TMC Proposed Allocations V2 -- ARB Strategy

DAO Programs & Initiatives Treasury Mgmt v1.2 - TM Track (ARB and Stables)
1

TLDR;

We recommend that the DAO votes for NO, do not deploy the ARB Strategy.

The three possible outcomes of the vote are:

  • YES deploy the ARB Strategy.

  • NO, do not deploy the ARB Strategy

  • Abstain

The vote will be conducted via Single Choice Voting.

Key changes:

  • No key changes in the proposal; strategy remains the same as in the previous vote.

Abstract

The TMC has divided the partner selection into two groups: one for managing the stablecoin allocation—which covers converting ARB tokens to stablecoins and their ongoing management—and one for managing the ARB allocation for on-chain strategies.

Specifically, the plan is to convert 15M ARB into stablecoins and manage those on-chain, while the remaining 10M ARB is deployed on on-chain ARB-only strategies.

Further information on the TMC mandate can be found here: Tally | Arbitrum | Treasury Management V1.2

Shortlisted Proposals

ARB Allocation (10M ARB)

  • Scope: This group is focused exclusively on deploying 10M ARB tokens into on-chain strategies designed to generate yield while safeguarding the principal.

Partner Selection:

  • Karpatkey

  • Avantgarde & Myso

Allocation Strategy: The on-chain ARB strategy will be managed equally by the two partners using a 50/50 split. Their proposals leverage proven DeFi protocols and ecosystem synergies to maximize risk-adjusted returns while maintaining liquidity and principal protection.

TMC Recommendation

We recommend a vote of NO for the ARB Allocation.

Our analysis shows that the stablecoin strategies presented by the selected partners meet our criteria for DAO alignment, returns, risk management, etc.

Whereas the current ARB proposals lack sufficient risk management and clear operational details—resulting in low yield projections—we believe it is prudent to sit out on this allocation for now.

Voting Outcomes

ARB Strategy Allocation Vote:

  • Yes: Proceed with deploying 10M ARB into on-chain strategies, managed in a 50/50 split between Karpatkey and Avantgarde & Myso.

  • No: Do not execute the on-chain strategy; hold the ARB tokens.

Other Proposals

During our review process, we evaluated several proposals that ultimately did not meet the criteria, required further clarity, or didn’t align with DAO objectives.

  • AnthiasLabs x XBTO: Their proposal did not provide adequate detail on stablecoin conversion, DAO alignment, or custody arrangements, which are critical to our objectives.

  • August Digital: While proposing a single-sided AMM strategy for both ARB yield and ARB-to-USD conversion, the proposal provided minimal details. There was no evidence of existing ARB strategies or a dedicated vault, and the timeline for necessary audits—if smart contracts are involved—was not addressed. Moreover, the risk management section appeared generic, with much of the content seemingly repurposed from other contexts.

  • Bracket Labs: The submission lacked clarity on key operational components, such as the choice of OTC counterparties or DEXes. Additionally, the rationale behind the 2% trading volume figure and the associated price impact considerations were not explained. Although a Stablecoin Vault is reportedly live, the lack of public transparency and reliance on historical yield figures from related funds (rather than the target vault) were significant concerns, compounded by high fee structures.

  • WINR: The implementation details were insufficient, leading to concerns over the alignment of risk and reward.

24.02.2024 Edit V2

Below is a summary of the strategies, including fees and expected returns. Please refer to the tables for full details and note the associated risks outlined below.

Note that strategies might share the same general risks, and differences in returns may come down to how effectively the providers optimize yield under varying market conditions.

There are no guarantees or risk-sharing by the providers. As described below, fees are based on the allocation of assets to each provider and/or their performance.

Note that for the Arbitrum Strategy, while both applicants use Myso they have wildly different reported return profiles (hence different risk profiles).

Arbitrum Strategy

Arbitrum Strategy Protocols Used Exp. Returns Fees
Karpatkey Myso 7-20% 0.5% mgnt
Avantgarde/MYSO Myso 30%+ 15% perf

Key Risks

Arbitrum Strategy

  • Smart Contract Risk: Inherent risk of the protocol being compromised.

  • Asset Risk: ARB could lose all value.

  • Counterparty Risk: If no counterparty is found, the strategy’s yield could drop to 0%.

