Applicant Name: Cowri Labs
Project Name: Shell Protocol
Project Description: Shell Protocol is the frontend of DeFi. It’s a developer platform and composability solution that lets you make atomic transactions that can combine any set of primitives, like LPing, lending/borrowing, bridging, or token and NFT swaps, and more. Enjoy powerful one-click transactions, unbeatably capital-efficient AMMs, and a modular developer experience.
Team Members and Qualifications:
- Kenny White, founder and chief economist. He has been a builder in the space since 2018. Prior to founding Cowri Labs, Kenny worked as a researcher studying energy and geopolitics. He has a BA and MPP from Stanford University. Linkedin. Bio.
- Ishaan Singhal, lead engineer. Github.
- Cairo Smith, marketing. Bio.
- Aleeza Howitt, business development. Linkedin.
- Kevin Feng, backend engineering. Github.
- Daiana Bilbao, frontend engineering. Github.
- Viraz Malhotra, smart contract engineering. Github.
- Petar Popovic, developer relations. Github.
- Website: https://shellprotocol.io/
- Github: GitHub - Shell-Protocol/Shell-Protocol: Shell Protocol Smart Contracts
- Twitter: 0xShellProtocol
Do You Acknowledge That Your Team Will Be Subject to a KYC Requirement?: Yes
Requested Grant Size: 750K
The grant will go towards rebates for swaps on Shell. Half of the dollar value of the rebates will come from $SHELL tokens, the other half of the rebate value will come from $ARB tokens.
If the grant is effective, Shell’s volume will increase and we will hit our metrics. If we blow past our targets, then we can continue the rebate program but using 100% $SHELL instead. On the other hand, if the total cost of rebates within a tranche is lower than the amount of $ARB allotted to that tranche, the remaining $ARB will be returned to the Arbitrum DAO.
If the grant is not effective, and we don’t hit our metrics, the Arbitrum DAO will get its money back. That way the DAO takes on minimal risk.
The long-awaited launch of Shell’s governance token $SHELL is expected this December. This will coincide with the launch of the Shell DAO. More details here.
Context: Out of 200 million Shell tokens, 40 million are being allocated as pre-TGE incentives via $CRAB (a non-transferable placeholder for $SHELL), and 50 million will be allocated towards post-TGE incentives. There have been three promotional periods so far, each of which lasted several months to a year (the last ongoing) and on average saw 10 million $CRAB distributed across each one.
100% of the funds will be used to reimburse swap fees on any trade that goes through Shell Protocol.
Rebates will be awarded to all trades starting on TGE and concluding on January 31.
ShellDrop MultiSig: 0xe29fE11Fa4a6f04A6c582D75A71B0B795A3b9A87
Funding Address Characteristics:
The treasury wallet is a Gnosis Safe 3/5 multi-signature wallet.
Contract Address: N/A
- Attract new users to Shell and therefore to Arbitrum.
- Attract greater trade volume to Shell and therefore to other DeFi protocols on Arbitrum.
- Attract third party protocols to deploy integrations to Shell using the new Adapter primitive. (The Shell team will deploy several integrations, but it is permissionless so other teams are free to add their own.)
- Through increased visibility, attract builders to deploy pools on Shell, especially novel AMMs using our newest primitive, Evolving Proteus.
Key Performance Indicators (KPIs):
- Unique addresses
- LP Performance
Success metrics: Our goal is to 5x our DAU and trade volume by the end of the promotional period.
How will receiving a grant enable you to foster growth or innovation within the Arbitrum ecosystem?:
There are two things to consider.
First of all, our vision is for Shell Protocol to be the frontend of DeFi. Currently there is no single place on Arbitrum where a user can access every single DeFi protocol and make complex financial operations in one click. Shell can fill this vacuum. It is an app that can handle any set of user operations in DeFi in one atomic transaction.
