Proposal: Transforming Arbitrum's Financial Ecosystem – Enhancing Sustainable Growth and Innovation through SushiSwap’s Bond Program

Join Sushi for an open Town Hall meeting on 9/21 @ 17:00 UTC to discuss the contents of this proposal - link: https://twitter.com/i/spaces/1zqKVqQkjmWxB

Author: Sushi (Lead Team)

Table of Contents

  • Abstract
  • Current State of Play
  • Motivation
  • Bond Basics and Example
  • Bond Program Rationale & Benefits
  • Achieving the Expected Outcome
  • Success Fee
  • Projections
  • KPIs and Milestones
  • Process
  • Conclusion

Abstract

Summary
This post proposes that Arbitrum implement a bond program, created and operated by SushiSwap, in order to build a more sustainable model for creating and managing liquidity that is truly owned and controlled by the Arbitrum DAO.

The Why
Arbitrum has an opportunity to leverage $ARB tokens that would otherwise remain unused in the treasury to instead generate a base of deeper, healthier, protocol-owned liquidity (“POL”) and turn a portion of the treasury into yield-bearing assets.

The How
Through this bond program, a maximum of 12,500,000 $ARB tokens per quarter will be used for bond sales, up to four total quarters. Sushi will sell vesting $ARB tokens at a slight discount to users who purchase the bonds using $ETH-$ARB, $USDC-$ARB, $USDT-$ARB, and/or $wBTC-$ARB LP tokens.

The Outcomes

  • Establish $ARB as the central token used to route trades on the Arbitrum network, increasing $ARB liquidity depth, trade volume, and protocol-owned liquidity
  • Increase the liquidity depth of blue-chip tokens and stablecoins on the Arbitrum network
  • Diversify the Arbitrum DAO treasury with yield-bearing assets
  • Generate an initial ~80-90% return on emissions from bond sales
  • Achieve break-even within ~450 days, establishing passive income for Arbitrum DAO
  • Pass the value created by increased liquidity health on to $ARB holders

Background

Sushi’s team of tokenomics experts has been monitoring and analyzing the fundamentals behind the $ARB token since launch, examining its strengths and weaknesses. After months of tracking trends, Sushi has drawn important insights from a handful of key metrics.

Looking back to the beginning of June, the Arbitrum DAO had a market capitalization (MCAP) of over $1.5B USD, and upwards of $38,000,000 of buy-side liquidity on-chain. Buy-side liquidity specifically refers to the blue-chips and stablecoins (i.e. $ETH, $wBTC, $USDT, $USDC) that exist in an $ARB pairing. The reason that it is important to look at buy-side liquidity instead of total liquidity is that with the introduction of V3 pools, tokens are no longer paired at a 50/50 ratio, and the buy-side liquidity is ultimately what supports the token price.

Exhibit A


As of today, only ~$7,870,000 of buy-side liquidity exists for the Arbitrum token, with a current MCAP of ~$1B. This represents a 33% decrease in MCAP and an astounding 80% decrease in liquidity, despite a sideways market. This significant drop in liquidity in comparison to the price depreciation suggests that liquidity providers are taking their capital elsewhere. Additionally, the treasury has been decreasing in value alongside the liquidity profile and MCAP. Without a plan to recoup this huge loss in liquidity and sustainably build toward long term growth, the Arbitrum ecosystem faces even greater risk in the future.

While it is clear that action needs to be taken before this issue gets worse, replacing this $30M loss in liquidity and continuing to build from there would cost the DAO well over $30M in blue-chips and stablecoins. This option may be out of reach, however, what the DAO treasury does have access to is an abundance of $ARB tokens. Sushi believes that this $ARB can be put to work to replace this gap in liquidity with permanent protocol-owned liquidity.

Using tokens from the treasury to incentivise liquidity is not a novel idea; in fact, Sushi originally introduced this now commonly-used farming technique to the DeFi space. These primitive farming and staking methods have seen some improvement in efficiency, but are still widely being used by projects in the same way. Just like the last wave of innovation which caused the first “DeFi Summer”, Sushi is excited to continue the trend of innovation - now with a much more efficient solution, geared to Arbitrum’s specific needs.

Sushi’s analytics team has years of first-hand experience monitoring thousands of tokens in real time, observing best and worst practices on liquidity maintenance. Factors such as market capitalization, volume, and current liquidity should always be considered when determining the ideal state of a token’s liquidity profile. After conducting this research on the $ARB token, estimates suggest that given a ~$1B MCAP, around 1.9% of the MCAP should remain in decentralized liquidity, and 100% of that should be owned by the protocol. This nets to a target goal of 24,068,309 $ARB tokens in POL.

Motivation

This proposal suggests using Arbitrum DAO treasury funds to source liquidity in a sustainable and profitable way, working toward the above POL targets. To achieve this transition, SushiSwap, Arbitrum’s first DEX and a long-standing contributor to the DeFi ecosystem, proposes the adoption of proven bonding techniques. Since inventing liquidity mining in 2020, Sushi has leveraged token incentives to drive growth towards networks and projects; however, this method can only take a protocol so far. While these rewards can attract a few users and spur some growth, the effect is short-lived, leaving projects burdened with long-term costs that outweigh the temporary benefits. The proposed strategy builds upon Sushi’s comprehensive understanding of the DeFi ecosystem and a drive to address the inefficiencies associated with conventional liquidity mining. Sushi’s experience in DEX operations and expertise in sustainable liquidity solutions creates a robust framework for long-term success. These solutions not only remedy the issues of volatile liquidity, but also set the stage for sustainable growth within the DeFi landscape, supporting a healthier and more resilient ecosystem. Passing this proposal will ensure that Arbitrum’s DeFi solutions remain on the cutting edge, leveraging the latest in liquidity fundamental analysis.

DeFi started with simple DEXes and yield farms, but the industry must now shift its focus towards more profitable and sustainable solutions. In traditional finance, a basic concept used to understand profitability is “return on investment”, or ROI. Return on investment measures how much profit an investment generates in comparison to the amount of the initial investment, or simply put, net value generated over costs. This concept is easily transferable to any token economy in DeFi. This metric is called return on emissions, or ROE. One can think of ROE as the actual value that is generated for the protocol in return for each token emitted into circulation. Value can take many different forms (e.g. user acquisition, brand awareness, customer retention, cost savings, market share growth, etc.), but with liquidity provisioning, it’s quite simple: how much liquidity is generated for every dollar worth of tokens emitted?

Return on emissions is one of the most important metrics for any protocol to consider, especially if there are plans to emit additional tokens into circulation over time. Using the example of a simple yield farm, if a protocol were to emit $100,000 worth of tokens to rent liquidity, and the protocol owns no LPs, they do not make a return. This is a true expense with an ROE of 0%, as no financial value is generated for the protocol in return for the extra $100,000 of tokens entering circulation.

Leveraging bonding mechanics, Sushi and Arbitrum can redefine DeFi and massively increase ROE. Bonds offer innovative solutions to create and sustain liquidity for crypto projects of all market caps and use cases, diversifying their treasuries for long term success. Sushi plans to utilize best practices, originally inspired by Olympus, to achieve higher ROE for Arbitrum and its partners and create more profitable opportunities.

