RFC - Fund an Incentives Working Group

Proposals
1

RFC - Fund an Incentives Working Group

Co-Authors: @Matt_StableLab and @JoJo

Abstract

This proposal aims to fund a working group to research incentive structures and design a new incentive framework. This working group aims to deliver a proposal for the DAO for a vote in December after the detox period. The working group will proceed in three phases: discovery, framework design, and Approval. The discovery phase includes delegate/protocol interviews, analyzing past incentive performance and limitations, and researching other ecosystem / traditional government incentive designs. This research will be used to create guidelines for incentives and design a framework for utilization. Finally, the group will take this framework to make a final proposal, including demonstrable KPIs, for a broader DAO vote.

Motivation

The DAO has consistently expressed interest in using incentives to attract users and protocols to the Arbitrum ecosystem. However, to date, we have not yet taken sufficient time to design from first principles, that is, to first understand the goals and objectives of the program, deploying incentives to achieve particular measures. Arbitrum has also not had a chance to thoroughly analyze past incentivesā€™ performance nor design a robust framework that may last more than a few months. We believe funding a small working group would create a better incentive program. Through a focused effort, we will help the DAO produce a sustainable incentives framework to satisfy both delegates and protocols.

How previous Incentives have been designed:

Prior Incentive Program Design

STIP. STIP was created quickly using a DAO-wide working group funded by a foundation grant in response to the DAO voting down Camelotā€™s incentive proposal and requesting a larger framework for granting protocol incentives. It was the first major DAO initiative and achieved the goal of creating a first attempt at incentives. While it was not a perfect program, it got the ball rolling and taught us about incentives.

LTIPP. The creation of the LTIPP proposal was funded retroactively once it was passed. This proposal involved risk on behalf of the composing parties. It took four months of writing, lobbying delegates, and modifying the proposal to ensure ratification. The improvements of LTIPP focused on making operational changes to STIP challenges while providing incentives to protocols not funded in STIP. These changes allowed Arbitrum to broaden its incentive distribution while evaluating a new program structure that included the council and advisors.

STIP.B. The creation of STIP.B was not funded. STIP.B was a grassroots effort by protocols that argued that incentives should continue for protocols that used STIP rewards correctly to keep the largest Arbitrum protocols focused on Arbitrum while other chains offered large grants to migrate.

Prior Program Design Flaws

Insufficient Planning Period (Too Rushed)

The previous incentive programs were designed under tight time pressure. With STIP, the DAO was rushing to get something started. With LTIPP, the DAO wanted to ensure we had a program to immediately follow STIP. With STIP.B, the STIP protocols tried to ensure they could follow a similar timeline to stay competitive with LTIPP.

Without sufficient time, the DAO could not decide the concrete objectives of these programs. This has made it extremely hard to evaluate the success of the programs. Additionally, with a near-zero gap between programs, there was insufficient time to examine past performance and improve distribution efficiency. While LTIPP introduced the council and advisors to help protocols create better incentive plans, we need more data-driven guidelines on how protocols should utilize incentives to maximize return on ARB grants. Finally, because these programs were each planned independently, they have all been short 3-5 months as we have not had time to create a robust global framework to last 1+ years. This disconnection between programs has made protocols unsure of when their next chance at funding will be, making it much harder for them to plan their future in Arbitrum.

At present, we have a three-month break from incentives. This window presents an opportunity to research and create a thoughtful Arbitrium Incentives program. To best take advantage of this time, it makes sense to have a group of stakeholders focused on and responsible for completing the necessary research. With the research in hand, this group may then deliver a framework and program design to meet the needs of all DAO stakeholders.

No One Was Incentivized to Create a Long-Lasting and Sustainable Framework

Presently, there is no compensation or incentives for the research, coordination, and planning of Arbitrum incentive programs. This is a nontrivial amount of work and requires both incentive research and operations research, ultimately translating these into effective program design. Without a clear commitment from Arbitrum, counterparties bear significant risks in performing this research. As a result, programs were underdesigned and underresearched.

In the absence of the necessary incentives, past program design opted for an open incentives working group. This format led to a diffusion of responsibility and inefficiency. The proposal creation phase was focused on passing a DAO vote quickly instead of optimizing for the best possible program.

A smaller group of responsible individuals will likely lead to better-focused outcomes. When a group is accountable to the DAO, we can expect better results as incentives are aligned with performance.

