Synapse STIP Addendum

Archive STIP Bridge Addendum
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Synapse Protocol STIP ADDENDUM

Synapse Protocol was granted 2M DAO in the STIP Backfund proposal to increase bridge volume in the Arbitrum Ecosystem and launch Intent-based, slippage free bridging.

We delivered on both, bridging ~$3.8b (10x) during the program, and bootstrapping SynapseRFQ which provides slippage free bridging on up to $5m in under 15 seconds.

  1. Can you provide a link to your previous STIP proposal (round 1 or backfund)?
  1. How much, in the previous STIP proposal, did you request in ARB?

Amount requested: 2,000,000 ARB

  1. In which date did you start the incentive program for your users and in which date did it end?

STIP Back Fund distributions for Synapse started 26th of January 2024, and ended 29th of March 2023

  1. Could you provide the links to the bi-weekly STIP performance reports and Openblocks Dashboard?

Bi-Weekly Reports

Openblocks Dashboard

  1. Could you provide the KPI(s) that you deem relevant for your protocol, both in absolute terms and relative change, for the first of each month starting from October 2023 until April 2024, including the extremes? If you don’t know what KPI might be relevant for you or how to properly define them, please refer to the following document:

Attached is a Dune Dashboard that looks at bridging during the STIP program

Outside of KPIs

Bridge Volume

DATE 01/10/23 01/11/23 01/12/23 01/01/24 01/02/24 01/03/24
Volume ($M) 95.6M 113.4M 233.1M 210.5M 914.9M 2.88B
TVL % +18.5% +31% +56% -9% +334% +215%

MAU

DATE 01/10/23 01/11/23 01/12/23 01/01/24 01/02/24 01/03/24
MAU (K) 31k 42k 76k 50k 95k 112k
MAU % -25.6% +34% +80% -33% +89% +17%

[From the dune dashboard above]
STIP also helped to launch and scale RFQ, which brought bridge fees near zero and transactions that complete in < 30 seconds.

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The program also helped to incentivize > $3B in total volume.

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  1. [Optional] Any lessons learned from the previous STIP round?

A general lesson we learned was that incentives need to be updated quite frequently, and that incentive design can be carefully crafted to create organic volume and find more sticky users. Specifically, incentivizing certain routes and adjusting the size of those incentives helped to grow RFQ, and find users that converted from other bridging alternatives.

New Plans for STIP Bridge

  1. How much are you requesting for this STIP Bridge proposal?

    950,000 ARB (47.5%) of the original grant amount.

This is what Synapse thinks is necessary to achieve similar results and scale the intent base RFQ system.

  1. Do you plan to use the incentives in the same way* as highlighted in Section 3 of the STIP proposal?

Yes, incentives will be allocated as following:
62.5% to Bridge fee and gas rebates
37.5% to Relayer incentives

37.5% is being allocated to relayers to specifically encourage onboarding of new relayers that will make quotes even more competitive, and broaden the set of assets and chains supported. In the last round, incentives were distributed proportionately to the ($) amount each relayer bridged. This incentive structure rewards relayers with the best pricing, and best routes, and will be used again.

Also important to note that incentives are not used for any liquidity mining.

  1. [Only if answered “no” to the previous question] How will the incentive distribution change in term of mechanisms and products?

    N/A

  2. Could you provide the addresses involved in the STIP Bridge initiative (multisig to receive funds, contracts for distribution, and any other relevant contract involved), and highlight if they changed compared to the previous STIP proposal?
    The address will be:

Both Contracts remain the same

  1. Could you share any feedback or suggestion on what could be improved in future incentive programs, what were the pain points and what was your general evaluation of the experience?

    While the overall program experience was positive, I think a better way to streamline community feedback around incentives would help to create a positive flywheel around effective incentive spend. There was not as much forum activity around weekly updates as there could have been. In general I thought most of the process would’ve worked out quite well. I would have liked for OpenBlocks to be better incentivized so they could carry a heavier load on reporting and centralizing that info.

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Hello @moses ,

Thank you for your application! Your advisor will be SeedLatam Gov @SEEDGov

Please join the LTIPP discord and ping your advisor in the general chat so they can create a new channel and start communicating with you.