Sushi’s bonds are quite simple - a protocol sells tokens that vest over time to users at a discount relative to market prices. In exchange, instead of users staking their LPs temporarily, Arbitrum keeps their liquidity provider tokens (LPs). Bonds allow protocols to buy rather than rent liquidity, leading to an initial 80-90% average ROE compared to the traditional 0% ROE generated by yield farming. Using the same example above, if the protocol instead dedicates that same $100,000 worth of token emissions via bonds, it can generate an average of ~$80,000 - ~$90,000 initial return. Sushi’s bond program has been fine-tuned for layer 2s like Arbitrum in order to allow them to build robust protocol-owned liquidity. This will be discussed in length throughout this proposal.

The primary benefits of the application of this strategy by the Arbitrum DAO, in collaboration with Sushi, are:

  1. Dramatically increase the liquidity depth of blue-chip tokens such as $ETH & $wBTC on the Arbitrum network
  2. Increase the liquidity depth of $ARB on the Arbitrum network
  3. Diversify the DAO treasury with yield-bearing assets and blue-chip tokens
  4. Turn the idle $ARB tokens into a profit center
  5. Attract and serve more developers to build on the network

Since launching on block 70, Sushi has been a staunch supporter of the Arbitrum ecosystem, making it the perfect arbiter for this strategy. Sushi is a premier DEX, facilitating over $268 billion of total trade volume, $17 billion of which has been on the Arbitrum network. With thousands of tokens to trade, and one of the most capable bridges enabling transactions from other chains, it’s no surprise that over 100,000 users interface with Arbitrum through Sushi each month. This sizable, loyal, and engaged user base guarantees that the Arbitrum bonds offered on Sushi’s website will enjoy a substantial and receptive audience. Furthermore, Sushi has received 4.25M $ARB tokens via airdrop, making them a key stakeholder in the DAO’s best interest.

Exhibit B

As highlighted in Exhibit B, it is important to clarify that this proposal does not advocate for distributing tokens without receiving value in return, as seen in the Liquidity Mining section marked in red. Instead, it proposes a calculated strategy whereby a fraction of the treasury is allocated to yield-bearing LP tokens, transforming these $ARB tokens into a source of passive income for the Arbitrum DAO. This approach is projected to generate approximately $6.5 million in profit for the Arbitrum DAO within a two-year timeframe, factoring in three renewals.

Bond Basics and Example

Bonding liquidity offers a superior solution to many challenges typically faced by L1s and L2s, especially when it comes to treasury diversification and sustainably sourcing liquidity for the network and its respective token. Bonding liquidity, when juxtaposed with the extractive and short-lived liquidity mining strategies employed by L1s and L2s in the past, effectively addresses the challenges that these protocols face. As a result, it is a useful strategy for aligning incentives between users and protocols.

In traditional liquidity mining, protocols must spend their own tokens as rewards for users, incentivizing new liquidity into the liquidity pools. Most of the liquidity providers contribute to these yield farms primarily with the expectation of receiving token rewards, as the standard fees for holding most tokens’ LPs are minimal. Once these token rewards cease, most of these liquidity providers flee the system in search of other opportunities for yield. Often referred to as ‘mercenary miners,’ their primary focus is on generating profits, and their engagement is typically fleeting, leaving the protocol vulnerable to rapid fluctuations in liquidity and token price.

For example, consider a hypothetical project named Pineapple, with a native token called $PINA. The following section explores how this project might approach liquidity sourcing through traditional liquidity mining compared to Sushi’s innovative bonding approach:

Example 1 - Traditional Liquidity Mining (“The Death Spiral”)

  1. Pineapple secures a traditional liquidity mining partnership with a DEX or yield farm
  2. Pineapple allocates $100,000 USD worth of $PINA to be given away to stakers of the DEX/yield farm token in a staking pool (e.g. a Syrup Pool)
  3. For the duration of the pool, the DEX will create a farm where users;
  4. Pair $PINA with a blue-chip token (e.g. $BTC, $ETH, etc) or stablecoin to create a $PINA LP token
  5. Stake the $PINA LP token into the yield farm to earn the native DEX token

In theory, this would create a cyclical user base, where stakers take the rewards from one staking option, use it to stake into the other, and vice versa - creating a positive feedback loop. While yield farming can temporarily bootstrap large amounts of liquidity, the pitfall with this model is that it requires an unrealistic amount of capital to maintain, which leads to rampant inflation. Since the protocol is spending tokens to source liquidity, but never actually ends up owning any liquidity, it is forced to rent it in perpetuity. This, in turn, puts unnecessary sell pressure on the token, which (all else equal) results in a lower price. As a result of the decrease in token price, token emissions are now less valuable. In order to maintain the same dollar value of rewards and stop users from removing their liquidity, the project has to give away more and more tokens. This process is what industry experts refer to as a “death spiral”, as seen in Exhibit C below:

Exhibit C


Bonds offer a solution to this “death spiral” challenge. Unlike the traditional method of temporarily renting liquidity from short-term, profit-driven miners, Sushi creates an environment where the protocol can actually buy the liquidity for itself, promoting a positive growth cycle. While this may sound complicated, the process is, in fact, quite simple.

Example 2 - Bonding For Long-Term Liquidity (“The Positive Flywheel”)

  1. Pineapple secures a bonding partnership with Sushi
  2. Pineapple allocates the same $100,000 USD worth of $PINA to be used for bonds
  3. For the duration of the bond sale, Sushi will create a program where users;
  4. Pair $PINA with a blue-chip token (e.g. $BTC, $ETH, etc) or stablecoin to create a $PINA LP token
  5. Trade the $PINA LP token for single asset $PINA at a discount to the spot price
  6. The tokens purchased at a discount are then wrapped and placed inside of a bond NFT minted to the end user
  7. The discounted tokens can be claimed from the bond NFT according to their vesting schedule

This way, the Pineapple protocol is able to receive a financial return on the tokens they spend on liquidity mining, as opposed to giving them away for free to those that are providing liquidity temporarily. One of the primary benefits is that bonding products see an average initial ROE of 80-90%. In other words, for every $1 of tokens a protocol invests they are receiving about $0.85 of liquidity in initial return. Compared to the ~0% ROE that a protocol receives in traditional liquidity mining, this approach is unquestionably more beneficial.

When a protocol owns their liquidity, they are able to kickstart a positive flywheel with numerous benefits. As seen in Exhibit D below, the process is straightforward, and once it begins, it is easy to continue. It all starts with the protocol taking their liquidity health seriously by initiating the journey towards owning their own liquidity.

To achieve this, protocols can utilize bonds to sell their native tokens in exchange for LP tokens. This causes the liquidity pool for the native token to permanently deepen, because the liquidity is now owned by the protocol and earning trading fees. In tandem, the protocol’s community is strengthened as the token itself is more liquid and they can trade it with less slippage. A stronger community leads to organic marketing, which leads to growth as a larger user base becomes interested in the token. The protocol can “rinse and repeat” this process, allowing the treasury, community and the liquidity to grow simultaneously.

Exhibit D

Bond Program Rationale & Benefits

Thanks to substantial funding and a robust user base, Arbitrum’s unique position offers the potential to scale to new heights in the Web3 space. By leveraging bonds on Sushi, the Arbitrum DAO will be able to accomplish the following:

  1. Dramatically increase the liquidity depth of blue-chip tokens such as $ETH & $wBTC on the Arbitrum network
  2. Increase the liquidity depth of $ARB on the Arbitrum network
  3. Diversify the DAO treasury with yield-bearing assets and blue-chip tokens
  4. Turn the idle $ARB tokens into a profit center
  5. Attract and serve more developers to build on the network

This benefits the overall ecosystem by aligning incentives between the Arbitrum DAO, $ARB holders, and those building on the network itself. In short: everybody wins. The DAO wins because it is able to diversify its overexposed $ARB holdings while strengthening $ARB liquidity. The token holders win because they are able to either hold an asset with deeper liquidity and stronger price support, or leverage bonds to accumulate a larger amount of tokens at a discount. Protocols building on Arbitrum win because they are able to gain access to these same liquidity mining strategies by working with Sushi.

