[RFC] Incentives Detox Proposal

Proposals Finalized AIPs
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Per request, here are brief summaries of some of our STIP-related ARDC work. As the DAO contemplates another incentives program, we encourage members of the DAO to carefully review the materials.

Short-form Case Study – GMX

  • Conclusions: The study suggests that future incentive programs should require stronger justification, growth driver analyses, and consistent standards for handling conflicts of interest.

Short-form Case Study – JOJO

  • Conclusions: The case highlights the need for continuous monitoring, stricter grantee accountability, and better-defined incentive program structures to avoid unrealistic promises and ensure adherence to rules.

STIP-Bridge – Support Material for the Community

  • Conclusions:
    • Some protocols had high sybil ratios, indicating potential misuse of incentives.
    • Multiple projects displayed questionable practices in how they utilized ARB incentives
    • Many protocols saw sharp declines in usage post-incentives. Reporting quality varied, with some projects failing to provide transparent updates.
    • Several projects are adjusting their incentive mechanisms for future rounds, aiming for more targeted and sustainable growth, while others have continued with similar structures despite mixed results.
    • Identified misuse of funds per STIP rules by Synapse, who eventually returned 750k ARB back to the DAO in addition to withdrawing their 950k ARB STIP Bridge request. Ultimately saved the DAO 1.7M ARB (~$1.4M at that time)
    • Identified misuse of STIP funds by Furocumbo, which led to Arbitrum Foundation seeking the banning of the team of receiving any future incentives

STIP-Bridge (Extended Deadline Applicants) – Support Material for the Community

  • Additional support material for the community to use when reviewing STIP Bridge applicants who applied after the initial deadline of May 3, 2024 and have thus been automatically put up for a challenge vote on Snapshot.

STIP Retroactive Analysis – Perp DEX Volume

  • Conclusions:
    • STIP impacted trading volumes differently across perpetual DEXs. Vertex and GMX saw significant volume boosts, with Vertex benefiting most per dollar spent.
    • The analysis suggests that traditional fee rebates, as used by Vertex, GMX, and MUX Protocol, were more effective than gamified incentives employed by Gains Network and Vela.

STIP Retroactive Analysis – Spot DEX TVL

  • Conclusions:
    • STIP in H2 2023 significantly impacted TVL in spot DEXs, with WOOFi and Camelot seeing the highest gains.
    • Balancer and Trader Joe also benefited but with a more modest impact.
    • WOOFi excelled in liquidity-specific incentives despite its underperformance in overall TVL impact.

STIP Analysis of Operations and Incentive Mechanisms

  • Conclusions:
    • STIP was likely a reason for why Arbitrum’s market share (with respect to certain metrics) didn’t diminish with new competition popping up.
    • Major mechanisms included liquidity incentives (~30%) and fee rebates (~25%).
    • Most protocols saw initial growth during STIP, but metrics often reverted to pre-STIP levels afterward.
    • STIP initially boosted Arbitrum’s market share in most major DeFi metrics, but gains largely reverted post-program.
    • Market ultimately gravitated towards a baseline cost of capital, meaning future incentives should target ecosystem-wide yield targets
    • Protocol incentives should be a function of vertical-specific metrics and not be so open-ended

STIP Retroactive Analysis – Yield Aggregators TVL

  • Conclusions:
    • Targeting LPs directly and uniformly can be effective in boosting TVL.
    • Flexibility in incentive strategies, as shown by Umami’s pivot to direct ARB emissions, can enhance outcomes.
    • A more proportional distribution of incentives may lead to higher efficiency, as evidenced by Solv Protocol’s success.

STIP Retroactive Analysis – Sequencer Revenue

  • Conclusions:
    • Statistically attributed STIP to 43% of Arbitrum’s revenue between November 2023 and the Dencun upgrade, amounting to $15.2M in sequencer revenue against $85.2M spent on incentives.
    • Despite its positive short-term impact, the program resulted in a $60M net loss, highlighting the need for more effective future incentive programs and more attention to long-term sustainability and growth.
    • Future programs should focus on better-structured incentives and persistent user metrics to maximize ARB spending.
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