Shell’s architecture enables atomic n-to-m swaps. It can currently handle any token including NFTs and LP tokens, meaning users can combine any type of swap with providing/withdrawing liquidity, among other things. At the time of TGE or soon after, these swaps will be able to go through any third party AMM as well as include DeFi operations involving other third party DeFi protocols like lending pools, NFT markets, and more. This will be possible through the new Adapter primitive.
Our plan is to offer rebates on swap fees as an incentive to try out the Shell app, where users can execute any set of trades or DeFi operations in one transaction. This will accompany a big marketing push that coincides with TGE, third party protocol integrations via the Adapter primitive, the launch of new Evolving Proteus pools, and a revamped frontend for the Shell app.
Alongside these 4 milestones, our approach of reimbursing fees will help bring users to Shell, and therefore to Arbitrum. It will grow not just Shell’s volume but also the volume of any third party protocols that users interact with through the Shell app.
Despite demonstrated traction in its community and TVL, Shell has had lower volume and DAUs than other DeFi protocols on Arbitrum. Currently, Shell users are limited to trading with Shell pools, which excel for niche/Arbitrum-native tokens and unique pools like NFT AMMs but despite featuring more optimized bonding curves, struggle to match the TVL and therefore reduced slippage offered by older AMMs. With Shell v3 and the Adapter primitive expected to go live at TGE, users will be able to access third party pools as well. This will allow us to realize our vision of Shell as the “frontend of DeFi.”
Under the hood, Shell is also a powerful developer platform. Consequently, the second thing to consider in measuring this grant’s impact in the Arbitrum community is what developers might be encouraged to build using Shell Protocol.
Designing an algorithm that both enables precise liquidity concentration, and can evolve over time in a highly customizable way is not trivial. Solving this problem would significantly accelerate the development of advanced LBPs, NFT LBPs, custom pools for large trades, and other innovative use cases. A solution for this via an Arbitrum-native app, like Evolving Proteus, would especially help spur the launch of new Arbitrum-native NFTs and governance tokens. This would solve yet another problem: the lack of deep liquidity for many tokens on Arbitrum as compared to Ethereum mainnet.
Looking to the future of Arbitrum, we believe the big challenge is to support the growth of Arbitrum-native tokens. Arbitrum-native tokens hold a pivotal role in the growth and sustainability of the Arbitrum ecosystem. Everyone knows liquidity can make or break a protocol in DeFi. However, it is very hard for L2s to compete against Mainnet liquidity for Mainnet-native tokens. In contrast, Arbitrum-native tokens naturally have superior liquidity on Arbitrum. For example, consider Arbitrum’s superior liquidity of $ARB, $GMX, $MAGIC, or $VST. The same principle applies to NFTs as well. Arbitrum struggles to match Ethereum mainnet’s liquidity for collections such as Cryptopunks or Bored Apes; whereas Arbitrum-native NFT collections like Smol Brains, Blueberries, or Government Toucans have deep liquidity. Mainnet’s extensive network effect and entrenched user base create significant barriers for L2s (and alt L1s) to attract enough liquidity to be competitive for established token pairs. In order to attract users to the Arbitrum ecosystem, it is crucial to have Arbitrum-native tokens.
This is the importance of Arbitrum-native innovation. Forked protocols from other chains do nothing to highlight the Arbitrum ecosystem, since users can always find the exact same features on Mainnet or other L2s. The best way to attract users and grow the ecosystem is to offer new primitives that only exist on Arbitrum.
Our team is applying for this grant not just because Shell is an Arbitrum-native protocol, but specifically because we want to foster the proliferation of Arbitrum-native tokens—using the next version of Proteus, Shell’s AMM engine. Proteus, like Shell Protocol itself, is an agnostic tool for developers, a public good for the Arbitrum developer ecosystem.
We are about to deploy a new AMM primitive to Arbitrum One: Evolving Proteus (EP). This primitive is a next-generation way to launch new tokens, both fungible tokens and NFTs, natively on Arbitrum. We believe this new tool can help make Arbitrum the best place for launching tokens, and would like to use the ARB incentives program to kick it off with a bang.
