[RFC] Incentives Detox Proposal

Proposals Finalized AIPs
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TL;DR

Incentives detox is officially over. We now invite people that have been working on proposal for incentive programs to come forward and propose them to the DAO. We have compiled a list of useful input from the past 14 calls of the ‘Liquidity Incentives Working Group’ that proposal authors are encouraged to incorporate in their design.

This post officially marks the end of the ‘Incentives Detox’ proposal and the period of holding back from trying to implement an incentives program in Arbitrum. From today onward, we encourage individuals, teams, or organizations that want to propose an incentive program design to do so in the forum.

There are already a few proposals being worked on that have been presented and discussed in past calls of the incentives working group. Moving forward, we think that ETH Denver is a good deadline to aim for in terms of being in a position as a DAO to announce the new program. To do so, we need to utilize the next few weeks to make headway in narrowing down the program we want to implement.

To help facilitate the process of incorporating feedback from all participants of the working group over the past 14 calls, we’ve fed the transcripts of the calls into ChatGPT and created a list of suggestions that have been brought up. We then filtered the suggestions to remove duplicate ones and then proceeded to group them together under common themes.

Here’s what we came up with:

KPIs and Monitoring

  • Design incentive programs with clear goals, such as boosting TVL, attracting protocols, or increasing capital stickiness.
  • Measure incentive program success using specific KPIs, such as unique users, TVL, or sequencer fees.
  • Design incentives based on vertical-specific KPIs, such as DEX volume or lending protocol utilization.
  • Use predictive analytics to adjust reward distributions dynamically based on market conditions.
  • Monitor incentive programs live to allow for mid-course corrections rather than postmortem adjustments.
  • Leverage data-driven dashboards to monitor metrics in real time.
  • Collaborate with analytics firms for real-time compliance monitoring during programs.
  • Introduce short-term incentive seasons (e.g., three months) to enable rapid iteration and targeted objectives.

Direct incentive distribution

  • Use retrospective rewards rather than upfront incentives to ensure actual outcomes.
  • Make use of direct-to-contract incentives that validate user activity on-chain.
  • Reward liquidity providers directly instead of funding protocols.

Long-term user/capital retention

  • Explore mechanisms to retain capital, such as rewarding only after users maintain capital within the ecosystem for a defined period.
  • Incentivize long-term participation through staking tiers, with higher rewards for longer commitments.
  • Introduce “progressive incentives”, where rewards scale with sustained activity over time. Incentivize user retention through reward vesting mechanisms.
  • Incentivize long-term staking programs to build user loyalty.

Asset / Vertical / Protocol Selection

  • Incentivize usage of wrapped assets, like wrapped ETH, to grow Arbitrum’s market share.
  • Prioritize the growth of spot markets as a foundational layer for DeFi.
  • Limit the scope of rewards to well-established assets or leading categories, avoiding speculative or low-TVL projects.
  • Target new protocols and users on other blockchains, such as Tron or Binance Smart Chain, to expand the user base.
  • Focus on protocol-specific incentives for bridges, lending platforms, and DEXs.
  • Shift toward vertical prioritization, such as focusing on DEX and lending over gaming
  • Reward protocols based on their innovative incentive mechanisms, such as gamified rewards.
  • Incentivize behavior-based actions, such as liquidity provision or user engagement, rather than blanket rewards.
  • Use gas fee reimbursements as a form of user incentive.
  • Encourage protocols to adopt modular incentive structures that can scale with user activity.
  • Reward high-value users (e.g., whales) by targeting their preferences, such as deeper liquidity.
  • Introduce programs focusing on building the deepest liquidity pools for specific assets. Implement granular incentives targeting specific user actions, such as deposits into liquidity pools.

Protocol Collaboration

  • Incorporate cross-protocol collaboration in incentive design to maximize synergies. Reward cross-chain integrations that funnel activity into Arbitrum. Develop multi-chain incentives to bridge activity between Arbitrum and other chains.
  • Prioritize protocol partnerships to co-sponsor incentive programs.

Marketing & Operations

  • Encourage off-chain marketing campaigns targeting non-crypto users, such as forex traders or fintech users.
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