[RFC] Incentives Detox Proposal

Proposals
44

Voting (very strongly) “For”

Going to add more info shortly, but at the crux of my vote is that I don’t believe there has been a material and meaningful enough review of the incentive programs to date. I don’t think the incentive programs are running as smoothly as they need to be (which, btw as a caveat - isn’t a dig at the actual people running them but the broader picture). And at this point there is no excuse not to do this as we’ve now had multiple iterations of incentive programs to based our data off of.

I fear if we don’t take a forced break another 6 month incentive program will just be pushed through due to pressure from entitles that just want to continue getting ‘free’ ARB for their programs.

45

After consideration Treasure’s Arbitrum Representative Council (ARC) would like to share the following feedback on the proposal

Name aside, we are very aligned with the contents of the proposal and voted FOR.

:point_up_2:yes please

However, we disliked the framing of this as a detox. Detox implies the recovery from a harmful and damaging substance. Moreover, those recovering on a detox don’t usually dive right back in after cleansing their system. The ARC also noted that the term “incentives” is somewhat ambiguous when we actually are talking about direct user incentives.

These points aside, a structured long-term approach to user incentives is clearly needed, and this proposal moves us a step forward in the right direction.

1 Like
46

We at Castle Capital acknowledge the importance of pausing the current incentive programs to create a robust and effective framework moving forward. We believe this is a crucial step to ensure the sustainability and efficiency of our initiatives.

Comments

  1. No Hard Deadlines on Detox: We recommend against imposing strict deadlines for the detox process. Instead, let’s focus on thorough analysis and strategic planning to guide our next steps effectively.

  2. Establish a Fast-Acting Working Group: Paid WG Lead and Data Analysis Teams: To expedite this process, we propose the formation of a dedicated working group led by a paid WG lead and supported by paid data analysis teams. This will ensure that our efforts are focused and we can move swiftly and efficiently.

  3. Seamless Transition from LTIPP Workstream to New WG: The transition of responsibilities from the LTIPP Workstream to the new working group should be handled rapidly. This will ensure continuity and leverage the existing knowledge and data in collaboration with ARDC and other relevant bodies.

  4. Consolidated DAO Goals and Vision: A unified vision and set of goals for the DAO are paramount. These should guide the direction of all incentive programs and ensure alignment across the community.

Future Steps

  1. Define DAO Vision and Goals: Establish a clear and shared vision for the DAO, along with specific goals that our incentive programs aim to achieve.

  2. Data Compilation and Analysis: Gather and analyze all existing data from previous programs such as STIP, LTIPP, and STIP bridge. Assess their effectiveness and impact in alignment with our newly defined vision and goals.

  3. Report and Recommendations: Compile a comprehensive report detailing the lessons learned from qualitative and quantitative data. This should include actionable recommendations for future programs.

In conclusion, we favor pausing the current incentive programs to create a more structured and effective framework. However, we caution against setting hard deadlines and emphasize the importance of thoroughly analyzing previous initiatives. By defining a common DAO vision and goals, we can ensure that future incentive programs are aligned and effective.

We look forward to collaborating with the community on this important initiative.

4 Likes
47

We want to thank @Sinkas and @krst for proposing such an important topic. To be honest, we think that the Arbitrum DAO has recently been making bold and generous expenditures. Therefore, we would be pleased to see incentives that are more thoughtfully considered and based on past feedback.

However, we debated within our team whether a detox was necessary for this. Some of our team members were not entirely comfortable with committing to such a thing. After all, instead of focusing on a “time period,” simply increasing “quality” and raising “awareness” among people might be sufficient for a great proposal or incentive.

In the end, we still decided to vote “FOR” the proposal because sometimes these things remain theoretical, and we agreed that allowing time would be helpful in most cases. We are happy that a step has been taken on such a sensitive issue.

48

Hey everyone,

I understand that my perspective may differ from the majority here, but I think it’s crucial to consider the potential consequences of halting incentives abruptly on the broader Arbitrum ecosystem.

The protocol I represent recently received a grant from the Foundation to build on Arbitrum. This was a significant achievement for us, and we’re excited to contribute to the ecosystem. However, without any ARB incentives to distribute, we’ll face considerable challenges in competing with incumbent protocols that currently offer over 32k ARB/month in incentives.

In light of this, I believe the approach suggested by @CastleCapital could be a more balanced solution, particularly for newcomers striving to bring their DeFi applications to the chain.

I’m a strong supporter of what Arbitrum is building and have spent months working closely with the Foundation to articulate our vision. My concern is that the current proposal, if implemented, might inadvertently hinder new builders from thriving, thereby impacting the long-term diversity and innovation within the chain.

I believe we should aim to create a fair and supportive environment for all projects, new and existing, and I hope we can find a compromise that ensures this.

1 Like
49

Gm Arbinauts! :sunny:

The results are in for the [Non-constitutional] Incentives Detox Proposal | Dhive proposal.

See how the community voted and more Arbitrum stats on ⬡ Dhive.Io .

52

I voted “FOR” this proposal because, let’s face it, we need a breather. The DAO has been running from one incentive program to the next without stopping to learn from them. This 3-month pause lets us catch our breath, dig into the data, and design a smarter, long-term incentives program that actually works. It’s like hitting pause on a Netflix binge—time to reflect before diving back in for more.

53

very needed, there hasn’t been much progress since the first incentives if we are critical - the effectiveness of the distributions are the same and there has not been a real effort to understand what worked and what didn’t.

from what i can see, there have been several protocols that have extracted value through these incentives and yet there has been no accountability for this?

there is negative value in moving forward with more incentives until we understand what actually worked and how to make a better programme.

