TMC Proposed Allocations V2 -- Stablecoin Strategy

DAO Programs & Initiatives Treasury Mgmt v1.2 - TM Track (ARB and Stables)
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TLDR;
The TMC recommends that the DAO votes for Yes, deploy Stablecoin Strategy

The three possible outcomes are:

  • YES, deploy Stablecoin Strategy

  • NO, don’t deploy Stablecoin Strategy

  • Abstain

The vote will be conducted via Single Choice Voting.

Key changes:

  • The Arbitrum Foundation has expressed that they’ll be converting 15M ARB to Stablecoins per their internal policies.

  • In terms of the process of withdrawing stablecoins to cover service provider shortfalls, we will define this process soon in a separate forum post and hold an additional Snapshot vote to avoid forcing delegates to make a decision on both issues within the same vote.

  • No further changes have been made.

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

Stablecoin Conversion. The Arbitrum Foundation has expressed that they’ll be converting 15M ARB to Stablecoins per their internal policies.

Stablecoin Allocation (15M ARB Equivalent)

  • Scope: This group covers the process of managing stablecoins.

Partner Selection:

  • Karpatkey

  • Avantgarde & Myso

  • Gauntlet

Allocation Strategy: The stablecoin management responsibilities will be evenly split among the three partners with a 33/33/33 distribution, ensuring diversification and balanced risk exposure while meeting the conversion and liquidity objectives.

TMC Recommendation

We recommend a vote of YES to deploy the Stablecoin Strategy.

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

Voting Outcomes

Please cast your vote on each allocation separately. Your options are as follows:

Stablecoin Strategy Allocation Vote:

  • Yes: Proceed with converting 15M ARB into stablecoins and manage them via a 33/33/33 split among Karpatkey, Avantgarde & Myso, and Gauntlet.

  • No: Do not execute the stablecoin strategy; retain current ARB holdings without conversion.

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 – Further Clarification on Shortlisted Rationale

Stablecoin Strategies:
Providers like Karpatkey, Avantgarde/MYSO, and Gauntlet stood out due to their provided backtests, clear execution plans, compensation structure, and risk management frameworks.

We have high confidence in their ability to manage and deploy 15M ARB worth of stablecoins in well-established, low-risk protocols—aligned with the intended use of funds.

The shortlisted proposals target an average yield of 8% to 12% under varying market conditions while primarily holding USDC and USDT.

This is why we’re recommending a YES vote on the stablecoin allocation.

Stablecoin Strategy

Stablecoin Strategy Protocols Used Exp. Returns Fees
Gauntlet AAVE V3 8% Free
Karpatkey Uniswap v3, Camelot v3, Balancer v2/v3, GMX, Aave v3, Compound v3, Fluid, Vertex (Perps), Pendle (Yield) 12-20% 0.5% management
AvantGarde/MYSO AAVE V3, Compound (core), Pendle, Fluid, and Uni v3 (satellite) 5-15% 0.5% / 10% management/performance

Key Risks

Stablecoin Strategy

  • Stablecoin Risk: The possibility of a stablecoin depegging.

  • Smart Contract Risk: Exposure to potential hacks of the protocols used by each provider.

  • Liquidity Risk: Funds may become locked if the lending rate reaches 100%.

  • Optimization Risk: The provider’s optimization might not perform as intended or may fail to beat the benchmark.

  • Custody Risk: Since the Foundation remains the custodian, custody risk is effectively transferred to the Foundation.

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

Feedback on Karpatkey’s Proposal

Stablecoin Strategy

We appreciate Karpatkey’s detailed Risk Management Plan, which includes non-custodial architecture (Safe + Zodiac Roles Modifier), protocol whitelisting (Aave, Compound, Dolomite, Fluid, etc.), and clear maximum exposure thresholds (e.g., no more than 20–25% per protocol).

The yield estimates of ~8–12% for stablecoins appear realistic, and Karpatkey’s track record in managing other DAO treasuries (Gnosis, ENS, etc.) is well-documented.

Feedback on Avantgarde’s Proposal

Stablecoin Strategy

The Risk Management section shared by Avantgarde (and MYSO) highlights position-sizing constraints, lockup safeguards, and a diversified stablecoin approach. We especially appreciate the plan’s clarity on monitoring liquidity needs and the ability for the DAO to recall funds if necessary.

