[RFC] Incentives Detox Proposal

[pedrob]

I am voting FOR this proposal.

When the STIP Bridge proposal was launched, I strongly opposed its implementation.

Double-Down on STIP Successes (STIP-Bridge)

Important: this opinion is solely my own and in no way reflects that of SEEDLatam or any of its members gmgm. Just a few comments from an LTIPP workforce member (Applicant Advisor). Firstly, what were the objectives of the STIP? Were they achieved? Do we have the necessary data to be convinced of this? Because when money is given away to users, the growth in TVL and volume is somewhat obvious. And it seems that this is the only thing highlighted by those who posted in favor of this proposal. …

The data on the STIP results was not available, and the distribution of incentives for the LTIPP had not yet begun. There was no data-based justification (and there still isn’t) for renewing the STIP by 50%. This was approved, even with allowed incentives criteria different from those applied by the LTIPP Council to approve or reject proposals.

The main justification for its approval was that we had to compete against other L2s that also offer incentives. I think there was also a fear of internal competition among protocols because the beneficiaries of the LTIPP were not the same as those of the STIP.

Now we have an analysis and conclusions from @BlockworksResearch report on the STIP performance, which I invite everyone to read:

@BlockworksResearch

• Most spot and perp DEX STIP recipients’ top-line metrics fell notably after the STIP ended and are currently around levels seen in September 2023. There are a few outperformers, generally younger, differentiated protocols that outgrew the market during the STIP and have successfully managed to maintain activity and capital in the long term.

• Excluding the outperformers, the absolute change in TVL/Volume achieved per ARB utilized to increase these metrics directly has widely converged between protocols in the same verticals.

• Overall, during the STIP, Arbitrum’s market share growth across major blockchains peaked at ~0% for TVL, ~5% for spot volume, ~12% for perp volume, and ~0% for loans outstanding. The market shares are currently at around September 2023 values, except for TVL, which is down from ~6% to ~4%.

Also, after B.STIP was approved, the LTIPP also faced criticism and questioning in its process. As part of the workstream, we identified along the way some design flaws that could have improved the experience for applicants. However, to conduct a thorough analysis, we need to wait until the process is complete and we have all the data available.

As I stated when opposed to STIP bridge, now we need to wait for the data from the B.STIP and LTIPP to become available and require the cooperation of incentive recipients -reports and final reports- in their analyses to build the appropriate program:

@BlockworksResearch

Many protocols missed several bi-weekly reports or didn’t post them at all. Around 35% of all STIP recipients didn’t post a final report. For the bi-weekly reports, only a handful of projects discussed protocol-related events and developments that might have explained growth that had materialized. Instead, it was more usual that projects would only present some high-level KPIs and how they planned to use incentives in the coming two weeks across different allocation buckets, meaning that it was sometimes difficult to understand drastic changes in figures purely based on information provided on the forum.

For this reason, I believe the use of the word “detox” is appropriate. It is not a detox from using incentives as a mechanism for growth, diversification of the treasury, and competition against other L2s. What has been done so far has had value and provides us with sufficient data to move forward.

It is a detox from the hasty deployment of incentives without proper analysis, and an acknowledgment that we need time to understand how to prepare an appropriate system.

Finally, I agree with other comments that it is not necessary to set a specific deadline. We should take whatever time is needed to gain clarity on the data and the path forward.