  • Liquidity Risk: Liquidity is locked for the duration of the call (30 days for monthly, 7 days for weekly).

  • Covered Call Risks:

  • Potential Conversion Risk: If the strike price is reached, the ARB allocation may convert into stablecoins (see “Managing Potential Conversions”).

  • Premium Fluctuations: Option premiums vary based on ARB’s volatility.

  • Secondary Market Risk: If a covered call isn’t held to expiry, exposure to secondary market prices may result as the matched trading firm buys back the call.

ARB Strategies:

When it comes to the ARB proposals, our review was less encouraging. Although there are some promising elements—for instance, Karpatkey and Avantgarde/MYSO show potential—the ARB strategies did not meet our strict criteria for transparency and risk mitigation. Our internal grading highlighted significant concerns:

  • Lack of Transparency: Key operational details—such as ARB option liquidity, allocation splits, and execution mechanisms—were either insufficiently detailed or not publicly verifiable, particularly for strategies involving off-chain fund movements.

  • Inadequate Risk Management: Given recent security breaches and governance failures across the industry, we believe that preserving the DAO’s capital is a priority. Without a clear risk framework, moving forward with these strategies would introduce unnecessary exposure.

  • Trade-Offs vs. Returns: The proposed strategies projected yields between 7% and 30%, depending on the strike price and maturity of options sold, and if the options are sold. If no counterparty is found the options strategy would yield a 0% return. Lending-based strategies offered minimal returns, around 0.16% per year which, even at our maximum allocation, would generate only $10,000–$12,000 annually at current prices. Given the scale of the allocation ($7.5M), these returns do not justify the associated risks.

Given these trade-offs, we believe the risk is not justified for an allocation of $7.5M worth of assets. Until proposals can deliver fully detailed strategies that meet our risk-adjusted return standards, it’s prudent to vote NO for the ARB allocation.

Arbitrum Alignment Consideration:

A key criterion for evaluating submissions was alignment with Arbitrum. While most strategies will be executed on the Arbitrum network, not all will involve Arbitrum native protocols.

There are multiple reasons for this but the main ones are the absence of proposals by Arbitrum native protocols and the fact that most liquidity on Arbitrum is on non-native protocols, making it difficult to allocate a large amount of stablecoin while retaining a competitive yield.

Given the dearth of sufficient proposals, our recommendation is to do nothing rather than something not justifiable from a risk-reward perspective.

Edit 06.03.2025 V3

Further Clarification on the Shortlisted Rationale

TMC Clarification on ARB Strategy Decision

Hello everyone,

First, we want to sincerely thank the teams at @avantgarde, @karpatkey, and Myso for taking the time to discuss their proposals in greater detail with us. We appreciate your proactive approach and the thoughtful contributions you have made, both privately and in the forum.

Below, we provide additional context on our recommendation to defer active deployment of the ARB allocation at this time, along with feedback on each proposal’s approach and risk management.

Overall Rationale for the “Hold ARB” Recommendation

Risk and Transparency

While both teams have made significant efforts, the operational details for the ARB strategies, such as liquidity for options, counterparty arrangements, and daily/weekly execution, remain unclear. Given the large ARB allocation, this uncertainty makes us cautious.

Yield versus Complexity

The proposed yields for ARB strategies vary widely, ranging from near zero (for example, simple lending) to around 30% (for example, covered calls). However, the higher-yield strategies depend on liquidity or counterparties that may not be scalable, and the lower-yield approaches (for example, 0.16% on Aave) do not justify the additional complexity and risk.

Asset Manager Selection Considerations

It’s important to note that selecting an asset manager for alpha generation typically requires a multi-year to decade-long track record across multiple market regimes, a challenging standard, even in traditional finance. Therefore, if the core ARB strategy cannot stand on its own merits, claims of expertise should not serve as the primary selection criteria.

Prudent Governance

Our mandate is to protect the DAO’s treasury. Rather than forcing a strategy with an uncertain risk and reward profile, we prefer to hold ARB until more robust proposals/strategies emerge. This is a postponement rather than a permanent refusal, and we remain open to future improvements.

Feedback on Karpatkey’s Proposal

ARB-Only Strategy

Karpatkey proposes covered calls (via Myso) and deposit/borrow loops. While these ideas are valid in principle, the TMC remains concerned about the practical scalability of the options component (liquidity, strike selection, and counterparty discovery at large ARB notional sizes).

