The STEP committee comprising @GFXlabs , @northlakeslegal , @Nethermind , @steakhouse and @karpatkey , with the Arbitrum Treasury and Sustainability Group as nonvoting facilitating member, have come to consensus on recommended allocations between selected products
To not spread the amount too thinly and increase operational or default risk causing loss of principle, we selected only 6 products from the shortlist of 17 shared earlier. Specific amounts to each provider were mostly on the basis of existing AUM (the three tiers were below 100 million, above 100 million, and the topmost).
We commend all applicants who applied under the program.We hope to make 1% treasury diversification via RWA ecosystem growth an annual occurrence so if you are disappointed at not making the list, do try again next year! The extensive documentation provided by each applicant has demonstrated how far the space has come.
The applicants selected and amount allocated (in ARB) is given below
Securitize BUIDL - 11 million
Ondo USDY - 6 million
Superstate USTB - 6 million
Mountain USDM - 4 million
OpenEden TBill - 4 million
Backed Finance bIB01 - 4 million
Some general reflections
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As a committee, we found it hard to balance the conflicting objectives of ecosystem growth and principal protection. As many delegates indicated during the vote that RWA ecosystem growth is a priority of the STEP program, we threshed out a more equitable distribution.
For future iterations, we suggest making the relative priority of objectives more clear. For example, if ecosystem growth is the most important, a single yes vote from any committee member should be enough for a provider to get included in an allocation instead of a majority. There could also be clear stipulations in future programs on how much extra allocation can go to existing providers versus new ones. -
While De-Fi support programs succeed through user or liquidity incentives, RWA providers care most about their AUM. We need some innovation for what ecosystem support in the RWA space can be that goes beyond AUM, such as subsidizing obtaining Moody ratings. We hope to see good work coming on this front from the recently approved RWA program from Areta.
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Some additional considerations the committee considered for narrowing the list from 17 providers
- No investment restrictions, especially worrisome if a provider can use leverage and hedging at discretion of the manager. As one of the committee members expressed, we need something beyond common sense that stops a provider from taking our money and putting it into Argentinian peso bonds.
- Segregated portfolio companies with multiple portfolios are an added risk. Bankruptcy remote is not just having separate bank accounts, creditors look at whether entities are in actuality separate (their own board meeting minutes, payroll with staff, etc) so that the subsidiary entities do not get rolled into the parent one during proceedings.
- Products with a tiny AUM, exposure to a single ISIN or having fund managers without extensive prior experience or outsourced to third parties are riskier bets
- Providers using their own proprietary blockchain or solely that of a competitor were passed on in this round
- Decentralized governance of underlying assets which require additional due diligence and/or have exposure to the Foundation for the same add an extra layer of unpredictability
- Redemption procedures have a lag period measured in weeks or months or are limited to a single stablecoin that is not USDC, USDT or DAI or require a bank transfer
- Insufficient documentation such as not providing a PPM, investment memo, counterparty for reverse repos, guidelines, restrictions, having annual audits only or from unknown auditors or managers
- High fees that are uncompetitive in the current rates environment
- Appears unlikely unlikely to develop secondary market liquidity to underwrite against
- Operationally burdensome and requires more active oversight than is desired since individual issuances mature without auto-roll
Next Steps
We will keep a comment period of ~10 days before moving for Snapshot approval of the recommendations on Monday 1st July.
We shall host office hours on this link with members of the committee on Wednesday (28th June) at 330 pm UTC to address any questions. We will also try attending the later part of the open governance call just prior to the office hours. We will not take individual questions on why a particular provider was not included and keep the conversations to a more general level.
We hope this has been and will continue to be an educative experience for all members of Arbitrum DAO!