By diversifying the treasury with $ARB-based LPs, Arbitrum DAO turns the $ARB tokens into yield-bearing assets. LP tokens accumulate trading fees over time, automatically growing the LP position, and as the TVL on Sushi grows with this strategy, the trading fees received by Arbitrum will increase as well (as shown in Exhibit E). Passing this proposal will lead to the Arbitrum DAO becoming the largest individual provider for blue-chip $ARB token pairs on the network. With that, what may start out as an 80% - 90% ROE will eventually exceed 100% due to the yield that the LP tokens will generate, as displayed in Exhibit F.

Exhibit E

Exhibit F

The Natural Demand of Bonds vs Yield Farms

In this context, a key question arises: What happens to $ARB tokens if bonds go unsold? The answer is simple - Arbitrum reclaims all unsold tokens, resulting in no impact. Bonds entail minimal risk compared to yield farming.

In traditional yield farming, smart contracts distribute tokens based on staked assets. For instance, if a farm has $1,000,000 in token incentives for a month, and only $1 in LPs is staked, that provider receives the entire $1,000,000. Bonds, on the other hand, reward tokens only when a user purchases a bond. $ARB tokens incentivizing liquidity enter circulation only when users contribute enduring value to the ecosystem.

For a concise summary of bonding advantages over yield farming, see Exhibit G below.

Exhibit G

The Expected Outcome

According to extensive analysis, the expected outcomes are: all available Arbitrum bonds net an 85% average ROE (or higher), the value of the LP tokens accumulate trading fees to generate over a 100% return, and the entire program becomes profitable in approximately 450 days assuming all KPIs are met. If all prices of assets stay constant, Arbitrum will get more value out of the program than it puts in, establishing an extremely stable liquidity foundation for the $ARB token, diversifying the treasury with a yield-bearing asset and setting up the token for the positive flywheel.

Achieving the Expected Outcome

Sushi is confident Arbitrum can achieve the expected outcome. Step one will be leveraging the $ARB tokens that the Arbitrum DAO has set aside to help grow the network by bonding them in exchange for $ETH-$ARB, $USDC-$ARB, $USDT-$ARB, and $wBTC-$ARB pairs, according to the table below. These bonds will be available for purchase on Sushi’s website, and the LP pairs acquired through the sale of those bonds will serve as the foundation upon which Sushi builds its entire DEX liquidity on Arbitrum. Placing $ARB as the central routing token will aid in providing a more stable floor price for $ARB in addition to stimulating volume by creating more efficient trading pathways. Simply put, more trades will be routed through $ARB than any other token. This construct is illustrated in Exhibit H below, emphasizing the core focus of the $ARB token.

Exhibit H

Sushi selected these pairs based on which ones had the highest liquidity-to-volume ratio across all DEXs on Arbitrum, and they can be adjusted up or down based on real-time data. This proposal will have a bootstrapping effect on Sushi for Aribitrum, further establishing Sushi as a multi- and cross-chain liquidity hub for all of DeFi. The Sushi team is actively building infrastructure to scale that model. Note: these POL targets are based on the current price of $ARB at the time of posting, and may fluctuate with market conditions.

As part of this proposal, Sushi will make ongoing bond progress analysis available before the start of each quarter to optimize $ARB token allocations and meet the goals outlined above. This means that instead of assuming success and allocating the full amount all at the beginning, the first installment will begin with 12,500,000 tokens, adjusting each sales period based on real time data. Public status reports will be provided by Sushi so that anyone can track the progress towards the goals specified within this proposal.

As noted in Exhibit H above, Sushi’s analysts purposely place $ARB as the center of the ecosystem’s trade routing. As a result, all bonds are paired with the $ARB token, allowing for an $ARB token clawback on every pair. These bonds claw back up to 50% of the $ARB tokens emitted, depending on the ROE. This clawback rate refers to the amount of $ARB tokens emitted vs. $ARB tokens returned through permanent protocol-owned liquidity. Using the average ROE of 80-90%, Arbitrum would retain approximately 40-45% of $ARB tokens emitted as POL, with the other 40-45% coming back in the form of blue-chip tokens and stablecoins. This results in the Arbitrum Foundation clawing back almost half of the ARB tokens allocated to this proposal into permanent liquidity.

For example, with an average ROE of 85% on a $100,000 budget for bonds, a project would expect a return of ~$85,000 in liquidity. That $85,000 in liquidity would typically hold $42,500 of each token within the pair; therefore, the protocol would average a token emission clawback of 42.5% per bond sale. With traditional liquidity mining, the average token emission clawback is ~0%, because no tokens are taken out of circulation.

With this in mind, the proposed $ARB allocation of 12,500,000 per sales period will only result in an increase of 7,187,500 tokens in circulation, whereas the remaining tokens will be clawed-back into the LP pairs being bonded. Over the course of one year, this will result in a token emission clawback of approximately 21,250,000 $ARB tokens into the LP. When factoring in naturally occurring LP trading fees (see projections section below for a deeper explanation) the clawback increases to approximately 26,500,000 $ARB as shown in Exhibit I below.

Sushi takes an analytical approach when it comes to bond programs to ensure a premium result; and the 12,500,000 $ARB token allocation per sales period comes from this comprehensive analysis. As noted above in the example using an 85% return, Arbitrum would net 21,250,000 $ARB tokens in DeFi liquidity after four consecutive sales periods, getting very close to the current goal of 24,068,309. An important factor to keep in mind is that a stronger liquidity base sets the stage for price appreciation through the positive flywheel. As the price of the token increases, the MCAP naturally follows, thus the $ARB POL target mentioned above would grow as well.

Exhibit I

Success Fee

Sushi stands poised to reap the rewards of every bond sale’s success through a dynamic success fee structure, mirroring the familiar approach seen in conventional capital fundraising. While the traditional financial landscape often imposes fees that can soar as high as 20%, Sushi takes a more investor-friendly stance with a modest 5% success fee. This alignment of incentives between Sushi and Arbitrum underscores the shared goal: to strategically amass the maximum amount of protocol-owned liquidity with the highest possible efficiency. The success fee contributions from LPs will accumulate securely within a dedicated multi-signature wallet on the blockchain. It is worth highlighting that these fees are applied after bond sale collections (i.e., they do not come off the top).

Projections

The end result of this proposal is the addition of LP tokens into the Arbitrum DAO treasury. LP tokens are yield-bearing assets that naturally accumulate trading fees within them. For example, Sushi’s DEX operates with a standard 0.3% fee on every swap, of which 83.3% is reinvested directly into the liquidity pool tokens themselves, causing them to grow in value over time. Since these assets will grow, the Arbitrum DAO will eventually achieve above 100% return on this proposal! Based on the analysis, it is projected that the Arbitrum DAO will break even and turn profitable in ~450 days assuming all KPIs are met.

The following constants were used to determine the above projections::

  1. No price fluctuation of the $ARB token
  2. All market data for the $ARB token was taken into consideration except the first 10 days of the token’s history, as new tokens typically see above average volume
  3. The bonded LP tokens are not unpaired and continuously accumulate trading fees
  4. A net 85% ROE is achieved.

Exhibit F above and Exhibit J below outline the break-even point and demonstrate how the Arbitrum DAO stands to turn the allocated $ARB tokens into a profit center.