The lending-based approach offers minimal yield (~0.16% to ~4%), which does not justify the operational overhead or the added smart contract risk compared to simply holding ARB in a wallet. The covered-call approach is also sensitive to ARB price and carries risk in case of price appreciation as the cost of reimbursing the loan could exceed the value of the stablecoins used for farming. The backtest is based on a period of constant ARB price depreciation and therefore may not fully reflect this risk.

Although Karpatkey mentions having advanced monitoring systems to respond promptly to adverse market conditions, we lack sufficient visibility into these tools to confidently recommend this approach to the DAO.

Feedback on Avantgarde’s Proposal

ARB-Only Strategy

Similar to Karpatkey, Avantgarde’s ARB strategy also leans heavily on covered calls (via Myso) for yield generation. Although the theoretical upside is attractive, we lack sufficient real-world liquidity data for large ARB notional amounts. In addition to the conversion risk, the strategy presents a risk in case of a sharp ARB price increase (which again may not be accurately accounted for in backtests done over a period of relatively constant price depreciation). For instance, vaults on Ribbon and Premia also rely on selling covered calls and have recently incurred losses despite both vaults having widely different strategies, following sharp increases in the price of the underlying assets:

570×494 18.6 KB
562×488 18.9 KB

1165×442 33.3 KB

We value the team’s willingness to iterate on strike selection and maturity dates, but given current market conditions, we do not see a clear, low-risk path to consistent yields above simple “hold” alternatives.

Reminder of Grading Criteria

Our evaluation of proposals was based on the following key factors:

  • 25% – Experience & Track Record: Demonstrated ability to manage treasury assets securely and effectively.

  • 25% – Risk Management: Strength and clarity of risk mitigation measures under diverse market conditions.

  • 15% – Alignment with DAO Goals: Consistency with the DAO’s growth objectives and ecosystem utility enhancement.

  • 15% – Expected Returns: Realistic yield projections and sound risk-adjusted performance metrics.

  • 20% – Transparency & Reporting: Commitment to regular, clear reporting and continuous performance monitoring.

Timelines & Next Steps

We will move forward with a vote on Snapshot next Thursday, March 27, 2025.

ARB On-Chain Strategy Deployment (10M ARB)

IF YES, the ARB strategy is deployed:

  • Deploy the 10M ARB into on-chain strategies.

  • Despite going against the TMC recommendation, we will commit to establishing a set of safe parameters for running the strategy.

IF NO, the ARB strategy is not deployed:

  • Hold the ARB tokens without deploying them into on-chain strategies.

  • 3 months post Snapshot the RFP process will be held again.

Additional Next Steps for Both Allocations

Three months after the managers have been elected, publish a comprehensive report detailing the performance and management outcomes and re-evaluate the allocation strategy for potential adjustments.

2 Likes
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Thank you for splitting the topics. I think it makes it easier to go in-depth on each and give them the consideration they deserve.

2 Likes
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LobbyFi’s rationale on the price and making the voting power available for sale for this proposal

Since there were no substantial changes to the proposal made since our last rationale (TMC’s Proposed Allocations - #35 by lobbyfi), we would price this proposal as well as its second part as outlined for the initial iteration.

  • Karpatkey is charging 0.5% on 5M ARB (~4.7 ETH) for the ARB strategy as a management fee

(For the calculations above, the ARB/ETH rate that is used is 0.000188)

The cummalative fee of Karpatkey, Avantgarde and MYSO is to lie at some 21,7 ETH. LobbyFi will charge 5% of that as the instant buy price.

4

We appreciate the separation of ARB and Stable strategies and the detailed and strategic, well reasoned analysis from Threesigma

We’re Voting NO on this proposal as we agree with the analysis as it is clear, well thought out and addresses risk and liquidity concerns.

As traders and farmers ourselves we also have a lot of feedback for the strategies themselves and this proposal as well we can give either here if it helps, or separately to threesigma or the strategy providers.

As Arbitrum obviously holds a lot of ARB, some kind of ARB strategy may make sense to pursue, but a smaller scaled deployment to test the waters first may make sense.

