[RFC] Incentives Detox Proposal

Proposals Finalized AIPs
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Below is the recording of the second call, the call’s transcript, and the chat log. You will also find notes on the topics/questions we discussed and a summary of the views expressed. During the call, we did a quick review of what was discussed in the first call, and then Hayden from Blockworks Research presented BWR findings on the STIP program from the research they did as a member of the ARDC. You can find a summary of all their research and findings in the comments above.

Links

Recording - Liquidity Incentives Call #2 (28.8.2024)
Transcript - Liquidity Incentives Call #2 (28.8.2024)
Chat Log - Liquidity Incentives Call #2 (28.8.2024)

Summary

The things that were discussed were:

  • The importance of determining the goal of an incentive program and
    agreeing on necessary metrics to monitor its success.
  • Long-term and short-term successes may conflict, and the program should be monitored
    continuously to make ongoing adjustments.
  • The target users should be outside of Arbitrum, preferably from other chains like Tron or
    Binance Smart Chain.
  • The success of each protocol distribution should be monitored and measured live for
    timely adjustments
  • The need for tangible, organized versions of ideas to facilitate structured
    discussions.
  • The need to define strategic objectives and align incentive programs with
    these objectives.
  • The need for a clear vision and alignment on strategic objectives before
    designing incentive programs.
  • The need for a smaller budget with very specific goals to support protocols

From the presentation of Hayden from Blockworks research, we discussed:

  • The initial growth of protocols during STIP was driven by liquidity incentives and fee rebates, but usage declined post-incentives.
  • STIP boosted Arbitrum’s market share in major DeFi metrics, but gains largely reverted
    to baseline costs of capital.
  • The cost of capital within Arbitrum increased during STIP due to boosted yields and
    lower fees, leading to user and capital migration.
  • Protocols with unique mechanisms or new products outperformed others, amplified by
    incentives.
  • The cost of capital for verticals converged as users found the correct yield across the
    vertical.
  • The cadence of incentive distribution allowed sophisticated users to jump from protocol
    to protocol

In terms of ideas for future programs:

  • Suggestions include having a unified incentive framework with application-specific
    criteria
  • Emphasis on normalizing incentives per protocol based on metrics like TVL, volume, and
    sequence of revenue.
  • The importance of continuous monitoring and immediate feedback to avoid misuse of
    funds.
  • A unified incentive program where protocols sign up for specific incentive programs.
  • Protocols should invest their own money in incentive programs, while the DAO pays for
    users who stay active. The goal is to ensure protocols use incentives to build value over time, not just to extract incentives.

For next call:

We encourage participants to prepare for the next call and share their visions and lessons earned with the rest of the working group. If you have an analysis, a report, or other findings to present during one of the upcoming calls, please reach out to Sinkas on Telegram.

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