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Hi @moses we are waiting for you in the discord!

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Wanted to add some clarity on some of the items our advisor pointed out.

Data Reporting:

In the initial STIP Backfund program, Synapse Labs created a bespoke data stream on Dune to track solely the incentivized routes and RFQ. While we relied on this as the source of truth internally, other data tools did not support this level of granularity at the time. Thus OpenBlocks and the Synapse Explorer only offered a small peak into the efficacy of the program. An example of this is the API exposed only returns volume “from” Arbitrum, when a majority of the incentivized routes were “to” Arbitrum. To solve this Labs is working with OBL to upgrade the data streams so they have sufficient tooling to do their job, and also go a step deeper.

Another goal for the program would be to get more granular with data reporting and track where dollars are going/what users are doing once they enter the ecosystem. Research for Synapse on Optimism shows that Synapse drove 25% of all high-value users to the chain. Tracking this activity on chain helps to make the impact from grants like this more obvious, and more data on user behavior, organic activity, and alignment with general Arbitrum ecosystem goals for growth help everyone to make more informed decisions.

Incentive Structure:

In the addendum we specifically outlined what relayer incentives look like. The initial relayer incentives were a success: in the last month, 90% of intra L2 volume has gone through SynapseRFQ. Relayers offer quotes that are more competitive than fee-less CCTP, and most aggregators, and have finality times < 20 seconds. The new incentives should drive more competition and diversity amongst relayers, as well as offer new routes and assets.

The majority of rebates are allocated towards fee and gas rebates. In LTIPP there were several concerns with direct fee rebates. In this scenario, fee-rebates look more like liquidity incentives for just-in-time liquidity. A large portion of fees go directly to relayers in return for assets on the desired chain. This is infinitely cheaper than incentivizing the existing Uni v2/v3 pools on synapse that over pay for liquidity and offer worse pricing. This subsidy for liquidity provision also encourages the proliferation of relayers, and competition that drives down price and speeds. Relayers already offer slippage-free, near instant bridging, and this direct subsidy for liquidity provision encourages more relayers to onboard.

** Synapse DAO employed several measures to prevent sybiling, these methods were not publicized to prevent abuse of these rules.

Summary of KPIs:

Expand SynapseRFQ specifically by encouraging relayer onboarding and increasing competition. This includes the nominal amount of relayers in the ecosystem, the routes, chains, and assets supported, and the resulting decrease in quote prices and bridge speeds.

Encourage new $$ into the Arbitrum ecosystem. With SynapseRFQ, bridging to Arbitrum will be slippage free from any chain. This should also be directed in a way that encourages participation in the larger arbitrum defi ecosystem (ie users should bridge to use partner protocols like GMX to truly onboard onto the chain).

One note is that Synapse did not and will not incentivize traditional liquidity pools using the grant. The goal of the initial stip program was to provide slippage free bridging, and this is most efficiently done through SynapseRFQ

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Following feedback on the proposal to establish the STIP Bridge, it was agreed to involve the LTIPP Advisors in this process with the mission to “help applicants gain insights into their proposals. This not only guides applicants through the process but also ensures that the DAO will review better proposals.”

Despite the inclusion of Advisors, this process does not involve the Council, leading us to believe that this addendum places a significant burden on the delegates who must review all the proposals. One of the reasons for the LTIPP was precisely to avoid this excessive burden. Moreover, the optimistic model adopted in this phase could raise concerns about the real control the DAO will have over these proposals, as reviewing six months of data for each applicant is time-consuming.

For this reason, we decided to accompany each application we reviewed with a brief report. We ask the delegates not to take this as an in-depth or definitive basis for deciding your vote, but rather as a guide that can potentially raise questions for your own analysis.

Regarding Synapse, with STIP incentives their objectives were:

Regarding objective 1, we think it was met positively. The trading volume has been very good. What we noticed is that there’s a difference between what is reported in the OBL dashboards, defillama, the synapse explorer, and their own Dune, regarding the volume metrics they report in the addendum:

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Also, we are concerned about the significant drop of that volume after incentives have ended:

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We recommended the applicant to clarify in the addendum the difference between the dashboards and the reasons for these differences. In Discord, they explained that the difference was because the first three dashboards didn’t track the RFQ volume.

