TMC - Stablecoin Withdrawal Process

DAO Programs & Initiatives Treasury Mgmt v1.2 - TM Track (ARB and Stables)
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Defining the Process for Requesting Stablecoin Withdrawals from the TM Track

Abstract

As per the original “Treasury Management V1.2” proposal that passed on Tally, the TMC was tasked to: “Design and host an RFP process seeking treasury managers with predefined overarching strategies. E.g., the process for converting ARB to stables, how the stables can be deployed when sitting idle, the process for a DAO contributor to request stablecoins from this program within their proposal, whitelisted stablecoin/ARB strategies or protocols, etc”.

This proposal specifically relates to defining the process for service providers and proposal authors to guarantee dollar-denominated payments in the event of downward ARB price movements that leave a proposal underfunded.

Suggested Process

Due to the fact that the Arbitrum Foundation will be in custody of these funds, and that the TMC’s Snapshot recommendation split a relatively small amount of dollar-denominated funds amongst 3 different strategies/service providers, the TMC believes the Arbitrum Foundation should wield the power to make decisions on when to cover and not to cover service provider shortfalls with accrued yield only.

The rationale behind this choice is to ensure the Arbitrum DAO has a base of stablecoins earning yield and that the stablecoin balance isn’t rapidly depleted in order to cover shortfalls. The Arbitrum Foundation will cover shortfalls for service providers from the yield earned on this portion of the TMC’s funds at its discretion for previously funded DAO proposals currently facing shortfalls, but any proposal moving forward needs to define the existence of shortfall coverage from the checking account in its initial Tally proposal in order to be eligible. The Foundation should retain the right to deny requests as it sees fit, and also have authority over which strategy deployments to withdraw from e.g., the yield accrued from Treasury managers A, B, or C, or potentially a small portion from all 3. Operationally speaking, this should make it easier for the Arbitrum Foundation to move nimbly.

For the sake of simplicity, any service provider who passes a proposal through Tally with language included that stipulates the TM Track’s yield will cover shortfalls beyond an ARB price buffer just needs to make a comment under the initial Forum post requesting the funds and tagging the Arbitrum Foundation in order to submit a request. Again, this verbiage must be included in the original Tally proposal moving forward. All previously funded initiatives that face shortfalls can make requests by following the same process, but the verbiage in the original Tally proposal is not required, given that the process is just now being defined. The backfunding for previously funded proposals that did not include verbiage related to the TM Track’s yield covering potential shortfalls beyond the ARB buffer will be left to the discretion of the Arbitrum Foundation.

In short, the process is as follows:

Previously funded proposals facing shortfalls: Tag the Arbitrum Foundation in a forum comment under the original forum post, stipulating the amount of stablecoins being requested and where the funds should be sent. The Foundation will have complete discretion over which requests get approved or denied.

Future proposals facing shortfalls: The same as above, but the original Tally proposal that passed must have included language specifying the use of the checking account in the case of shortfalls beyond the ARB buffer.

Only the yield earned over time is eligible to be requested.

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Hey, could you clarify why this?

This seems to favour the TMC service providers keeping their fees full over the DAO accomplishing the objective of offering manageable terms to its service providers. This clause means that service providers still face VERY significant risk contracting with Arbitrum (as the budget available to cover token price risks goes form $10mn down to the yield on $10mn which is at… 2.5% p.a. curretly or so? so right now about 0 budget available and in a year from now max 250k so almost no budget). As a result, service providers will need to either refrain from doing business or increase prices, thus failing to serve the purpose of the TMC proposal and current providers are likely forced to cancel contracts

or what am I missing?

So here the proposed mechanism is effectively going against this part of the original proposal:
"In many cases it is unprofessional for the DAO to put the burden of ARB volatility on its service providers. If we aren’t careful, we will negatively impact the pool of SPs that desire working with Arbitrum DAO. Given the aforementioned historical spend and the absence of a formal budget, we are suggesting the TM track be given 25M ARB with the intent to swap 15M ARB for stablecoins over the course of 3 months.

This stablecoin reserve may be deployed in low-risk, yield-bearing strategies or other cash-like assets and will be used to cover DAO dollar-denominated expenses and service provider contract shortfalls. "

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There should probably be a way to harmonize this process with the funds held under STEP. Ideally any withdrawal should come from the bucket with the lowest opportunity cost/slippage at the time.

We also agree this needs some further consideration:

Whether or not there is accrued yield should probably be secondary to the funding needs of approved expenditures. Selling ARB is functionally the same as printing ARB, so it makes sense to spend cash on hand unless the market is offering very good terms for ARB (not the case recently).

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Obviously Needs to be paired with a solid yield strategy.

But in general this makes a lot of sense to us. We try to operate like this ourselves as well. For Farming your principal is your source of yield and you dont want to deplete it without extremely good reason.

SO this is a good way to address budget shortfalls in a risk adjusted way.

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Bumping this thread in an attempt to get some responses from TMC about whether they still want to put this policy to a vote, or have decided to let the recommendation rest without further action.

Note that the TMC proposal does not currently grant power to limit withdrawals to accrued interest only, nor does it provide a structured process for withdrawals, implying a DAO vote will be necessary for any programs that do not have a TMC mechanism built into them. The TMC proposal also does not grant AF discretion to approve or deny requests at its sole discretion.

So if TMC really wants one or more of these items, it needs to move the proposal forward to make them a reality:

TMC should be considered incomplete until a streamlined structure is in place to recall assets now that they are deployed.

