Supporting (some of) the needs of builders through grants: a simple analysis of what the DAO could do next

The following is a destructured post that tries to highlight what protocols need and what the DAO could do for them, with a focus on grants. Would like to remark: this post is focused on the builders point of view, from people that don’t do governance, or that don’t do governance only, but that are trying everyday to build and innovate something in the Arbitrum ecosystem. So for sure is missing some more stuff.

First, a very brief, personal view of the L2 landscape. The landscape of L2s is getting competitive as time goes by. While fundamentals for Arbitrum are here, cause the tech stack is awesome, fundamentals matter only up to a certain point in competing products (and who says this is not true has never been building anything in life, sorry). So the key is all about making the Arbitrum stakeholders perceive and realise that Arbitrum is the best place to be.

Who are the stakeholders here? From a builder standpoint: builders and users, either on Arbitrum or outside Arbitrum.
How do you align everybody about Arbitrum being the goto place to be in? This is a strategic question that could be answered in several ways. My personal take: the simplest way, which also not the one most cost efficient, is that you do here AT LEAST what competitors do, plus some more. To be more specific

  • give users a good experience and an economic reasons to be on arbitrum —> means good products (owners: protocols), good UX (owners: protocols/OClabs), incentives (owner: DAO/protocols)
  • give builders a reason to build in Arbitrum, or keep building in Arbitrum, instead of doing it somewhere else —> means tech support (owner: OClabs), marketing support for reach (owner: Arbitrum Foundation), economic support to bootstrap, build and sustain products (owner: DAO).

We can try to focus on what the DAO can do of the above, which is

  • providing incentives for usage
  • providing support to build new products or migrate existing ones in Arbitrum
  • provide support to bootstrap new, smaller products.

Below I have tried to give a raw overview of what that should mean in term of grants’ programs.

DEVELOPMENT GRANTS
This is the biggest gap of the DAO. So far we have subsidizied to third parties (the foundation, questbook and others) this role, but the DAO should create a pilot development program and iterate on it up to the point in which almost any async request from protocols can be satisfied. The program should be complementary to the one currently managed by the foundation, and have clear rules that avoid abuses (re: all protocols asking for a grant to build every new vault). The biggest hurdle are objective ways to evaluate milestones: if i get a grant to build a car, I could build a tractor or a ferrari. Needs specifications and use cases among others.

INCENTIVE GRANTS
Probably the field in which as a DAO we have more experience. With LTIPP going live, idea could/should be not only to enhance what we saw in STIP, but also gun for a constant program, organised in epoch/seasons, that can constantly provide incentives, with specific rules to avoid abuse. We might be on the right road for this.

BOOTSTRAP GRANTS
These grants are actually a mix of the previous, with a big difference in the size of the needed grant (usually needs a lot less) and also a few specific needs (support in marketing, support in guidance, support in networking). Some of the programs currently live partially fill this gap. If we find a way to have a robust incentive and development grant, the bootstrap grant can actually be created as a subset of the two above.

CONCLUSION
The above is a non comprehensive, high level view of what protocols needs, and what we could do as a DAO to satisfy this needs. To me, the next steps moving forward are pretty clear

  1. find a way to turn the past STIP and the upcoming LTIPP in a continuous program with fair rules
  2. deploying a pilot for a development program
  3. deliver the above in the span of a few months, not quarters or semesters.

Again, there is ton to say here, ton to discuss and ton that is missing: audits and security, what to do with both good and mercenary protocols coming from other chains, how to create rules that are just not the equivalent of a state sponsored subsidisation but that also can let any good protocol spin up better and faster a new product, segmentation of programs through not only scope but also size, etcetera. I am also pretty sure I missed some programs that are live (like UAGP or others).

I really hope that nobody here gets offended by any lack of info in this post, because the goal here is: let’s start having a real public discussion on the next steps regarding what our DAO can do to favour builders.
Because without builders there is no Arbitrum.

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This is good stuff.

I think it is fine to acknowledge that we have gaps, as long as we move as a DAO to fill those gaps with great programs that align strategically with our goals.

Thanks for putting this together JoJo.

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JoJo the goat! (COW)

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I think it all ties in on how to assess the KPIs. Personally, I believe that the following KPIs are too granular and something much easier to assess should be brought forward.