54

I voted for in this proposal. I also think the timeframe proposed is reasonable to analyze results and decide on the next steps. It has become extremely difficult to keep up with all the progress, different initiatives, and results for each one. Taking time to gather and review data is a good idea.

1 Like
55

I think this is a good idea because it emphasizes the importance of taking a step back to analyze past incentive programs before launching new ones. This ensures future incentives are data-driven, impactful, and sustainable.

56

The following reflects the views of L2BEAT’s governance team, composed of @krst and @Sinkas, and it’s based on the combined research, fact-checking, and ideation of the two.

With the Snapshot proposal being successful, we’ll begin facilitating the incentives working group as outlined in the proposal. To kickstart the process, we’ll set up a weekly call. We’ll initially facilitate the calls and try to navigate the discussion, but we hope for it to be an open and collaborative process for all participants.

For async coordination, we’ll use and repurpose the already-existing “ARB Liquidity Incentive Workgroup” group chat on Telegram, which is already filled with participants and historical context.

Recurring Working Group Calls

Starting this week, we’ve set up a recurring 1-hour call every Wednesday (starting on the 21st of August) at 16:00 UTC (12:00 EST / 00:00 SGT). You can join the call here.

:bulb: You can add the Arbitrum DAO Governance Calendar to your Google Calendar to see this and all other DAO events.

Presentation of Key Takeaways

As outlined in the original ‘Incentives Detox’ proposal, several different parties have already conducted and published numerous analyses. We understand the challenge of reading, understanding, and fully comprehending all the key takeaways from the various reports coherently.

To that end, we’ll use the first (few?) calls so different parties can present the key takeaways from their research and analysis and discuss them with the rest of the working group. That way, we’ll hopefully be able to kick things off on the same foot regarding context when we start designing a new perpetual program.

While we’ll be actively reaching out to the authors of some of the reports to invite them to present their findings, we urge everyone who has conducted some sort of analysis on the design or the impact of STIP, STIP Backfund, LTIPP, or STIP Bridge to reach out to us on Telegram so we can schedule time for them to present their findings on the call.

4 Likes
57

Just as an idea, the LTIPP Discord is also available, where literally everyone who participated in LTIPP and B.STIP is there (over 600 users, including delegates, LTIPP/B.STIP workstream members, and applicants). We could create a specific channel for these calls, announce it as an event on Discord to raise awareness, and create roles so that anyone signed up to speak (whoever wants to) can do so, and the rest can listen. This way, all builders have the opportunity to listen and contribute their experience if they wish.

58

For tracking purposes: I voted for on this proposal, and I’m willing to work on the groups analysing all the data

59

Voted for this proposal.

Reason: The initiative learnings and impact measurable viz a viz the initial proposal is must to take decision on what we started with, where we are, what is the impact and is it on the path of vision and goal.

60

A well thought out and mission driven incentive program is always important. Thanks @Sinkas @krst L2BEAT’s team for taking the initiative.

1 Like
61

gm, I am in support of taking a break from any kind of incentive program to evaluate concluded and existing ones. Hopefully, analysing the concluded incentive program would give us the data needed to channel our energy into.

I suggest that subsequent incentive programs remain temporal and can be renewed according to any duration agreed by the DAO. This gives the DAO the ability to decline renewal of the incentive program if any project didn’t meet their milestones.

62

Below is the recording of the first 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. At the very bottom, there’s a culmination of the key takeaways from the discussion.

Links

Recording - Liquidity Incentives Call #1 (21.8.2024)
Transcript - Liquidity Incentives Call #1 (21.8.2024)
Chat Log - Liquidity Incentives Call #1 (21.8.2024)

Summary

Why even have incentive programs on Arbitrum?

Incentive programs will help:

  • Arbitrum remain competitive with other L2s.
  • Attract new users to the ecosystem.
    • Userbase from other chains (e.g. BNB)
    • Ultimately, new users might be more valuable than existing users in other chains.
    • For other chains, we should focus on non-EVM ones (e.g. Tron)
  • Attract new protocols to deploy on Arbitrum.
    • Builders’ perspective is that Arbitrum will support them.
  • Attract sticky capital
    • ETH in canonical bridge
    • Stablecoin TVL across the chain
    • Sequencer revenue
  • Incentivize user behavior for growth.
    • Growth in users, protocols, or capital will be accelerated. Incentives will act as marketing.

What should we expect from an incentive program?

Incentive programs should:

  • Have a very clear and specific objective.
    • Growth of users
    • Growth of protocols
    • Growth of capital
  • Have their success measured with metrics (KPIs) relative to their objective (e.g. unique users if we’re incentivizing user growth).
    • KPIs might be conflicting
  • Be monitored as they’re running and not retroactively.
    • Adjustments should be made as we go and not wait for the program’s end.

Key Takeaways

For an incentive program to work, we need first to determine its goal and agree on the necessary metrics to monitor its success, taking into consideration that the long-term and short-term success might be conflicting.

The target users/protocols/capital should be outside Arbitrum and preferably outside EVM chains. We should target users/protocols from other chains (e.g., Tron or BSC) and people outside of crypto. Growth coming from outside is more valuable.

The success of each protocol’s distribution should be monitored and measured live rather than retroactively so adjustments can be made if needed.

3 Likes
63

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.
2 Likes
64

Voted Abstain, as I believe that directionally this may make sense - but we need strong milestones and next steps to ensure that research is accomplished, and a program is established for future incentives.

65

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.

3 Likes