No clear objective

While everybody tends to agree, at a high level, that incentive programs should foster ā€œgrowthā€ and ā€œadoption,ā€ we fall short of properly specifying the KPIs and the base ground values achieved before and after it. The byproduct is the inability to measure the effective success or failure. The lack of discussion on this topic will make every program meaningless.

Specifications

Working Group Roles, Responsibilities, and Deliverables

Qualitative Stakeholder Interviews

  • Interview delegates to understand what they would want to see from an incentive program
  • Interview protocols to understand what they would want to see from an incentive program

Web3 and Traditional Market Research

  • Study the landscape of incentive programs in crypto in other ecosystems to avoid pitfalls and better understand benefits.
  • Examine what categories and/or objectives a future incentives framework should include. Previous programs have tried to fit all protocols into one box, making it hard to accommodate the several types of protocols and objectives in the Arbitrum ecosystem.

Protocol Domain and Performance Research

  • Create guidelines for how different types of protocols should use incentives. Now that we have seen 100+ protocols distribute incentives, we better understand the optimal way to structure an incentive plan for different types of protocols. We need to create clear guidelines to remove ineffective incentive plans and optimize the effect of the ARB being spent.

Arbitrum-Specific Framework Development

  • Help the DAO decide on an incentive programā€™s goals through a DAO-wide vote.
  • Understand how to fill in some clear gaps we have had so far, such as dedicated marketing and operational resources.
  • Research the optimal operational structure, software, and human resources and determine appropriate costs.
  • Help onboard contributors and vendors to the necessary roles.

Community Involvement

  • Host open biweekly calls to allow the DAO to monitor progress and share their opinions
  • Post biweekly updates to the Forum.
  • Facilitate community discussion on the goals of an incentives program. This will culminate in a DAO vote to select the main objectives. This will allow us to build a program specifically designed to accomplish these goals and implement specific KPIs into the proposal so the DAO can track the success of the incentives framework.

Live Operations Proposal

  • Develop a full incentives framework and create a proposal that the DAO can vote on.
  • Adjusts the proposal to delegate feedback and lobby delegates to move the proposal to a vote.
  • Create a continuous/recurring program that, while having internal checkpoints and reevaluation phases, can be adopted by the DAO without reworking and debating it every quarter.

These tasks take a lot of time. To achieve the best results, Arbtirum should assign a modest budget to ensure satisfactory delivery. Funding this working group will give the DAO more information in three months to make a smarter decision when voting on the next incentives program.

Considering the scale of the programs, potentially 50,000,000+ ARB, an operational expenditure of approximately 0.4% is acceptable and reasonable examining market comparables. In general, fund operations cost around 2% per annum, exclusive of planning and setup costs. Our hopes are to vastly improve the performance of ARB incentive programs, leading to long term cost savings and efficiency gains.

Team

  • Matt StableLab: PM for STIP/LTIPP/STIP.B, Proposal Author LTIPP, MSS signer, Arbitrum delegate.
  • JoJo: LTIPP/STIP.b Advisor, Grant committee of Questbook and UAGP, delegate in Arbitrum, MSS signer, product and risk analyst at Jones.
  • Castle Capital: Research and Advisory Collective with experience as an LTIPP/STIP.b Advisor, a Media Publisher, a Protocol Consultancy, an MSS Member, and a delegate in the DAO
  • 404DAO: Arbitrum Delegate who served as a LTIPP Council member, MSS Member and Onboarding WG
  • GMX: LTIPP Council Member, Active Arbitrum Delegate, One of the oldest and largest Arbitrum Protocols.
  • Blockworks Research: ARDC Research Member, Active Arbitrum Delegate, published numerous reports on STIP

Process Overview

Only three steps are required to operationalize this proposal.

  1. Pass a Snapshot Vote to approve the Working Group budget.
  2. Working group members complete Foundation onboarding, including compliance and execution of required agreements.
  3. The LTIPP multisig transfers funds to each respective working group member. Payments are made in a single lump sum upon initiation of work to reduce operational complexity and overhead

Timeline

The project is projected to span from mid-September, targeting an incentives go-live date of February 2025.

  • Mid-September - Form and Execute Working Group and associated DAO proposal.
  • Late September - Late-November: Research, Ideation, and Proposal creation to produce an initial working draft
  • Late-November - Mid-December: DAO feedback stage and modify the proposal to reflect feedback
  • January: DAO votes on Incentives Program Proposal. Pending approval, contributors are onboarded, and the program is initialized.
  • February: Incentives Program Begins

Overall Cost

225,000 ARB

Cost Breakdown

Five working group members paid $7,500 per month. (Blockworks would forgo payment as their contributions to this working group would be covered by ARDC v2 funding, if approved)

Three months of work (2 months for research and proposal creation + 1 month for feedback, modification, and setup)

5 x 3 x $7,500 = $112,500 (225,000 ARB at current prices)

This proposal would not require any additional funding from the DAO treasury. Over 24,000,000 ARB remain from LTIPP in the LTIPP multisig. Part of these leftover funds can be used to fund this incentive working group.