Justification for the size of the grant:
Shell Protocol’s contributions to the expansion and enrichment of the Arbitrum ecosystem have been multifaceted and impactful. This strong alliance stretches all the way back to the launch of Shell’s first NFT collection, the Government Toucan. The viral free mint on April 1, 2022 was the biggest day for onboards in Arbitrum history since Arbitrum’s launch—new Toucan users increased the number of wallets on Arbitrum by 3.5% in a single day. The Toucan was the most popular NFT on Arbitrum for many months and to this day, it remains one of the top five PFPs in Arbitrum’s history (ranked by trading volume). Because the mint was a fantastic experience for tens of thousands of Shell users (47,021 addresses), the majority of whom were new to Arbitrum, the Shell team committed to launching Shell v2 as an Arbitrum-native app, and later also launched a second popular NFT collection on Arbitrum, Bro Kwon’s Booty.
The Shell community is now among the top 15 largest and most active communities on Snapshot, but it is the #1 top Snapshot DAO of all Arbitrum-native projects, besides the Arbitrum DAO itself. As a DeFi app, Shell Protocol is currently among the top 10 DEXs on Arbitrum by TVL, and one of the only projects that is building unique and new primitives natively on Arbitrum rather than forking them from other projects and chains. Launched just over one year ago, it is also one of the oldest projects on Arbitrum.
According to the criteria, Shell is eligible for a Siren Grant:
- TVL over the past 30 days hovers around $7.6M.
- It has been live on Arbitrum for over a year.
We have therefore requested the maximum for this category, 750K ARB.
It’s important that rebates are high enough to encourage users, but not so high as to generate wash trading. Every swap has two cost sources: gas and DEX fees. The goal is for the rebate to cover ~85% of the gas costs and DEX fees.
Rebates will be calculated off-chain, which will allow potential wash trades (if any) to be filtered out of the pool of eligible trades. An off-chain implementation will also allow price APIs, such as CoinGecko, to be used to calculate the proper reward. Periodically, at the end of each month during the promotional period, rebates will be distributed to users.
If the program is effective at growing the Shell ecosystem, volume will increase and we will supplement the rebates with $SHELL tokens. If the program is not effective, there will be more $ARB than needed for rebates, and we will return any remaining $ARB to the DAO.
Risk management: Funds will be held in the ShellDrop multisig and disbursed periodically at the end of each month during the promotional period. Users will be able to claim their earned $ARB the same way they were able to claim $CRAB at the conclusion of Season 1. We will integrate $ARB claims into Shell’s custom interface to streamline this process for users.
Protocol fees: At this time there are no active protocol fees. Wrapping tokens into Shell’s accounting layer, the Ocean, is always free. It is also always free to move your tokens around Shell, whether that means transferring your tokens to other addresses within the Ocean, or using them with various applications in the Shell ecosystem—no matter if you make ten transactions or ten thousand. In the future, when users unwrap tokens to use third party protocols, the DAO may choose to implement a percent fee (currently zero). The maximum fee is capped at 0.05%. It is unlikely the DAO will choose to activate this fee during the promotional period. If the DAO does choose to activate this fee, unwraps that remove tokens from Shell will not be reimbursed.
Pool fees: AMM fees depend on the pool in question. Currently, this is the norm on Shell:
- Stable token pools: 0.025%
- Volatile token pools: 0.25%
Depending on the start of TGE (as explained above), $ARB incentives will be applied starting sometime between late October and December, and conclude on January 31. Within two weeks following the last day of each month, users will be able to claim their earned rewards.
Do you accept the funding of your grant streamed linearly for the duration of your grant proposal, and that the multisig holds the power to halt your stream?
Is the Protocol Native to Arbitrum?:
On what other networks is the protocol deployed?:
None, Shell is only on Arbitrum!