1 Like
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Vote is now up on Snapshot:

https://snapshot.box/#/s:arbitrumfoundation.eth/proposal/0xdd38e103e337b9e02a9d9ac73c2587db5be6cfb46506e13c0e897f7331895cf4

1 Like
6

I vote against. The reason I described earlier: TMC’s Proposed Allocations - #70 by danielM

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7

Got feedback that people are interested in our assessment of the strategies so posting here:
The integration of Avantgarde’s detailed covered call breakdown (from their earlier post) adds much-needed clarity—those historical volatility analyses for strike prices (e.g., 128% strike, 23-day duration yielding $3.4M on a $2.25M notional) give us a better sense of what’s at stake compared to the vague yield ranges we had before. Karpatkey’s success with Gnosis and ENS, and Avantgarde’s structured products expertise (like their work on Ribbon) bring serious credibility to the table

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The covered call approach is a smart play for Arbitrum’s goals: it leverages ARB’s volatility to generate stablecoin income without selling tokens outright, preserving our treasury’s exposure to ARB’s upside up to the strike price. On returns, Avantgarde’s backtests suggest a potential 30%+ APY if volatility spikes, which could mean $2.25M+ in annual yield on the full 10M ARB—far better than the 0.16% lending yields the TMC flagged as too low. Plus, the on-chain execution via Myso ensures we’re not relying on opaque OTC deals.

However, Myso as the sole protocol for both providers is a big red flag—what’s the contingency if it gets exploited or faces a liquidity crunch mid-cycle? We’ve seen audited protocols like Euler take hits before, and 10M ARB is a lot to put on one platform. The counterparty risk also feels under-addressed: Avantgarde validated $5M in liquidity with trading firms, but we’re deploying double that. If counterparties dry up, we’re looking at 0% yield, as the TMC warned. Finally, the fee structure bugs me—Avantgarde’s 15% performance fee on a 30% yield feels steep compared to Karpatkey’s 0.5% management fee for a 7-20% yield. Are we overpaying for optimism, or is Karpatkey lowballing what’s achievable?

To nail the risk management piece, I’d love to see a detailed stress test: what happens if ARB surges 50% in a week (forcing conversion to stablecoins) or crashes to $0.10? How do Karpatkey and Avantgarde adjust their strike prices or exit positions to protect the principal? On the alignment front, could we explore ways to tie this strategy to Arbitrum’s rollup strengths—maybe using low-cost calldata to optimize option settlements, making the yield generation more efficient than on other chains?

Finally, I’d propose a staged deployment: start with 2.5M ARB for 60 days to test the waters, then scale up if the yields and risks check out. This could mitigate the all-or-nothing exposure while still moving forward.

1 Like
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I am voting against this proposal.
The reason is that even if the intention and approach is good, the risk of only using Myso as a protocol is high. I would rather like to see native staking as a safer option and would have supported this proposal if more options would have been available and the funds split just like in the stablecoin strategy proposal.
And as others have already mentioned the fee structure seems pretty crazy to me.
Together with the risk its nothing I can support.

1 Like
9

I’ll be voting Abstain on the ARB strategy. I’m supportive of both candidates to do a good job, but @threesigmaxyz recommending to vote no makes me be more cautious. I believe we can reconsider it and come again in 3 months. I also believe the market will be way different in 3 months from now, but that’s pure speculation.

10

We will be voting FOR the ARB strategy.

While we acknowledge the TMC’s reservations and respect the reasoning behind their recommendation, we find the information provided by @Karpatkey and @Avantgarde to be transparent and compelling (including the backtesting, historical data analysis, proposed execution mechanisms and risk mitigation strategies, etc).

The strategy offers strong downside protection by guaranteeing premium income even if ARB’s price declines further, while the primary tradeoff is a capped upside due to the strike price. Although avoiding conversion at the strike price would be ideal, it’s worth emphasizing that the DAO treasury already holds sufficient ARB reserves to capitalize on potential price appreciation. This ensures the broader treasury retains exposure to upside gains, even if the strategy itself limits immediate participation beyond the strike threshold.

1 Like
11

I vote AGAINST the ARB deployment strategy. I prefer keeping funds in reserve rather than deploying them, the proposed 3-month reassessment will provide better market clarity.

The strategy feels overly speculative, offering uncertain yields while exposing us to significant downside risk. “Better safe than sorry” in this bearish/volatile market, treasury preservation must be our priority.