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Good review.
It seems to me that the most promising first point is the transfer of existing projects to the Arbitrum platform, so that everything that is in Ethereum will also be in Arbitrum. This will give a competitive advantage, since the cost of gas will be significantly lower.

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One thing I think about a lot is loyalty; sure, we want to incentivize others to move over into Arbitrum, but other chains are doing the same to have projects expand into their ecosystems. It is kind of a pain to deploy on multiple chains, but if the incentives are right and you are trying to stay competitive, it can easily make economic sense. Need a method to A) evaluate pound for pound spend (I think we can just keep things simple and do ARB grant spend to network fees generated.) B) Prioritize projects with Arbitrum as HQ, C) keep a modest amount available for projects that continue to punch above their weight class/median and commit to remaining on Arbitrum, so projects like ourselves don’t have to spend time thinking about the new wave of L2s about to drop and how they fit into the business plan. Something my community brings up on a regular basis regarding the end of STIP fast approaching.

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seems like a reasonable approach. A and B are straightforward, C a bit less to me, and would be worth expanding.

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While this idea could make sense at a first glance, I don’t think it can be actually used.

Main net has an amount of liquidity that L2 will always dream of. Some stuff is literally doable only on main net because of the size of liquidity, and not a single L2 can’t unfortunately satisfy this requirement (yet, but I also think in future).

In general tho, yes, if there is a way to do X on main net, you would want to do it on Arbitrum as well. But most of the project that gun for cheap gas/fast tx, are already deployed either on Arbi or another L2, and I can’t think about projects that are on main net that would benefit from an L2 and didn’t approach this expansion/migration already.

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With the ArbitrumDAO+RnDAO Co.Lab, we’re taking a 3 phases approach to solve the migration issue for Bootstrap phase, and I think that could be replicated in other programs too:

1: selecting projects that are Arbitrum aligned (can generate sequencer fees and/or are solving a major problem for Arbitrum)

2: network effects through a Business Cluster approach (facilitating deep collaboration between projects in the same vertical) that’s taken to the next level through cross-ownership. This setup incentivizes modularity and composability, and it’s thanks to the integrations that network effects are archived (it’s way harder to convince all your partners to migrate than doing it alone). More on this here: Business Clusters as a Strategy for Arbitrum

3: incentive alignment: medium term we’re working to setup the legal and governance infrastructure so the ArbitrumDAO can be a co-owner of the projects too, participating in their governance as a stakeholder and even if the projects migrate, participating still in their success.

Great framework!
I’d add that for Boostrap Grants, what our research shows is that the key is really offering A LOT of hands-on support (not just mentorship or advise). That’s why Venture Builders are offering better success rates, ROI, and time to series A than accelerators/incubators.
Early-stage teams don’t have a lot of skills in-house, so they can really benefit from fractional cofounders that help them move faster and can reinvent the learnings from one cohort to the next.

That being said, that model only works well when there’s a vertical focus, instead of a generalist program. It takes a lot of expertise to give good advise, so it’s best to be focused and not give generalist recipes.

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Thanks @JoJo, great overview.

Let me add 2 complementary points:

  1. As we look at funding mechanisms from a high level perspective, It might be time to revamp @dk3’s initiative to convert grants into investments.

That would help with:

  • Long term alignment / Loyalty risk
  • More loose KPIs acceptable for early stage projects
  • Less risk for the DAO
  1. (slightly derails from original message, but I think it’s equally important for builders)

I think the Arbitrum ecosystem right now is missing a key element for the success of its apps: an onchain onramp and distribution channel.

In the Superchain ecosystem, this happens via Coinbase and Base. The amount of people that will be brought onchain by Coinbase alone will dwarf all current users.

This is a huge value proposition for builders, that goes beyond pure financial incentives.

How, as a DAO, can we create other powerful channels to create awareness for dapps built on Arbitrum, and easily onboard new people?
How can those become attractive for builders?
How can we incentivize some of those channels to fully align to Arbitrum?

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haha bringing back “The Pledge” nice - I do still believe something like 2% of revenue, or 2% of token allocation is a lot more powerful in paying back the DAO for grants than network fees ever will. Its difficult for me to economically justify massive investments(“grants”) that on network fees alone will take a decade to recoup the cost of the grant.

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