Regarding the support & grow of Arbitrum projects, it is a hard objective to measure. Synapse hasn’t provided specific data regarding the outcome of that objective.

Point 3 was not only unmet, but the TVL from Ethereum today accounts for more than 70% of Synapse, while that of Arbitrum is around 25%. For Synapse, as well as for other bridges running incentive programs, the volume coming into Arbitrum and the amount of Tx and unique users should be measured.

Something we noticed and was then brought up to the forum by Blockworks, is that they sent 750K ARB to 3 wallets without much explanation of the reason. In Discord they explained to us that The Synapse DAO voted to spend that specific allocation half on bridger rebates and half on relayer incentives, which is why those wallets received ARB. They also gave the same explanation on the forum.

Also, they used that ARB to delegate to Socrates0x, a team member of Synapse.

Both things were against the STIP rules: Altering the use of the funds and using them to delegate to one of the team members.

About incentivizing relayers, on this opportunity they are including it in the addendum:

Conclusions

This applicant has had some positive results and others not as much. They have not been thorough in the execution of the incentive distribution and have failed to comply with the STIP rules.

Additionally, we believe that the addendum still needs to justify the amount allocated to fee rebates with more data and establish objective, measurable KPIs to make the proposal’s success quantifiable for the DAO.

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Thank you for your review here. To clarify on some of the points raised here:

1. Data Reporting
Throughout the program we published Bi-Weekly updates here: Synapse Protocol Bi-Weekly STIP Backfund Updates - #4 by moses. This data can be used as the source of truth, was audited and is being implemented by Openblocks now to share. The reasons for data discrepancies were all outlined here: Synapse STIP Addendum - #4 by moses

2. Metrics
Synapse delivered on the first and most important goal of the program, Encouraging new $$ into the Arbitrum ecosystem. (More than $3b in bridge volume). These dollars flowed into partner protocols like GMX and Uniswap through modules like SynapseX and xAsset token bridging. In regards to the last goal of increasing TVL → The development of SynapseRFQ accomplished the first two items in a capital efficient way, such that idle liquidity (TVL) is replaced with just-in-time liquidity providers (relayers). So while TVL on Arbitrum did not increase by an order of magnitude, bridging and volume overall increased more capital efficiently than any liquidity based bridging,

3. The allocation of 750k ARB was not only allocated in the original proposal under “Slippage-free bridging” (which was accomplished), but also was earned delegated by individual relayers (and since @socrates has requested that they undelegate). I further elaborate on this here: Concerns Regarding Possible Misconduct by Synapse with Respect to the Usage of ARB Incentives Allocated Through the STIP - #4 by moses

@socrates elaborates on the delegation of the 750k ARB by the relayers

  1. 750k ARB was distributed to bridgers as fee rebates, and 750k was distributed to RFQ relayers. I asked those relayers if they’d consider delegating their Arb to me which they did. As mentioned in @moses’s reply, I can see how this could be viewed as some sort of “quid-pro-quo” and have since asked them to undelegate or vote themselves. That said, I don’t think it’s against STIP rules; my understanding is the ARB shouldn’t be used by the DAO for governance, but after it’s distributed to relayers, users, LPs, etc, they can use it for governance.

futhermore:

In regards to the use of Arb in governance, a clarification of the rules here would be helpful. The original STIP proposal says, " Grants are not to be used in DAO governance". Our understanding of this was that Arb tokens given to the respective STIP DAOs shouldn’t be used in governance but once they’ve been distributed, it could be used. Similar to how LPs & traders that received Arb from GMX’s STIP program could use the Arb in governance.

The full response to these concerns can be found here: Concerns Regarding Possible Misconduct by Synapse with Respect to the Usage of ARB Incentives Allocated Through the STIP - #5 by Socrates

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Synapse will be withdrawing from STIP-Bridge. Please consider our application withdrawn. We will be responding further with a detailed post but just posting this now in the interest of time since the challenge period is coming to an end.