Non-Constitutional
Summary
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Entropy proposes transferring 1,700 ETH accrued from Sequencer, Timeboost, and PGA revenue from the DAO’s treasury to the Arbitrum Developer Guild & the TM Portfolio
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In line with the passed proposal to adopt Timeboost, 3% of ETH revenue derived through the transaction ordering mechanism is to be deposited with the Arbitrum Developer Guild (ADG)
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Timeboost LTD revenue is ~2,750 ETH. No ETH related to Timeboost has been transferred to the ADG previously; the treasury now holds ~83 ETH that is owed to the guild
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In tandem, this proposal would move ~1,600 ETH to the TM portfolio, helping reinitiate the covered call strategy, which has historically been a strong driver of returns
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ETH’s share in the TM portfolio is ~37%, and would increase to ~39% if this proposal were to pass, assuming an ETH price of $2,700
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The ATMC has generated almost 600 ETH to date by activating idle ETH from the treasury, with the blended 30D MA APY fluctuating roughly between 2-7%, mostly driven by whether or not the covered call strategy is active
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Using the benchmark rate as the opportunity cost, the yearly cost of the 1.6K idle ETH in the treasury is roughly $100K
Motivation / Rationale
ETH Owed to the Arbitrum Developer Guild
In line with the passed proposal to activate Timeboost, 3% of revenue generated by the transaction ordering mechanism is to be allocated to the Arbitrum Developer Guild. This allocation isn’t automatic. All Timeboost-related income has been streamed directly to the DAO’s treasury. With Timeboost having been replaced by PGA, no more revenue will derive from the transaction ordering mechanism, and we consider this to be a good time to transfer the ETH owed to the ADG.
In practice, this would take place by withdrawing ETH from the treasury into the AF’s custody, which then forwards the amount owed to the destination where ADG funds are held. Timeboost has produced 2,750.42 ETH in LTD revenue, so the amount to be moved over to the ADG totals 82.51 ETH.
Given the treasury has now accumulated almost 1.7K ETH, we’re proposing to combine the withdrawal to the ADG with upsizing the TM portfolio’s ETH holdings to reduce the number of standalone proposals that have to be voted on as well as minimize the opportunity cost related to holding idle ETH in the treasury.
Opportunity Cost
At present, almost 1,700 ETH sits idle in the treasury, generating no yield and contributing minimally to the growth of the ecosystem. Allocating this ETH, net of ETH owed to the ADG, to yield-generating strategies is in line with treasury management best practices. Assuming a prospective allocation of 1,600 ETH and a conservative ETH-denominated yield of ~2.3% in line with the current benchmark rate, the DAO is foregoing approximately 40 ETH annually.
From a treasury management perspective, maintaining a passive ETH position without a corresponding yield strategy is suboptimal, especially when there exists a variety of deployments that would be appropriate to allocate it to, including but not limited to staking, covered calls, and supplying to lending markets.
Covered calls are currently the best yield-generating strategy on ETH available to the portfolio at size without exposure to additional risks such as collateral depeg, liquidation, negative carry, and exit liquidity. However, given the IPS’ long-term portfolio composition target of 30% ETH, and the fact that ETH may be called away if the covered call strategy expires ITM, we’d prefer the portfolio to hold more ETH to restart the strategy responsibly.
ETH currently makes up ~37% of the total portfolio, so there is still room for rebalancing before the 30% target is reached. However, a 30% decrease in the price of ETH (ETH at ~$1,750) would already shrink the asset class’ share below the long-term target. As such, we’re looking to increase ETH as a % of the portfolio before reinstating the covered call strategy.
Although working as a lever to reinstate the covered call strategy is a notable benefit of increasing the TM portfolio’s ETH allocation, this doesn’t rule out the possibility of deploying the new ETH across a variety of low-risk strategies. The new ETH tranche doesn’t necessarily mirror the existing treasury strategy deployments. Entropy will proactively engage with protocols providing services that align with the ATMC’s strategic goals and growth of the Arbitrum ecosystem.
In line with the established ATMC structure, the elected OAT body will maintain full ability to approve or deny allocation decisions. Funds will be sent to and custodied by the Arbitrum Foundation. Rebalancing needs will be examined as part of our normal treasury management reporting cadence, considering liquidity constraints, yield conditions, or shifts in ecosystem needs. The DAO maintains the ability to direct or wind down this activity at any time through its standard governance process.
Target Timeline
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Forum Period: October 8th - October 15th
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Offchain Voting Period: October 15th - October 22nd
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Onchain Voting Period: October 29th - November 12th
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In case the proposal passes the onchain phase, move owed ETH to the ADG and transfer the remainder to the TM portfolio