7 Likes
2

hey @Matt_StableLab doesnā€™t this go directly in opposition to the ongoing effort of detoxifying the incentive programs in Arbitrum DAO approved on snapshot here and your comments on it here?

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Hey @paulofonseca

We view this proposal as complementary to the Detox proposal. We agree that it is important for the DAO to take a break from incentives to analyze past programs and work on designing an improved framework. However, we believe that without a funded working group, no one will take the time to complete the necessary research to create an improved program. The detox proposal was born to discuss incentives and come to a solution resulting from a consensus of the DAO. We fear that without a funded working group, the DAO will finish the detox period with some potentially good high-level ideas but no proper implementation. This will likely translate into no adequate incentive plan and a rush to create a mediocre proposal. This working group will ensure the DAO uses the three-month detox wisely to gather the necessary analysis to make a full incentives framework that the DAO can vote on after the Detox ends.

3 Likes
4

damn! thatā€™s cold! aahahah :sweat_smile:

Iā€™m reviewing your presentation from last weekā€™s detox call and I at least appreciate your attempt to collaborate.

soā€¦ did you at least got input from @Sinkas on this proposal posted today? I would be curious to get his take on this proposalā€¦

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the proposal, at a very high level, was presented as idea in the very first call of the group, and with the deck in the third call. Obviously, not with all these details.
Would like to add that we have been working on this for the last 30 days, gathering also inputs from various stakeholders to understand if the proposal was at least viable to present and pursue.

2 Likes
6

Arbitrum has struggled with selecting which proposals to grant ARB tokens to and how much to allocate, which has significantly impacted the tokenā€™s price and hurt the Arbitrum brand, especially when some of these proposals went viral.

The budget for this working group is reasonable and could yield a good return for the DAO if their efforts help prevent the DAO from being exploited by proposals asking for millions of ARB tokens, which ultimately weaken the tokenā€™s value.

7

Some early thoughts
Iā€™m generally supportive of this proposal. Itā€™s clear we need a long-term framework for incentives. The working group members seem like a solid balance of contributors from different types of organizations, although it might be nice to have some involvement from @Camelot and @tnorm if possible. Iā€™d recommending pricing the proposal in USD (in ARB).

1 Like
8

We like the idea of this proposal and think itā€™s in the right direction. Our main concern is over the timing of the proposal and we question whether or not something like this should be funded closer to the end of the detox period.

We are still waiting on the LTIPPā€™s research bounties which will provide valuable information alongside months of no incentives due to the detox period. Such information will allow the DAO first to assess whether or not these incentive programs are working, whether or not we want to continue with the vision of a ā€˜long-term incentive programā€™, and more importantly, whether or not we need something completely different.

1 Like
9

Love this proposal. I have been working on a similar working group proposal for the CEX to DEX initiative. Is the goal of this working group to create a general incentive program or to create incentives programs for different categories of protocols/projects?

1 Like
10

Hey Matt, I really think this is the best way to move forward, as creating a good framework, design, follow-up, and incentive analysis can help make the most out of the funds provided. Also, I believe a well-thought-out design can help create a common north star for next incentives rounds.

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Also how will you prevent a conflict of interest in Jones and GMX if they are part of the working group???

13

This is a great approach to ensure that incentives make sense. Some have complained about the Delegate Incentive Program methodology, and I think this would help alleviate any future concerns about fairness.

I would propose involving the community as much as possible for constant feedback. Also, itā€™s important to keep in mind the factor of time. When someone is dedicating time and research for the DAO, they should be adequately compensated

14

i think i can take this one since i am specifically called out on this.

I was an advisor in both ltipp and stip.b, and we already addressed the COI with both public disclosures of affiliations and also internal management of situations in which, even if no COI was there, the safe approach was still taken (ie: i advised protocols, that i didnā€™t know before hand, for which after reading the application I understood could be seen, partially, as direct competitors of Jones. In that case, i went to the protocols directly to ask if they would be ok in me being their advisor, or if they wanted to be rotated to someone else. Interestingly enough very few protocols decided to rotate me out).