What date did you deploy on Arbitrum?:
Sep 12, 2022
From December 2022-July 2023 Shell’s TVL has hovered from around $18M to $13M. Only in the past couple months has it declined, but we believe this is a temporary setback due to the broader economic environment.
- Average TVL (past 30 days): ~$7.6M
- Average daily active users: 360
- Cumulative Volume: ~$206M
- Number of unique addresses that have interacted with Shell contracts: 39,200 unique addresses
- Total participants in current incentives program: 27,282 wallets
- Snapshot community: 43k addresses
- Number of Twitter followers: 42.3k
- Number of members in the Discord: 47,297
By the end of the year, we will hit the long-awaited TGE, establish the $SHELL DAO, and release Shell v3 along with the Adapter primitive and a revamp of the frontend app. In the short term development roadmap, we’re introducing the new Evolving Proteus pools. Considering the release of Shell v3, our token launch, and this killer new version of Proteus, the timing couldn’t be better to team up with Arbitrum on an incentive program.
Evolving Proteus (EP) is a time-evolving version of the Proteus AMM engine. EP builds off of previous work on Proteus, which currently lets teams create custom pools with:
- highly precise concentrated liquidity (better capital utilization)
- fungible LP tokens
- no additional Solidity development required
- atomically composable with other Shell primitives
Well-designed, precise bonding curves have better capital utilization and may capture more trade volume than the competition. While this makes Proteus a powerful tool for building static curves, EP can do even more. The name, “Evolving Proteus,” comes from the fact that the AMM’s bonding curve can change and evolve over time.
Under the hood, EP is like a hybrid of Uniswap v3 and Balancer’s liquidity bootstrapping pools (LBPs). Uniswap v3 offers concentrated liquidity, which results in higher capital utilization. LBPs are a type of AMM that work like a Dutch auction, creating liquidity and price discovery for newly launched tokens. LBPs are also MEV-resistant.
EP will enable Dutch auction-style AMMs like Balancer LBPs, but will also have Uniswap v3’s liquidity concentration capability. This results in more efficient token launches, among other benefits.
EP can also be used to create managed pools (similar to Arrakis) with better liquidity concentration. Another use case is that custom EP pools can facilitate large buy or sell orders while minimizing price impact.
In summary, EP would allow teams to rapidly develop:
- NFT LBPs
- Managed pools
- Customized pools to facilitate large buy/sell orders
- Other innovative projects
Because it is based on Proteus, EP would allow teams to implement any of the above primitives with dramatically improved customizability and fine-tuned curve precision, compared to existing tools.
A note on composability: Proteus is a primitive on Shell Protocol, which means EP can be easily composed with other Shell primitives. Shell is a developer platform and composability solution that lets you make one-click atomic transactions that can combine any set of primitives, like LPing, lending/borrowing, bridging, or token and NFT swaps, and more.
Shell’s contracts have been battle-tested for over a year without a hack. We have just completed an audit of Evolving Proteus with Code4rena and will publish the results in the coming weeks. We completed an audit from Trail of Bits in September 2022.
Further information about Shell’s audit history and security can be found here: Security & Bounties - Shell Protocol Wiki
Is your team prepared to create Dune Dashboards for your incentive program?:
Yes. Some data is available within the Shell App. On this screen you can find a detailed breakdown of each user’s earned points, as well as a breakdown of TVL per token per pool, 24hr trading volume, and APY. We are currently working on an improved dashboard to better display TVL and volume. Here is a preview:
Until now we have been happy with community-created Dune dashboards like this one.
We can certainly develop a custom Dune dashboard to track the incentives program in more detail.
Does your team agree to provide bi-weekly program updates on the Arbitrum Forum thread?
Yes, we can share dashboard updates along with brief written summaries.
Does your team acknowledge that failure to comply with any of the above requests can result in the halting of the program’s funding stream?: Yes