12

While the proposal introduces potential yield strategies for the treasury but after carefully reviewing the two service providers and the current market conditions, I’m voting NO, Deploy Nothing this proposal.

Well, covered calls could generate up to 30% returns, but that heavily depends on market liquidity and price volatility, which nothing is guaranteed. Locking up 10M ARB in this strategy feels too risky at this stage.

I believe it’s too soon to commit such a large amount. A more cautious approach with further analysis would be wiser. Hopefully 3 months is enough to get a read on it

1 Like
13

The following reflects the views of the Lampros DAO governance team, composed of Chain_L (@Blueweb), @Euphoria, and Hirangi Pandya (@Nyx), based on our combined research, analysis, and ideation.

We are voting NO, Deploy Nothing for the ARB Strategy in the Snapshot voting.

We are not in favor of proceeding with the ARB strategy in its current form. As we mentioned in our previous rationale, covered calls appear to be the right approach for a native token yield strategy, but there is a lack of clarity around key operational details, particularly how ARB will be reacquired once it is converted to stablecoins after hitting the strike price.

We do not believe that current market conditions are unfavorable, as heightened volatility could potentially lead to higher yields for ARB. Given this, we look forward to the next set of recommendations and expect to see ARB generating stable yields for the treasury in the near future.

1 Like
14

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

We’re voting AGAINST.

While we recognize the TMC’s efforts and appreciate their exploration of an ARB strategy, we believe more work is needed before proceeding with one. At this stage, we feel that the benefits and risks haven’t been sufficiently detailed for us to form a strong opinion. Furthermore, we echo the sentiment expressed already that we should figure out how to deploy ARB in Arbitrum-native protocols while balancing yield with risk sensibly.

We want to encourage the TMC to continue refining the ARB strategy, ideally engaging with delegates and external experts to clarify objectives, evaluate risk profiles, and ensure that any allocation aligns with the DAO’s broader priorities. Once a more comprehensive and thoroughly vetted approach is presented, we will be open to reconsidering our stance.

15

We’re voting NO on the ARB Strategy.
We think the plan needs to be clearer before moving forward. we agreed with @ignas on this would rely heavily on liquidity and volatility of the market.

Locking up 10M ARB in this strategy feels too risky at this stage. We’d prefer to wait for a more detailed and tested approach.

16

gm, voting NO as recommended by the TMC.

Echoing L2Beat and other delegates that the risk/reward conditions are not present in this market and we should reevaluate at a later stage.

Thanks.

17

I’m voting YES DEPLOY ARB Strategy

Covered calls are a reasonable strategy given the current options available for generating yield on the treasury’s ARB. While we work (ASAP) on implementing ARB staking and DAO POL to enable alternative ARB strategies beyond simple lending, I believe the risk/reward ratio is quite reasonable.

Additionally, this presents a great opportunity for the DAO to utilize protocols deployed on Arbitrum to earn yield on its ARB, sending a clear message that if strategies offering strong returns on ARB are deployed on Arbitrum, the DAO will provide substantial liquidity.

Finally, I agree with @Chris_Areta assessment:

18

I’ve eventually decided to vote for the option “No, Deploy Nothing”. Here you can find my rationale linked to the previous snapshot vote:

19

The following reflects the views of GMX’s Governance Committee, and is based on the combined research, evaluation, consensus, and ideation of various committee members.

We would be voting against the proposal. As stated earlier, the Arbitrum strategy heavily revolves around a single protocol, introducing significant risk. Given the current market conditions, deploying the ARB strategy could be highly risky. If the price of ARB declines, the returns generated from the proposed strategies may not justify the risk taken. We also saw this during LTIPP when the price of ARB was dropping, as protocols were unable to generate good returns even after running incentives.

20

After consideration, the @SEEDgov delegation has decided to vote “YES, Deploy ARB Strategy” on this proposal at the Snapshot Vote.

Rationale

Regarding this recommendation, we do not align with the committee’s perspective. While we understand that covered calls may introduce certain concerns and additional complexity, we want to highlight this comment:

Given the current circumstances, there is a high probability that the stablecoin strategy will be executed at a lower price range than what could be achieved through the execution of an options strategy. This implies that the final capital obtained from the ARB strategy could be significantly higher than that of the stablecoin strategy.

1 Like