All in all, and is up to the DAO to evaluate, but so far all the programs being run have run through public infrastructure for communication, such as the LTIPP discord, in which everything was openly and publicly available for everyone to read. The best way to address COI has been so far to be extremely transparent in both communication and evaluation, which is what we did.

In general thanks for raising this point because while I have build a lot of trust in all the contributors we have in our dao, remembering that checks and balances are needed is something +ve in general.

Idea is to start specializing the program. But there is no definite answer now, some specialization are likely low hanging fruits (re: specialization for perps, specialization for dexes), but drawing a line just in different categories can be hard. It will be more about interviewing all stakeholder, understanding the optimal outcome related what the DAO wants as a whole, and start with something that is more specific to what we have now.

15

Thanks for the thoughtful answer and for working to make this happen. Itā€™s always good to see you and other members acknowledge the existence of possible conflicts, as this will make them easier to manage.

1 Like
16

Thanks for putting together this initiative. We need more of it.

The proposal raises interesting points, but weā€™d like to explore a few areas further.

  1. The timing feels a bit early, given weā€™re still awaiting LTIPP research results and detox period insights. Might it be beneficial to revisit this closer to the detox periodā€™s end?

  2. On team composition, weā€™re curious about exploring a more inclusive selection process. What if we considered an incentives council with elected members, similar to the security council? This could help address potential ā€˜hairdresser dilemmaā€™ concerns - asking a barber if you need a haircut.

17

I like the targeted approach to solving this problem.
I always pay close attention to salary expenses and your wishes are quite adequate.

However, I have a couple of wishes for this program:

  1. You indicate the time of work on this task - 3 months, but we, as the Arbitrum community, need a result not only at the beginning of the program and the distribution of funds, but also need to understand - have we achieved any success, achieved a result? Therefore, I would like you to add a clause that your group is also obliged to analyze the results at the end of the program.
  2. Regarding the goals. Of course, calls with delegates can help, but the main goal of the Arbitrum is obvious - these are clients who will stay after the incentive period and thus receive long-term profit from fees.
  3. I would like you to think about distributing funds directly from the Arbitrum website, and not from the protocols. So that projects cannot abuse the program and it is we who can set the conditions for receiving incentives, and not the project.

For my part, I will be an active participant in the discussions on the calls, since this area is important for the development of Arbitrum and the increase of its user base.

18

I believe this work is very meaningful, and the required budget is quite modestā€”only $7,500 per month for 5 people, which comes to $1,500 per person. However, thereā€™s a key issue: how can we ensure the effectiveness of the research? I understand you mentioned KPIs, but thatā€™s not what Iā€™m asking. I want to know how we can guarantee the validity of the research findings? Can we really rely on this report to improve our work? Thanks!

19

We are in favor of this RFC. The 225,000 ARB budget seems reasonable given the scope and importance of the work. Weā€™ve clearly seen the limitations of past incentive programs, a dedicated working group to thoroughly research and design a more effective framework is long overdue.

The proposed timeline and deliverables make sense, and I appreciate the focus on stakeholder interviews and data-driven guidelines. Itā€™s about time we take a step back and create a sustainable, long-term approach to incentives rather than continuing with ad-hoc programs.

1 Like
20

Thank you, @Matt_StableLab, for sharing this proposal.

We are generally supportive of adopting a more structured, long-term approach to incentives.

One suggestion for the working group would be to begin with a retrospective analysis of previous programs and the detox period to identify successes and areas for improvement.

Additionally, since the Arbitrum Foundation has received funding to expand its strategic partnerships, it would be beneficial to align the new incentives program with the Foundationā€™s broader efforts for greater synergy and impact.

2 Likes
21

Happy to support re: @Frissonā€™s comments above.

My only flagā€™s here would be that I do think the research deliverables are likely a bit more vague and ambitious than the program design deliverables. Interviews and feedback are certainly helpful, but weā€™ve seen multiple attempts at a robust quantitative analysis fall below delegateā€™s goals. A broken record, but weā€™re never going to get a clean answer to the ā€œdid STIP/LTIPP work?ā€ question. The diversity of grants, the lack of goals from STIP/LTIPP, and the asynchronous nature of the incentives over the past ~10 months make it very difficult. This isnā€™t a critique, just an acknowledgment that meeting the expectations of DAO stakeholders at this point would require a dedicated DS/analyst team and a project manager with deep and tactical incentives expertise.

At this stage, and for the purposes of THIS working group, Iā€™d over-index on finding the right KPIs/objectives for Arbitrum Incentives and designing a program designed to meet them.

3 Likes