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

[Common_Tater]

Thank you for the very well thought out and detailed proposal.

I think this addresses the concerns many have had with the results of the first round in the most effective and timely way possible. Restarting a new round would be time consuming for everyone involved, taking valuable time better spent developing. It would also skew the advantage in favour of the first round ‘winners’, when the intent is to benefit the ecosystem as a whole.

It’s clear these projects were intended to be funded, as they received enough votes to be in favour. It only makes sense that this intention is realized by extending the grant.

[theiaresearch]

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.

[Penpie]

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

[Seraph]

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.

[Djinn]

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.

[svenska]

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

[mint_cloud]

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

[mint_cloud]

@Viperr

By concentrating exclusively on round 1 applicants for the extended budget, we might unintentionally sideline potential candidates who were gearing up for round 2 or those who missed the first round. It’s imperative to ensure adaptability in our approach. Delegates and ARB token holders, after observing the outcomes of round 1 allocations, might have a renewed perspective on which projects truly merit the funding. Their evaluation criteria might have evolved, or they may now identify a previously overlooked candidate as more deserving.

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)

[deBridge]

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.

[SavvyDAO]

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. 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.

@thedevanshmehta

We recently concluded our analysis on ArbitrumDAO’s suggested spending limit for Q4 2023. We project there to be minimal price impact if the DAO limits itself to a 135-210 million liquidation until December end (of which 80 million has been already allocated).

The current proposal thus represents ~10% of our budget for this quarter and is a good utilisation of funds in my personal opinion.

[ArbOG]

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.

Extension of Arbitrum’s Short-Term Incentive Program

Very bad take, we’ve dropped the ball on not forecasting properly demand for STIP in terms of total ARB required. We’ve allowed for backroom deals and most delegates-connected protocols to meet the threshold and get funded. Arbitrum is not 29 projects. If swift extension with round 2 doesn’t get voted in, it will be catastrophic to rest of the ecosystem projects that can’t compete with others due to zero sum game. You should know better Matt, you guys specialize in research right? How about some…

[chefmaroon]

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.

[GFXlabs]

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.

[Griff]

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?

[Viperr]

@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.

[Blazar]

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.

[Djinn]

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

[AbdullahUmar]

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

@AbdullahUmar

Proposal to Backfund Successful STIP Proposals

Vote: For

Distributing 50M worth of rewards for STIP round one was really based on arbitrary consensus by the DAO. Since nothing of this magnitude has previously been conducted across any DAO, it was difficult to decide how much capital should be allotted to this type of program. We, along with many others, were surprised by the number of proposals. One can argue that the 50M allotment was anticipated for a smaller number of participants, and now, back funding is our way to compensate for the unprecedented number of successful applications.

Another consideration is recognizing that the most well known protocols attracted the most voting power. This is in part due to heuristic voting–people just vote for entities that they’re familiar with. Another factor is network–larger protocols typically have more sway over the decision-making of delegates. Since not all delegates made it a priority to help fund up-and-coming protocols, back funding those smaller projects seems reasonable.

Plus, it’s too soon to conduct a round two of STIPs. The next best step would be to observe and analyze the efficacy of the current STIP round. We don’t want to go through another round of voting so soon for the protocols who didn’t make the cut. Back funding is the less operationally intensive alternative.

[cattin]

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.

[Curia]

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.