Expected returns of 5–15% are in line with typical DeFi yields, and the approach includes established protocols such as Aave, Compound, and Uniswap.

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 Conversion & Stablecoin Management (15M ARB)

IF YES, the Stablecoin strategy is deployed:

  • Initiate a three‑month phase to convert 15M ARB into stablecoins via the Foundation.

  • Proceed with the deployment of low‑risk, yield‑bearing strategies for the converted stablecoins, with regular performance and risk reporting.

IF NO, the Stablecoin strategy is not deployed:

  • Retain the current ARB holdings without conversion.

  • No further actions will be taken regarding stablecoin management until a new decision is reached.

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.

1 Like
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Hello,

Just a little side note. The Aave DAO is likely activating the Umbrella upgrade this month. This means one can stake for example USDC, get aToken and then “restake” those to get extra yield. The only risk is that one may be subject to slashing if some bad event (for example hack) happens. Otherwise it’s being used to erase bad debt which for all v3 instances over roughly a month is somewhere around 400$ currently.

This might be interesting for someone to further generate more yield for the Arbitrum DAO.

3 Likes
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Appreciate the TMC for their continued efforts in refining this proposal and for taking the community’s feedback seriously. The updated Stablecoin Strategy proposal shows meaningful progress from the previous version.

TMC’s commitment to providing detailed withdrawal mechanics before the vote is also appreciated. In the previous proposal, the lack of specificity around how stablecoin reserves would be accessed to cover DAO expenses left some ambiguity. Knowing that these funds are strictly for dollar-denominated expenses (e.g., service provider obligations) and not discretionary spending is reassuring.

It would be good to have some additional clarity around stablecoin selection, such as breakdown of allocation in USDC vs USDT, and whether TMC has considered DAI, which may offer some decentralization and diversification benefits.

It would also be helpful to understand how the TMC plans to monitor and enforce risk parameters across the three provider. A standardized risk ceiling applied to all three providers, with clear guidelines on how the TMC will intervene if any provider deviates from the agreed-upon low-risk mandate might help.

Finally, while the three-month conversion window mitigates some market impact, the previous proposal didn’t fully address how the TMC will handle potential price volatility during this period. While exact strategies may not need to be fully detailed as they could be frontrun, It would be good to see contingency plans for handling the conversion in extreme market conditions

2 Likes
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After receiving feedback from several delegates, the TMC has considered removing the withdrawal of the stablecoins process from this Snapshot and moving that vote/decision to another Snapshot.

The original post has been updated with the following:

  • In terms of the process of withdrawing stablecoins to cover service provider shortfalls, we will define this process soon in a separate forum post and hold an additional Snapshot vote to avoid forcing delegates to make a decision on both issues within the same vote.
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Thanks for engaging with the proposal @TodayInDeFi.

Can only comment from our strategic perspective, but yes the majority will be in USDC and USDT since that is where the liquidity is, complemented by smaller satellite positions where the risk/rewards is appropriate. That said, we haven’t set any specific hard caps as it will evolve with yields/market conditions. We hold no specific aversion to DAI in itself, but the opportunities on Arbitrum are just much smaller than USDC and USDT-related markets. As an example, there’s more MIM TVL than DAI.

Hope that helps!

2 Likes
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makes sense. appreciate the response

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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 stablecoin strategy as a management fee
  • AvantGarde/MYSO is charging 0.5% as a management fee on 5M ARB and 10% on potential return of 10% of that sum as a performance fee (estimated return 5-15%, taking 10% as an average) (~14.1 ETH) for the stablecoin strategy.

(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 18.8 ETH. LobbyFi will charge 5% of that as the instant buy price.

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Voting for this, as we are generally for it,

We would appreciate if concerns around price volatility and risk are addressed a bit, although we can understand if strategy/frontrunning concerns prevent full disclosure of all details.

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The vote is now up on Snapshot:

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

1 Like
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As I said earlier, I vote against: TMC’s Proposed Allocations - #70 by danielM

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I am supportive of the stablecoin strategy and welcome that the votes have been split as it created confusion and made it hard to vote if someone didnt approve/like one of the strategies including the Arbitrum strategy.
Even if expected returns might fluctuate this is still the right way to go to create a sustainable treasury that keeps growing and reduces heavily ARB spendings.
Currently the DAO is net negative with spending as the recent published Dune dashboard by Entropy was showing (-125m).
Therefor I welcome the initiative and the selection of the protocols and strategies and hope this is the kick off of a great and sustainable growth for the DAO.
Voting YES.