We will also take this time to again suggest that TMC and STEP collaborate for a single work stream to process requests, since market volatility may make it more desirable to make withdrawals from one bucket of funding vs the other.

Our further suggestion is that to the extent discretion is delegated to AF or another party, it should be up to a specific limit (both individual request and lifetime requests by a given recipient or from a given program), at which case it again needs to follow the general proposal process or a vote to reset those limits.

We do not think the unaltered proposal is ready to move to Snapshot, and would be a wasted opportunity to build a high quality process.

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Thanks @threesigmaxyz and the TMC for bringing up this proposal. It addresses a key problem that has been overlooked for quite a while, bringing this failed proposal back to mind. While understandably, we were being cautious of setting a wrong precedent as a DAO by restituting funding shortfalls due to ARB volatility – we largely didn’t address the broader question of remedying such situations especially when caused by operational inefficiencies.

As an addition/improvement to this process, we should potentially consider setting an amount cap for shortfall coverage. This would be helpful for several reasons including:

  • Ensuring sustainability for reserves (which is already a key objective as outlined below).

  • A cap ensures predictability for proposal authors and also reduces the risk of individual initiatives monopolizing yield reserves to the disadvantage of future initiatives that may suffer shortfalls. It also helps to streamline AF’s decision making on deploying accrued yeilds.

  • Increase Transparency: While the Foundation’s discretion is necessary, a cap would provide an objective guardrail, mitigating concerns about arbitrary approvals/denials.

In summary, we can consider implementing the following to improve the process:

  • Shortfall Cap: Requests for shortfall coverage should not exceed x% of the proposal’s original stablecoin-equivalent budget
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I support the proposal. The inefficiency in covering the stablecoin budget shortfalls risks discouraging developers and service providers from engaging with Arbitrum, as the burden of navigating governance for small top-ups is disproportionate to the issue at hand.

However, I do think the DAO, AF, and TMC should have better visibility over the overall budget status of the live projects/initiatives/proposals, etc. so as to better keep track of the potential shortfalls. We can not only better monitor the budget status of the live projects/initiatives/proposals, etc. but also have a clear idea of the amount of ARB sold in each month.

To address this, I propose the following enhancements to the TMC process, building on community feedback:

  1. Mandatory Budget Tracking
    1. Require all live proposals/initiatives to report budget status (allocated, spent, projected, shortfall in both ARB and USD terms) to TMC monthly.
    2. TMC should publish a monthly Google Sheet summarizing this data, alongside yields earned by each treasury manager.
    3. This transparency would help the DAO and AF anticipate shortfalls proactively and also track the budget status of all live proposals/initiatives.
  2. Unspent Fund Management
    1. Mandate that all unspent budgets return to TMC within 30 days of program completion, to be allocated proportionally across treasury managers’ yield strategies.
    2. This would optimize yield generation and increase funds available for shortfall coverage.
  3. Streamlined Governance
    1. Adopt an optimistic governance model for shortfall requests.
    2. As what TMC proposed, all proposals/initiatives must have included language specifying the use of the checking account in the case of shortfalls.
    3. In case of shortfalls, proposals/initiatives can tag the Arbitrum Foundation in a forum comment under the original forum post, stipulating the amount of stablecoins being requested and where the funds should be sent.
    4. The Foundation will have complete discretion over which requests get approved or denied.

These changes would create a more efficient, transparent system to support service providers while preserving treasury discipline. I’d love to hear others’ thoughts on these ideas—particularly how we can balance proactive shortfall management with the DAO’s governance principles.

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Thanks for putting up this proposal to improve the operational efficiency of funding for initiative.

We value positively the processes outlined in the proposal. Explicitly mentioning the intention to request funds from the TM Track in the proposal helps its visibility. We agree with @danielo that if only yield is available to withdraw for project shortfall, the fund becomes less useful. As an example, it could currently serve the Hackathon Continuation Program using principal from the fund, but not yield as not enough has accumulated. We like @Chris_Areta’s suggestion of a certain claimable % as a middle ground.

Ultimately, covering project shortfalls is a remedy to the symptom but not the cause, which is the fall of dollar-denominated value below the requirements of project funding. A more active management of these idle $Arb funds while in custody can minimize project shortfall and dedicate yields from TM Track to further initiatives.

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It seems to me that solving the problem without Tally is a good idea to save time

However, solving it with a simple message on the forum seems incorrect to me because no one from the DAO may see this message and not know about such a problem, and I think sending funds to someone without the knowledge of the community is the wrong decision.

Therefore, for each case (or for several) it is necessary to make a request only through Snapshot. It is only 1 week - it will solve the problems of funding and notifying the community about the lack of funds (and encourages to solve this problem more radically)

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We support the rationale behind this proposal. It makes sense to have approved fallback mechanisms to ensure operations of all approved programs.

As treasury managment, wouldn’t it make more sense for the TMC to decide or recommend which strategy to withdraw from?

Agree with Today in Defi’s additions to the process proposed by TMC.

Maybe these could be sent to OpCo instead of TMC directly? Generally not a fan of including someone else in the process to make the process as fast as posible, but it might make more sense to have operations manage this, gather reports from initiatives, instead of treasury management. Open to both options honestly, the addition of simple “money in” “money out” reports could make overseeing all initiatives and expenses easier.

Maybe we could add a small section on calls to inform on open requests for funds when these happen. And we could include tagging the coordinator of the call when requesting funds for visibility.

The proposal as is could also include limits to requested budget, but this still does not address what happens if the shortfall of the approved budget is greater than yield.

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