Exhibit J

KPIs and Milestones

To ensure quantifiable measures of performance the following is proposed:

Strategy Alignment:

  • Structured approach to governance renewals to streamline the process when success is proven via a predefined KPI
  • Flexible for up to three renewals of 12.5 million $ARB tokens each, one every three months or when the previous allocation is depleted

Key Performance Indicators (KPIs):

  • Maintenance of a minimum gross Return on Emissions (ROE) of 80% throughout the sales period.
  • ROE is assessed at the time of each individual bond sale, and independent of price volatility.

Controls and optimization:

  • Active oversight of liquidity profile and bond performance.
  • Initial configurations completed no more than 48 hours before deployment.
  • Status update a week before the sale is expected to end with all relevant data and next sales period’s requested allocation.
  • Variables such as Bond Control Variable, Max Debt, and Max Payout adjusted for optimal bond configuration and ROE enhancement.
  • Vesting periods for bonds considered in performance evaluations.

Process

  1. This proposal is approved by Arbitrum DAO voters
  2. A multi-signature Safe (formerly Gnosis Safe) wallet will be created to hold the initial 12.5M $ARB tokens that will be controlled by multiple key stakeholders including Arbitrum DAO and Sushi
  3. Based on initial configurations, a portion of the total allocation of 12,500,000 $ARB tokens will be added to the bond treasury smart contract, topped up as needed.
  4. Multiple bonds will be set up, each plugging into the treasury contract to facilitate bond sales for different pairs
  5. Arbitrum’s net proceeds from each sale will be instantly distributed back to the treasury wallet, configured and hard coded on-chain.
  6. One week before the three month sales period ends, a status update will be posted with all relevant data tracking the success of the program compared to the KPI.
  7. If KPIs are hit, additional $ARB tokens will be released to the multisig and the process will start again.
  8. If KPIs are not hit, unsold tokens will be returned to the Arbitrum DAO treasury and the program will stop.
  9. This process will be repeated until the renewal cycles have been completed.

Conclusion

This proposal marks a pivotal step in Arbitrum’s evolution. Shifting from traditional liquidity mining to sustainable bonding diversifies the DAO treasury with yield-bearing assets, while deepening liquidity pools. This aligns incentives among the protocol, token holders, and builders, ensuring a win-win outcome.

Introducing return on emissions (ROE) emphasizes the value generated by each emitted token. Unlike traditional liquidity mining, Sushi’s bonding method allows the protocol to purchase and own liquidity, resulting in a significantly higher ROE. This shift from a “death spiral” to a “positive flywheel” approach is vital for long-term sustainability and growth.

Strategically positioning the $ARB token as the central routing token enhances price stability and trade volume. A stable floor price and increased trading volume boost ecosystem growth and sustainability. The Arbitrum DAO is projected to break even and become profitable in ~450 days, thanks to LP tokens accumulating trading fees.

The proposal outlines a transparent process, including token allocation sales reports, adapting to real-time data and market conditions, minimizing risks, and maximizing potential.

Passing this proposal ushers in a new era of sustainable and profitable liquidity solutions for Arbitrum. It paves the way for continued growth, community benefits, and enhanced token value, establishing Arbitrum as a DeFi leader. Arbitrum DAO and SushiSwap are set to shape decentralized finance’s future, and your support is crucial to realizing this vision.

Exhibit K

9 Likes

Thank you for writing this post. I have several questions that I would appreciate an answer on:

  1. Sushi is well-known for being a multi-chain protocol. Whilst this isn’t inherently a bad thing, it makes one wonder how Suhsi has shown its commitment to Arbitrum so far? From what I have seen, Sushi is more actively pursuing Base and a multitude of other chains, hence my lack of confidence that Sushi is the best placed protocol to serve solely the Arbitrum ecosystem.

  2. I do not wish to criticise Sushi as a protocol, but objectively speaking there are several DEXs on Arbitrum that have higher efficiency, more ecosystem focus, better offerings etc. These DEXs have made significantly more progress in establishing deep liquidity for $ARB, whilst Sushi is amongst one of the lowest actively used venues for $ARB trading. What makes Sushi the best placed DEX to do this? Looking at objective metrics would place Sushi relatively low in the ranking of DEXs. Sushi’s current volume for $ARB is almost non-existent compared to Uniswap.

  3. This proposal grossly overestimates the need for $ARB liquidity. Please can you clarify the sources for the data that justify this rather huge amount of $ARB from the treasury?

  • Uniswap itself has significant liquidity depth for Arbitrum, and when taking into all of the other sources of liquidity on the chain it is more than sufficient.
  • This proposal also does not take into account the CEX liquidity profile, in which $ARB has multiple professional market makers.
  1. Please could you explain what the optimal amount of onchain $ARB liquidity is? As mentioned above, per my own calculations, there is already sufficient liquidity on the chain (even in a market that has a lack of liquidity in general).

  2. Taking a 5% success fee is incredibly high considering that Sushi would be getting “free liquidity” from the DAO, in which it would earn even further fees. If anything, Sushi should be paying considerable sums to the DAO in order to acquire such a large amount of ARB tokens, even if treated as a loan.

  3. Your criticism of traditional liquidity incentives is incorrect and hyperbolic - to call it a “death spiral” is far from fair. By using PoL, you are not necessarily attracting new users, new builders, or any further ecosystem growth; you are simply promising deeper liquidity for $ARB itself. This in turn does not necessarily result in further value generated for the ecosystem. On the other hand, incentives have a proven track record of distributing the token which increases decentralisation and growth.

  4. Have you actively been engaged with the ecosystem governance? This proposal coincides with the current “Short term incentive framework”. From what I understand, Sushi has not actively been involved with Arbitrum governance thus far.

  5. Please could you confirm what Sushi has done with the $ARB airdrop it received? From what I recall you received over 4,000,000 tokens.

  6. Would Sushi be willing to use its ARB airdrop to prove a pilot of this proposal? Even if the community/DAO supported such a proposal, agreeing to hand over such a large amount of tokens should not take place without the necessary checks in place. I would like to see Sushi show commitment to the DAO and use its ARB to prove the efficacy of this programme before making a formal proposal.

In conclusion, I will be voting against this proposal in it’s current form:

  • I do not believe Sushi is the best protocol to efficiently deliver this
  • I do not believe that this is required, onchain liquidity is already sufficient and the expected returns benefit Sushi more than the broader ecosystem, when comparing to alternative methods of distribution.
  • This translates to direct sell pressure for the ARB token
  • It is not clear how deeper liquidity for $ARB will bring in further users or expand the ecosystem, when there is already data to validate that liquidity is sufficient already
  • 5% fee to Sushi is way too much, considering that Sushi is the main beneficary of this proposal
  • Sushi should show commitment to the DAO by using its 4m airdrop ARB tokens to prove that this proposal can work on a smaller scale, before asking the DAO for a significant amount of tokens
3 Likes

First, let me say thank you for taking the time to read through the proposal :pray:

Now, I’d like to take a moment to address each of your questions.

  1. Sushi is well-known for being a multi-chain protocol. Whilst this isn’t inherently a bad thing, it makes one wonder how Suhsi has shown its commitment to Arbitrum so far? From what I have seen, Sushi is more actively pursuing Base and a multitude of other chains, hence my lack of confidence that Sushi is the best placed protocol to serve solely the Arbitrum ecosystem.

