this proposal could be:

  • Back-fund STIP Round 1
  • Create a new Round 2
  • Keep original terms

The drawback of course would be that it would create some overhead once again for reviewers, delegates etc.

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Round 2 isn’t off the table because of the backfund.

If anything, this will accelerate round 2 happening, as we will have way more data to build better followup STIPs.

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I support this proposal where all of these projects already met the requirement of STIP-1.

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I thought this was being discussed in Extension of Arbitrum’s Short-Term Incentive Program

As stated there I will vote against it as I believe we should
Option 1: Continue with round 2. Continue with the existing program structure where we hold a round 2, everyone from round 1 who had not qualified can retry in round 2. Supporters - @limes @DanThales @mint_cloud @deBridge

Selfishly we from matcha.xyz were awaiting round 2 to apply and find it not unfair to not been given the opportunity to participate

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confirming that matcha.xyz was waiting for round 2 to apply so if this proposal passes won’t be able to participate until a round 2 (which does seem more difficult to be happening given the additional funds deployed for the backfund)

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Agree with this perspective. Hopefully our proposal (and many other projects) will have a chance to get voting from the community through a round 2.

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Hi @mint_cloud and @deBridge - appreciate you commenting.

STIP Backfund AND round 2 can and should exist, they are not mutually exclusive. In fact as @thedevanshmehta stated (see below) this backfund proposal is only 10% of the treasury budget for q4 - there is plenty of room for a round 2.

In fact, our STIP Inclusion working group is already working on a Round 2 proposal - the backfund proposal came out first because it is simpler. :slightly_smiling_face: The member that you quoted, @Viperr is a part of this work group and I have spoken with him several times!

Please reach out to me on TG Alexlumley - would love to add you to our work group and push forward a Round 2. :sunglasses:

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I voiced my concerns related to delaying STIP extension in post below, I do support back-funding proposal efforts led by SavvyDAO. I’m also aware of Sushi and SavyyDAO contributions to drafting round 2 funding proposal to support all projects that were not included in previous rounds and those that can’t afford extra man power to lobby delegates or follow governance process but are very valuable to Arbitrum ecosystem in terms of their KPIs ( ex. Hegic )
I command all the teams efforts that fight for projects that can’t voice themselves. It’s truly shameful to see protocols that got funded in round 1, some are also major delegates, but don’t see urgency how their lack of action can have a destructive impact on entire ecosystem.

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PancakeSwap supports this proposal to backfund the approved but not funded Round 1 projects of the Arbitrum STIP. Diversifying the list of projects that receive a STIP grant, especially for smaller players, is crucial to continue making Arbitrum a great L2.

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We feel that backfunding and a Round 2 are distinctly separate issues and the latter should not be very relevant to approval of backfunding.

Backfunding already-approved grants is a smart, defensive move that demonstrates Arbitrum can honor its commitments. This is very much like the US government’s debt ceiling debates – the grants were duly approved through Arbitrum governance and it is only because of a gap in approved funding that the grants were not dispersed.

We are skeptical of increased spending until the market digests ARB from recently approved measures. Backfunding, however, simply provides funds for those grants that ARB voters already expressed support for. Notably, this was done in an environment where large projects could utilize previous grants and airdrops to ensure they were “head of the line” by strategically voting their own large blocs.

While we would not go so far as to say approval of backfunding pays Arbitrum’s debts, it certainly signals that Arbitrum is a reliable funding partner. It would not be surprising to see a competitor such as Polygon or Optimism to choose to court these projects – which are disproportionately smaller with higher growth potential – by providing a grant to replace the one approved but never delivered by Arbitrum.

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Just to put my comment in a twitter space into the thread here…

I feel like the deadlines for STIP are just too tight :-/

It would be interesting IMO to extend the deadlines for STIP for this group AND the first group. The KYC process is taking longer than expected and it is NEVER a good idea to rush development in the web3 space. Honestly… I expect some groups to just extend past the given deadline anyway…

Is it possible to extend the deadline for distributing rewards to the end of February for these STIP projects AND the original STIP projects?

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@AlexLumley has done a great job assembling a team to work on a STIP round 2 proposal, alongside the backfund proposal.

Although I agree with you @mint_cloud that the backfund proposal is not inclusive enough and would be more in favor of something that gives others a chance to apply for, I agree with @AlexLumley that there is room for both programs.

Regardless, I urge you to reach out to Alex so you can become more involved with the STIP round 2 proposal.