1 Like
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We maintain our stance of deploying nothing, as stated in an earlier vote: TMC’s Proposed Allocations - #76 by mcfly

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I was not supportive of the stablecoin strategy because of the bad timing for selling, but if the foundation will sell the ARB regardless, we better get those stables to work. Appreciate the good work on managing the treasury. Im voting Yes on snapshot

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I vote IN FAVOR of the stablecoin strategy on Snapshot. This seems like ideal timing to protect funds against ARB’s current volatility. As an active Aave user, I’ve only had positive experiences, and having two proven managers (with established track records in other DAOs) oversee this protocol gives me confidence in the approach.

The gradual conversion plan effectively mitigates execution risks, and the mandatory 3-month performance review provides crucial accountability, both aspects that strongly align with prudent treasury management.

1 Like
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Just want to add a little since most of my thoughts have already been covered TMC’s Proposed Allocations - #43 by Ignas

Again, this proposal will bring a more sustainable way to manage Arbitrum’s treasury. In a volatile market where not just ARB but most assets can swing hard, moving some funds into stablecoins helps protect the DAO’s value.

The expected 8-12% (from Karpatkey and others) annual return could fund other initiatives to grow the ecosystem. If this works well, the DAO could scale this strategy with a larger amount in the future. I support this proposal on snapshot

1 Like
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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 YES, Deploy Stablecoin Strategy for the Stablecoin Strategy in the Snapshot voting.

As mentioned in our previous rationale, we believe that Gauntlet, Karpatkey, and Avantgarde are the right choices for managing the DAO’s stablecoin allocations. We appreciated the research conducted by Karpatkey and Avantgarde before the launch of STEP v1, and their broader track record gives us confidence in their ability to handle these assets responsibly.

Regarding their fee model, we would have preferred more partners adopting a performance-based fee structure over a management fee model, as stablecoins can generate superior yields through active management, which should be incentivized accordingly. The current fee structure adopted by Gauntlet and Karpatkey may not optimize stablecoin performance—not due to a lack of expertise but rather a misalignment of incentives within the existing framework. As a result, the deal appears less likely to be a win-win for both parties.

1 Like
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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 FOR the proposal.

After reviewing the TMC’s recommendations again and additional input from contributors like Avantgarde and Karpatkey, we found no substantial risks left unaddressed. Therefore, we support moving forward with deploying the stablecoin strategies outlined in the proposal.

We still believe that future decisions should clearly explain each strategy’s rationale and benefits. However, given the thorough discussions and added details provided by the TMC, we now feel comfortable supporting the proposal.

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We will support this proposal as it presents a thoughtful, low-risk approach to stablecoin management and yields. The partners involved have strong track records, clear risk mitigation strategies, and align well with the DAO’s objectives. Plus, converting some ARB into stablecoins will help keep things steady and set us up for reliable returns.

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gm, voting FOR the recommendations of the TMC - they sound reasonable and low risk.

Dumb question: is there a way to tide a minimal performance to the fee payment of the various providers?
Ex: fees waved if returns are < than T-Bills

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I’m voting YES DEPLOY STABLECOIN STRATEGY

I am satisfied with the risk/reward profile of the proposal, as well as the wide variety of protocols on Arbitrum that will be utilized to generate returns. As with the ARB strategy, I believe that the signal that the DAO supports and uses Arbitrum-based protocols to earn yield on its assets is even more important than the return on investment itself.

One aspect that doesn’t fully convince me is the need to use three different service providers to execute the proposal. However, given the current circumstances, I’d rather vote in favor than do nothing.

That said, I expect that the management of this proposal will be transferred to the OpCo once it is established so that it can develop a comprehensive treasury management strategy that also includes the STEP and ARB strategy.

Given the involvement of multiple service providers, it would be beneficial for the report to include an individual performance analysis and benchmark comparison (Maybe it was already planned that way :slight_smile: ). This would help identify the best-performing providers when designing a long-term, integrated treasury strategy.