Sushi has a long standing history of supporting networks at their earliest stages. We were the very first DEX to launch on Arbitrum, all the way back in block 70 (Arbitrum Transaction Hash (Txhash) Details | Arbiscan). In addition, our presence as a cross-chain protocol has benefited Arbitrum greatly due to our cross-chain swapping capabilities. More than one-third of our cross-chain swap volume is made up of users going from an origin chain to Arbitrum. This cross-chain swap feature was actually one of the very first bridges that was put in place on the network, which greatly contributed to Arbitrum’s early growth by allowing users to seamlessly enter into the ecosystem.

  1. I do not wish to criticise Sushi as a protocol, but objectively speaking there are several DEXs on Arbitrum that have higher efficiency, more ecosystem focus, better offerings etc. These DEXs have made significantly more progress in establishing deep liquidity for $ARB, whilst Sushi is amongst one of the lowest actively used venues for $ARB trading. What makes Sushi the best placed DEX to do this? Looking at objective metrics would place Sushi relatively low in the ranking of DEXs. Sushi’s current volume for $ARB is almost non-existent compared to Uniswap.

Your opinion here is appreciated! Before getting to your question it’s important to note that there are multiple ways to interpret “higher efficiency” and “better offerings,” so we’ve done our best to answer accordingly. We would love to understand more specifically what you are referring to.

With that said, we encourage examining historic volume, TVL, etc. and it will become quickly apparent that up until fairly recently, Sushi was the second-highest volume DEX on Arbitrum. However, to answer your specific question about what makes Sushi the best place to do this,there are several factors that come into play.

  1. As one of the oldest DEXs in Web3, we have a large and loyal user base. Earlier, you mentioned that we are a cross-chain protocol, and we have built our infrastructure in such a way that we are able to seamlessly bring our community from the multiple networks we are available on over to Arbitrum. Our xSwap feature is currently available on seven chains, but in the near future, v2 will be released and 30+ networks will be added, making Sushi the perfect home for deep $ARB liquidity as users from those networks gain access to the xSwap feature

In other words, having a central liquidity hub that is inherently multi- and cross-chain directly feeds the Arbitrum network and its liquidity providers.

  1. Sushi’s recent drop in liquidity on Arbitrum can be easily attributed to mercenary liquidity miners taking their LPs to other protocols that are early on in their distribution curves. This actually strengthens the need for this proposal rather than weakens it. $ARB’s on-chain liquidity profile is currently beholden to the whims of mercenary liquidity providers, as opposed to being steadfast with a permanent liquidity foundation owned by the DAO.

  2. Sushi still commands a significant liquidity presence on ETH mainnet, which is Arbitrum’s greatest conduit for scale and trading activity. Having dedicated liquidity pools for settlement at the protocol level on Sushi, coupled with the xSwap v2 product (and aforementioned metrics), makes a significant case for deploying on us.

We would argue that it is better to have composability and interconnectivity with other ecosystems, especially as an EVM compatible L2 of ETH, interconnectedness to the ecosystem at large is part of the purpose of the chain. We believe that the entire industry is moving towards that thesis, and are attempting to usher others along in that direction.

  1. This proposal grossly overestimates the need for $ARB liquidity. Please can you clarify the sources for the data that justify this rather huge amount of $ARB from the treasury?
  • Uniswap itself has significant liquidity depth for Arbitrum, and when taking into all of the other sources of liquidity on the chain it is more than sufficient.
  • This proposal also does not take into account the CEX liquidity profile, in which $ARB has multiple professional market makers.

To answer this question we’d point back at the “Motivation” section of the proposal. There we explain that the price of $ARB has dropped by 33% since June of 2023, but the on-chain liquidity has dropped by 80%. If the only factor at play was the drop in price, the liquidity would have decreased by a smaller amount due to impermanent loss softening the depreciation. However, seeing as how the liquidity has decreased by more than twice the percentage of the decrease in price, it is clear that liquidity providers are taking their capital elsewhere. This proposal would remove the need for these mercenary liquidity providers in the first place by replacing them with liquidity that is owned by the DAO itself.

To address the comment on CEX liquidity - we do take into account the fact that there is CEX liquidity for the token, It can be a great way to bring traditional finance and institutional investors into the space, and therefore does provide value. That being said, similar to you, we also believe in decentralization, so running a decentralized blockchain backed entirely by centralized liquidity would be counterintuitive. As we have stated in the proposal, $ARB has lost 80% of its decentralized liquidity in the last three and a half months. Most of the liquidity that there is for the token is not owned by the DAO, and can be removed by mercenary miners at any time. We look to offer a solution for Arbitrum to replace that liquidity in an efficient way, while diversifying the treasury into yield-bearing assets.

  1. Please could you explain what the optimal amount of onchain $ARB liquidity is? As mentioned above, per my own calculations, there is already sufficient liquidity on the chain (even in a market that has a lack of liquidity in general).

For our estimates, please refer to the end of the background section. We would love to see your estimates and calculations on liquidity if you can share.

As for Sushi, we came to our conclusion through extensive market research comparing tens of thousands of tokens to normalize a score for metrics such as market capitalization, total liquidity, owned liquidity, decentralized and CEX liquidity, emissions, time on main net, network, etc. This was done in order to better estimate the amount of liquidity that we expect each protocol should have. I agree with you that liquidity in the market is lacking. We believe that right now, this is the best solution to this market wide problem.

  1. Taking a 5% success fee is incredibly high considering that Sushi would be getting “free liquidity” from the DAO, in which it would earn even further fees. If anything, Sushi should be paying considerable sums to the DAO in order to acquire such a large amount of ARB tokens, even if treated as a loan.

The liquidity being built will be owned by the Arbitrum DAO, and the LP fees will be collected by them. It is important to note that Sushi does not own this liquidity, nor does the user providing it, once they have purchased a bond. With Arbitrum as the LP provider, 83.3% of the fees go directly back to the Arbitrum foundation.

Also, it is important to mention that these fees are only collected upon the successful sale of each bond. In other words, if no users end up buying a bond, we do not collect any fees, and no $ARB tokens enter into circulation.

  1. Your criticism of traditional liquidity incentives is incorrect and hyperbolic - to call it a “death spiral” is far from fair. By using PoL, you are not necessarily attracting new users, new builders, or any further ecosystem growth; you are simply promising deeper liquidity for $ARB itself. This in turn does not necessarily result in further value generated for the ecosystem. On the other hand, incentives have a proven track record of distributing the token which increases decentralisation and growth.

We really appreciate your summary of liquidity mining, as we believe it is a reflection of the lens through which many users view liquidity mining. Liquidity mining was created to offer protocols a way to deepen their liquidity without needing to supply lots of blue-chips and stablecoins directly, as they are very expensive. If the only metrics that you are looking at are distribution and decentralization, the best thing that you could do is airdrop tokens into as many wallets as possible. The issue with that is it would completely ignore many other factors, most notably, inflation.

The more tokens that are given away to users for free, the more sell pressure this puts on the rest of the tokens and drags down the price. This is the reason we look at metrics like return on emissions (ROE) when discussing emitting tokens. Each token emitted should bring tangible value back to the ecosystem. Deeper liquidity for $ARB, stablecoins, and blue-chips means that there are more efficient trading routes for anyone on the network. This means a better trading experience for users, as they’ll suffer less from slippage and price impact. This method also does a great job of distributing tokens, which in this case are vested to users. However, unlike liquidity mining, these are not the same handful of “mercenary miners” quickly migrating their liquidity positions to the next best opportunity.

In addition, the term “death spiral” was originally coined by Messari - a leading research firm in web3. We take a data driven approach to everything we do and have therefore been monitoring the efficacy of liquidity mining since we invented it in 2020. Truth be told, it is a brilliant tool for bootstrapping liquidity, but it is incredibly inefficient at capturing any long-term value for the protocols that participate in it.