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As one of the projects that would receive funding (Furucombo) if this were to pass, it’s in our best interests to align with this proposal, but there are some very good points of of consideration while trying to be unbiased.

  • The ask cost is relatively low for the remaining projects, and has the opportunity to fund more projects vs. less projects with higher asks
  • Many of the smaller projects have also designed sophisticated programs or use cases for this funding, and the impact shouldn’t be understated just because of the current size of the protocol on the network
  • A little support here goes a long way to future development. More projects funded equals more projects that will support Arbitrum in the future and put resources towards its growth.

Just a few comments from myself, appreciate all the time and dedication everyone has taken towards this discussion, its fantastic to see regardless of how the proposal shapes up.

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I think this makes a lot of sense - better for data/analysis too. Extend the deadlines for both STIP 1 funded and this backfund

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Below is the perspective of the Uniswap DAO’s Arbitrum governance team, composed of @juanbug and @AbdullahUmar:

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The @SEEDLatam delegation has decided to vote FOR this proposal at the Temperature Check.

Rationale

According to the STIP proposal, only 50 million ARB was originally allocated to support various projects within the Arbitrum ecosystem. However, this fund was quickly exhausted due to the large number of proposals received in the forum (a total of 106). Unfortunately, only the initial 30 projects that gained community approval were able to secure the incentives, leaving several other projects, that were also approved by the community, without any financial funding.

Given this situation and motivated by the insights provided in tnorm’s proposal, which highlights the DAO’s capability to unlock additional funds to backfund successful proposals, we believe the action suggested by this proposal is reasonable.

Conclusion

We support this proposal because we acknowledge that this whole process was a bit experimental, and it only seems fair to support those projects that have already been approved by the DAO but can’t fit within the budget. Going forward, though, we want to emphasize that this type of extension shouldn’t be used for future STIPs and we should formulate a solution to prevent this from happening again.

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Curia will support the Arbitrum STIP Backfund Proposal, recognizing its potential benefits while also acknowledging certain concerns.

  • Essential for Ecosystem Diversity and Growth: Back funding the ~26 projects is crucial for the Arbitrum ecosystem’s diversity and innovation. These projects represent the smaller, yet vital teams necessary for a dynamic and competitive environment. We view this as a strategic investment in the ecosystem’s future.
  • Addressing Initial Budget Shortcomings and Enhancing Future Funding: The original STIP program prioritized speed over detailed evaluation of the proposals, leading to deserving projects being underfunded. Extending funds to these projects corrects this oversight and ensures equitable support. Lessons learned from this experience are crucial for refining future funding rounds, helping to develop a more inclusive and effective approach.
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Hi all, Blue representing the Trader Joe Governance Committee.

We have cast our vote in favor of supporting the backfund with the reasons detailed below. There are, however, concerns on the implications of this backfund that need to be carefully thought about in the next steps for this proposal.

Our internal voting:

  • Vote FOR: 4 votes
  • Vote AGAINST: 2 votes

The Trader Joe Governance Committee have therefore voted in favor of supporting an additional 21.4 million ARB to be distributed among 26 more projects, thereby extending the STIP to encompass 56 projects in total. Our key reasons voting favor of supporting this are:

  • Enhanced Impact: We believe that increasing the incentive will significantly bolster Arbitrum’s growth. By extending the reach of the STIP, we can nurture a more vibrant and diverse ecosystem.
  • Support for Smaller Teams: The majority of the backfund is earmarked for smaller teams. This decision sends a powerful message of inclusivity and support within the ecosystem, fostering a nurturing environment for emerging projects.

However, in the spirit of constructive feedback and transparency, we also wish to address the reasons why a vote against the backfund could be considered:

  • There is limited clarity on the implications for a Phase 2. Concerns include whether Phase 2 might be significantly delayed and also the amount of additional ARB funding required. Voting against the backfund could necessitate a more structured approach to Phase 2, avoiding hasty decisions.
  • The concept of bankfunding sets a precedent that could be interpreted as “correcting past mistakes” by the DAO.
  • Some proposals to receive the backfund are genuinely questionable in value generation for the Arbitrum ecosystem. The backfund is a broad brush approach to splashing incentives to all within a certain voting catchment.

In conclusion, while we have voted in favor of the backfund with the intention of fostering growth and inclusivity, we also recognize a number of above highlighted concerns.

We hope this feedback will be valuable for the proposal’s next steps and for the ongoing growth and development of the Arbitrum ecosystem and how the DAO operates.

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