Furthermore, bonding has a higher probability of helping with user acquisition than traditional liquidity mining. Bonds are purchased throughout the whole duration of the sales period, whereas with traditional liquidity mining the majority of the LPs will be added at the beginning of the farm, and then removed as soon as the farm is over.

  1. Have you actively been engaged with the ecosystem governance? This proposal coincides with the current “Short term incentive framework”. From what I understand, Sushi has not actively been involved with Arbitrum governance thus far.

In preparation for this proposal, we have spent several months studying the $ARB token, the overall Arbitrum ecosystem, and as the market as a whole in order to figure out how to best support the goals and needs of the DAO. We are very confident that the plan we have put forward, including its built-in safeguards, is the perfect vehicle to help the Arbitrum DAO in its continued evolution.

  1. Please could you confirm what Sushi has done with the $ARB airdrop it received? From what I recall you received over 4,000,000 tokens.

We have held it securely and plan to be an active participant in governance going forward.

  1. Would Sushi be willing to use its ARB airdrop to prove a pilot of this proposal? Even if the community/DAO supported such a proposal, agreeing to hand over such a large amount of tokens should not take place without the necessary checks in place. I would like to see Sushi show commitment to the DAO and use its ARB to prove the efficacy of this programme before making a formal proposal.

There is no need to use our airdrop, because there is little to no risk for the DAO in this proposal. The allocation will be tranched out, with performance milestone KPIs built in to monitor and safeguard the tokens, and no tokens enter circulation if there are no bond sales. Additionally, that wouldn’t solve the large challenge brought forth in this proposal, which is that Arbitrum would again be counting on third parties for its liquidity strength.

Additionally, we plan to use our airdrop to participate in governance, as mentioned above.

4 Likes

I just wanted to share my thoughts on this proposal. I’m a big fan of Arbitrum, a holder, and a participant in the ecosystem. While I’m all for new ideas to boost liquidity and growth, there are some aspects of this proposal that don’t sit right with me.

Some of you may know that SushiSwap started as a Uniswap fork and made waves in the DeFi world with its aggressive ~vampire attack strategy. It tried to lure liquidity away from Uniswap by offering higher rewards, and that tactic wasn’t exactly well-received in the community. So, when I see this proposal, it feels a bit like deja vu – another attempt to capture liquidity in a similar way, but this time under a disguise to help the ecosystem.

Here’s the thing: when I look at the current state of Sushi on Arbitrum, it’s not exactly thriving. The TVL on their platform has been shrinking, and it hasn’t been the go-to place for liquidity providers or key builders for a while now. Some may argue that the TVL across the entire Arb ecosystem has decreased, and yes, that is true. However, when it comes to sushi, the impact is particularly noticeable. So, this proposal feels like an attempt to rescue a sinking ship, and that ship isn’t Arbitrum - it’s SushiSwap or at least its position on Arbitrum.

Arbitrum needs a strong incentive program, no doubt about it. But the one proposed by Sushi feels a bit rushed and not entirely in the best interest of our ecosystem. Plus, I can’t help but wonder about the loyalty factor. Has SushiSwap really shown dedication to the Arbitrum? I’m not so sure, even considering the fact that Sushi has been operating on Arbitrum since its early days, the reputation among the Arbitrum communities is not so great, and that is not a secret.

I think it’s also worth mentioning the recent hack involving SushiSwap’s router. Around 1000 ETH went missing in that incident… It makes me worry about the security of a bond program if something like that could happen.

I don’t think we need a bond program right now, at least not the way it currently stands. And even if we do go that route, I think SushiSwap should only be a part of it if they can prove that the program actually works. Perhaps, they could first use a portion of their arb airdrop to demonstrate effectiveness of the program before putting forward a proposal

So, in my humble opinion, I’m leaning towards a NO on this proposal. It feels like Sushi is trying to save itself from drowning and falling completely behind other protocols that are more advanced on the chain. I think we should focus on solutions that genuinely benefit our ecosystem rather than injecting some life into a protocol that hasn’t really proven its loyalty to the ecosystem and is happy to deploy to any new chain that comes into existence.

Just my two cents on the matter. Thanks for listening!

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Firstly I would like to say it is always good to see new proposals and activity in the Forum. Personally, I am an Arbitrum maxi and have been for well over a year now.
I do feel there are more than a couple of points that do not make much sense to me about this proposal. So I would like to voice them in the hope that some light may be shed and some clarity given.

I must add that I do feel time is of the essence with regard to allocating ARB to the best proposals, mainly due to the incentivizing of new chains we have seen this year. Some of whom are real contenders in the L2 race. Indeed Arbitrum is losing ground and market share, in my opinion, because we have stood still whilst other newer L2s have been quicker off the mark and not rested on their laurels, as I feel Arbitrum certainly has. That being said there is a balance to be struck, I for one do not advocate loose purse strings but I for sure feel over-tight ones will hamper the cause even further.

I would appreciate some light being shed on the points which I do not quite see as fitting, those are -

  1. No comments on how they intend to manage the POL

  2. No details about using v2 or v3

  3. The 5% success fee seems wholly unreasonable to my mind, I do not remember other proposals asking for such a fee

  4. Sushi has not been involved in Arbi governance thus far, as far as I am aware, so seems a bit overzealous to be asking for so much with a fee to boot. Feels like Sushi trying to stay relevant on Arbitrum but indeed with not much to back it up

  5. I remember quite well the vampire attack that set Sushi up, it was not a good look and deserves no credit to my mind, not the kind of history we want to see. Maybe I am not seeing it correctly, so would appreciate some clarity on what others think about that

  6. Sushiswap is on so many different chains and nowhere near as Arbitrum centric as other Arbitrum DEXs, so why not have a preference for the DEXs we do have that are more focused on the Arbitrum ecosystem and have done more for the cause?

  7. I do not really see this proposal for a bond programme as anything exciting or invigorating for the ecosystem. I understand this is a longer-term proposal and the calculations quite well. Should we not be more focused on something that will ignite the ecosystem and give the boost we so desperately need as soon as possible? Personally, I feel we should, so I’m very interested to hear what others think. I feel we need something more injective and quicker off the bat, something more exciting and attractive for the end user

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Hey Kingofsparkles, thank you for the response!

We see that you are a big fan of Arbitrum and are looking for new ways to boost growth, therefore we believe that when you understand the intentions behind our proposal you will be a big fan of it as well!
Let me start by addressing your key points.

As the second longest standing DEX in general, and the first to launch on Arbitrum, we clearly have a vested interest in the liquidity on the chain. We have seen many new blockchains gain lots of hype and liquidity, only to lose the majority of both thanks to short term liquidity mining programs. We are true believers in DeFi and plan to continue to offer proven innovation methods to great blockchains like Arbitrum to ensure that they can retain their hype and liquidity in the future. As you have noted, The DEXes on Arbitrum have been losing large amounts of liquidity lately as their incentive tokens have been hit hard by the inflation from the emissions used to source it. This is an issue that we understand very intimately as we have suffered similarly in the past with the same liquidity mining programs. This is why we are so excited to have a solution for the future!

Why the urgency behind this proposal?
1 As stated in “background”, the $ARB token has lost 80% of it’s liquidity on chain in less than 4 months
2 Bonding, unlike liquidity mining, does not attract huge amounts of temporary liquidity instantly. Bonding is a solution meant to slowly build up liquidity over time. While we are confident that we can achieve a healthy amount of liquidity, the sooner the program is started, the more quickly this liquidity foundation can be built.

Can we run a test of this proposal to see its effectiveness?
Yes, that is the exact purpose of this proposal and the reason that we have broken it up into 4 quarters with its future only guaranteed by success. Because bonds do not emit tokens if there is no demand, if the program does not work it will cost the DAO nothing as tokens that are not sold will be returned to the treasury.

Kingofsparkles, I assure you that we believe that this proposal is the best possible thing for this ecosystem right now. I know that newer solutions can feel intimidating at first but the fate of the future of this space relies on innovation as it always has! I encourage you and future commenters to share what you believe are the best liquidity solutions on the market right now.

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Hello Leon27, Thank you so much for your response

We are very excited to see that our proposal is encouraging users like you to join the forum and get involved in the discussion. It is our goal to spark discussion and push forward as an ecosystem together. We mirror the urgency that you are feeling and hope that we can implement our solution soon!

  1. No comments on how they intend to manage the POL

The management of the POL will ultimately rest with the Arbitrum DAO. It has the authority to decide on its utilization. Whether the DAO opts for active management of the POL, reallocating it to different DEXs, or pursuing any other strategy, the discretion lies with the DAO as the liquidity owner.

  1. No details about using v2 or v3

To optimize the clawback rate, we will initially build liquidity following the v2 model. However, we are actively collaborating with Steer Protocol on v3 liquidity management. In the future, we intend to propose having Steer manage a portion of this liquidity to maximize efficiency. We also encourage other v3 management protocols to explore similar proposals once the POL is established.

  1. The 5% success fee seems wholly unreasonable to my mind, I do not remember other proposals asking for such a fee

Thank you for this feedback. We believe that there may be some misinterpretation on how this fee works. Sushi makes nothing if this program is not successful. This is a great alignment of incentives between Sushi and Arbitrum.
Also, based on what we have seen on other proposals, our fee is extremely modest. With Traditional liquidity mining, the “fee” associated can be viewed as 100% of the tokens used. What this means is that with these proposals, 0 tokens or liquidity will be returned to the DAO treasury. With that, we believe compared to the 100% fee on other proposals, our 5% is extremely modest.

  1. Sushi has not been involved in Arbi governance thus far, as far as I am aware, so seems a bit overzealous to be asking for so much with a fee to boot. Feels like Sushi trying to stay relevant on Arbitrum but indeed with not much to back it up

We believe that if you do not have anything of value to add to a discussion, it is not wise to say anything at all. We have focused our attention on our presence on-chain, launching on block 70 as the first DEX on arbitrum, complemented with our cross-chain xSwap, bringing thousands of users to the chain from others. We have used our time to build our DEX infrastructure and analyze the $ARB token so that we could be prepared to propose a sustainable solution to truly benefit the ecosystem.
In regards to the size of the ask, at first glance it may seem like a lot of tokens. When you dig in though you will see that the large amount of tokens reflects the large amount of liquidity needed. Additionally, because of the nature of the bonds, if there is no demand, it will not cost ANY tokens meaning that this poses little to no risk to the ecosystem.

  1. I remember quite well the vampire attack that set Sushi up, it was not a good look and deserves no credit to my mind, not the kind of history we want to see. Maybe I am not seeing it correctly, so would appreciate some clarity on what others think about that

We acknowledge your perspective but believe that competition is beneficial. It challenges the status quo and, in our case, created a model for liquidity sourcing that has been emulated by countless protocols.

  1. Sushiswap is on so many different chains and nowhere near as Arbitrum centric as other Arbitrum DEXs, so why not have a preference for the DEXs we do have that are more focused on the Arbitrum ecosystem and have done more for the cause?

We encourage a broader outlook on the future of web3 and DeFi. The industry is moving toward a cross-chain and multi-chain approach. Our xSwap feature currently spans seven ecosystems, and the upcoming v2 will extend this to over 30, providing Arbitrum with direct access to users across different chains while unifying liquidity. We believe that forming an island on one chain causes isolation and closes Arbitrum off from accessing a large amount of DeFi users.

  1. I do not really see this proposal for a bond programme as anything exciting or invigorating for the ecosystem. I understand this is a longer-term proposal and the calculations quite well. Should we not be more focused on something that will ignite the ecosystem and give the boost we so desperately need as soon as possible? Personally, I feel we should, so I’m very interested to hear what others think. I feel we need something more injective and quicker off the bat, something more exciting and attractive for the end user

Our proposal aligns with the recent short-term incentive program, which allocates up to 50M $ARB tokens over the next quarter. Our first sales period aligns with this timeline, requiring a maximum of 12.5M tokens. This leaves room for 37.5M $ARB to be allocated for more “exciting” and “user-attractive” programs. We value your input and invite you to join our townhall on 09/21 @ 17:00 UTC, hosted on Twitter Spaces, to share your thoughts on alternative initiatives.

3 Likes

I feel compelled to mention that this proposal started life at ApeSwap and was intended to be used as a collaboration between SushiSwap and ApeSwap, before it was stolen and presented as a SushiSwap proposal. It’s sad to see you pass this off as your own and remove mention of ApeSwap.

We have just posted an article with more details and evidence of this here: ApeSwap : Your One-Stop DeFi Hub

15 Likes

Hey everyone, this is Taylor - I am the individual that spoke on Sushi’s behalf at the recent delegate call and previously was a contributor at ApeSwap, the community may remember me as Tarz.

It was failed to mention ApeSwap recently had a large number of contributors exit and move onto other ventures, myself included. ApeSwap was setup in a way that individual contributors own their work as independent contractors, so naturally as many of us moved on, we took our work with us. None of the work cited is owned by ApeSwap.

3 Likes

Honestly, I have to say, I’m not a fan of this. I’m just not convinced this program will work, especially not with such a significant margin, and most importantly not in your hands.

I think before pushing such a program, we should see what other protocols will come up with in light of the recent framework being introduced. I have a feeling that we will see a lot of interesting proposals in the next several days, and most importantly, from much more trustworthy protocols that have fully dedicated themselves to the ecosystem.

Sure, you might be the first to launch on Arbitrum, but Sushi isn’t the go-to DEX on Arb. In fact, it’s far from it. Besides, Sushi is consistently among the first to launch on newly created chains. (Your actions on Base aren’t going unnoticed…)

You’ve had time to demonstrate that the protocol can handle programs like this, but now we find out you essentially copied the entire plan. I mean, come on, that’s ridiculous! After the ApeSwap incident, I believe you should scrap this proposal and return with something developed by your team, not someone else’s.

Personally, I think you cleverly tried to front-run other protocols on the chain before they post their proposals. With the way the DAO is set up now, I’m pretty confident that liquidity will start flowing back.

Sushi doesn’t have anything to back this plan, considering you’ve never issued a single bond as a protocol. I don’t think many delegates will trust you when it comes to the program’s effectiveness if you don’t have any experience in this field.

Also, the ApeSwap stuff coming to light is truly disappointing. Such a big team with so much experience should be capable of constructing a proposal like this on their own, but you had to steal someone else’s work …

It’s a big NO from me!

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Disclaimer & Introduction - Bond Protocol pioneered bonding-as-a-service for DAOs and originally launched Olympus Pro on Arbitrum in December 2021. Since that time, we have built a fully permissionless bond marketplace with a focus on Ethereum Mainnet and Arbitrum.

Background - We have worked with 15 projects on Arbitrum, including protocols like GMX, TreasureDAO, Camelot, Pendle, and Y2K. Our contracts have processed more than $20M in Total Bonded Value on Arbitrum from OP to BP. See Dune for TBV stats on BP:
https://dune.com/bond_protocol/bond-protocol

We vehemently object to Sushi’s proposal in its current form and encourage Arbitrum projects and delegates to do the same. Scoping and launching a Bond Program requires DAO acknowledgement and general consensus on the priority at hand (POL, Treasury Diversification, Asset Acquisition), a bulletproof strategy to execute a Bond Program aligned with treasury priorities, and ultimately a selection of the best available solution meeting technical and business requirements.

Echoing sentiment shared by DAO participants, our reasons for objecting are as follows:

  1. Objective Alignment - Arbitrum DAO has not surfaced POL as a key initiative or focal point in its ecosystem growth plans. A further discussion of POL significance is warranted to acknowledge a problem before being prescribed a solution. The lack of discourse on POL leads us to believe that this is not a priority, but we will gladly participate in a separate discussion on the forum.

  2. Evaluation Framework - if Arbitrum DAO decides that POL is a strategy worth pursuing, it should implement a robust framework for evaluating ALL viable options. The evaluation should be open for any and all solutions to pitch their argument so Arbitrum DAO makes a well-informed decision vs a rushed one.

  3. Bond Contracts - Sushi has failed to elaborate on their bond contracts and provide any technical resources. Apeswap has alleged that Sushi forked their implementation, which itself is derivative of contracts we developed in 2021.

  4. Configuration - We have learned a lot since the early days of bonding and believe the proposed configuration from Sushi is sub-optimal. Most bond issuers choose to bond counter-assets (e.g. ETH, stables, wBTC) instead of LP tokens. Bonding counter-assets directly avoids paying a discount on half of the underlying LP and also improves ROE by reducing the number of transactions. Acquiring $ETH or stables also maintains agnosticism to where POL will be held, which the DAO can decide vs picking a singular DEX based on the configuration.

  5. Success Criteria - 80-90% ROE is a really low estimate for Arbitrum DAO, as the ROE tends to increase for larger, more liquid tokens. Based on our experience, a more likely ROE would be 95% or greater based on discount distribution for Bond Programs on Arbitrum (see Dune).

  6. Performance Fee - we do not see a 5% fee as justifiable, especially when platforms like Bond Protocol charge NO FEES. This should result in immediate cost savings for Arbitrum DAO or any Arbitrum project.

  7. Trust Assumptions - Sushi’s proposed bond program requires a shared multisig for permissioned, manual bond deployment and adjustment of variables. Our platform has evolved past what they’re forking. Bond Protocol abstracts away variable controls such as BCV, allowing protocols to focus more on configuring and monitoring their programs. Issuers can permissionlessly create and cancel their programs in an automated fashion without our intervention or a shared multisig. This proposal is in stark contrast to the values that all DAOs should aspire to.

Ultimately, Sushi’s POL proposal doesn’t align with Arbitrum DAO’s objectives and seems to primarily benefit themselves. They are asking to manually manage millions of dollars via outdated bond contracts for a hefty fee. Meanwhile, we will continue to develop permissionless treasury management solutions for the Arbitrum community :cocktail:

5 Likes

Hi Taylor,

Thanks for acknowledging our post. Simply put, that’s not how a company-employee relationship works. Being paid to carry out work doesn’t entitle the employee to own the product of said work. Furthermore, we have supporting evidence where you expressly agreed to these terms, that we’d be happy to share, but doesn’t feel like a great road to go down.

Even though you were indeed part of the team that worked on the proposal before leaving ApeSwap, you were far from working on it alone. Many people involved in this still work at ApeSwap, and it doesn’t belong to them either, it belongs to the ApeSwap DAO.

7 Likes

Thanks for the support.

We totally agree, which is why it’s important for us to let people know. We’re smaller than they are, but still big enough to have a voice, some protocols aren’t and have to accept their work being stolen. It didn’t feel right to have this go unnoticed.

1 Like

Hey @ApeSwap , there are some serious allegations surfaced here that @Sushi has infringed on the IP that the Apeswap DAO owns. As per the community guidelines, could you provide additional evidence to back up your claims and arguments in addition to the blog post you provided?

If there is sufficient proof that this proposal by Sushi violates the intellectual property rights of ApeSwap, then we will flag this and remove the post. The burden of proof has to be higher to make such claims.

In the meantime, I’d request for everyone chiming in to be respectful, respect other forum members, their opinions, and their rights to express themselves. Do not use offensive or derogatory language, personal attacks, or hate speech. The forum moderators reserve the right to remove any posts or comments that violate these guidelines or are deemed inappropriate.

The purpose of this forum is to foster productive and respectful discussions related to governance. We encourage everyone to contribute their ideas and perspectives, and to learn from each other.

4 Likes

Hi Cliffton,

Thanks for reaching out and for taking this seriously.

What further proof would you like to see? We’re happy to provide anything as long as it doesn’t attack someone personally or cause any problems on what could become a legal matter.

From our perspective, an ex ApeSwap team member acknowledging they took the work believing it belongs to them or Sushi is about as good as any proof we could provide.

3 Likes

Hey @ApeSwap , appreciate your prompt reply here. Beyond the visuals presented on the blog post, are there any other anecdotes or service agreements which shows that the IP belongs collectively to the ApeSwap DAO, and not to the individual contractors and service providers like @SeriousTaylor ?

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Are you asking if an NDA was signed by the ex-team members? If so, yes.

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I would like to see a valid IP invention assignment doc / agreement that suggests any ideas, work, etc done Is solely the property of ApeSwap/whatever entity Apeswap uses.

Taylor suggests his research, knowledge & ideas are his own free to take with him. You suggest this is not true…please post the relevant provisions in your agreement which entitles you to ownership of his work, thoughts, ideas, developed while he was working with your DAO.

You reference a valid NDA, which could possibly or may not cover this matter. Post the relevant provisions to quash this.

4 Likes

Neiltbe, I appreciate you created your account just to participate in this thread. I show genuine concern and involvement. Kudos for that.

I believe that it is unlikely that such documentation exists, nevertheless, I do believe you are misinterpreting what is going on, while further proving ApeSwap’s point. No one is going after Taylor, or even pointing fingers at him.

What we are pointing out here is the fact that Sushi stole our work. We approached them for a joint venture. We shared our materials, our bonds deck, ARB token traction report, thought them how to sell it, and even produce over 80% of the content of this proposal.

I don’t care who is Taylor and whatever his monkey name was when he worked at ApeSwap. I don’t care what documents are signed or not signed to protect such IP. The issue is way simpler than this. ApeSwap was working on a joint venture with Sushi to provide a bonding solution to the Arbitrum DAO when Sushi suddenly decided to ‘back off’ only to post the proposal on their own, even though they don’t even have a bonding product or a track record.

Finally I want to point out to the following materials:

When we put all of this together, it is crystal clear that this is ApeSwaps work, ApeSwaps metrics, reports and all in all way of operating and selling bonds.

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I don’t think you or a DAO can conceptually own “bonds”. Or own the idea of “bonds”? How does that make sense? Is there a patent on this? Is there a software license being violated?

If a group of Apeswap contributors leave to go solo & team up with another DAO to sponsor their work — what have they “stolen” from Apeswap? Is there anything being “stolen”? Is there some code that was maliciously taken from your GitHub repo?

The Bond Protocol above mentions that Apeswap forked “bonds” from them?? Where does this clown fiesta of copying allegations end?

I am open to changing my opinion but this looks like simple competition to me. Please do let me know what I am missing.

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