Transfer 8,500 ETH from the Treasury to ATMC’s ETH Treasury Strategies

Proposals
1

Non-Constitutional

Summary

  • Entropy proposes transferring 8500 ETH accrued from Sequencer and Timeboost Revenue from the DAO’s treasury to the Arbitrum Treasury Management Council.
  • At the time of writing, the DAO Treasury has ~10.5K ETH unallocated to any treasury strategies. This capital is currently sitting stagnant, and could be much more valuable and functional for the ecosystem within the ATMC, generating yield and increasing the DAO’s ETH holdings
  • An added benefit of activating ETH from the treasury is the potential to support liquidity in venues within the Arbitrum ecosystem to supplement increased activity from DRIP, while not receiving or diluting any of the incentives (the DAO’s allocations would be excluded from ARB rewards).
  • The ATMC has generated just over 43 ETH to date (beginning May 2025) by activating idle ETH from the treasury, with a 30D lookback APY of 2.43% on ETH-denominated strategies at the time of writing.
    • At current 30-day-average annualized rates (note: proposed treasury deployments will not necessarily be in identical allocations), an additional tranche of 8500 ETH allocated to comparable-yield strategies could make the DAO an extra 204 ETH over the next year, or ~$891k at current prices.
  • The DAO treasury value is still highly concentrated in ARB tokens, and all efforts to diversify and increase the quantity of non-ARB tokens in the treasury that also support broader ecosystem growth should be considered.
  • Although the prospective increase in ETH is very marginal against the treasury concentration of ARB, these initiatives help grow non-ARB assets without requiring spot sales of ARB, continuing a long-term path to prudent diversification.
  • Deploying a portion of this idle capital to the ATMC is aligned with treasury management best practices: principal preservation, yield generation, and ecosystem support.

Motivation / Rationale

Opportunity Cost and Past Performance

At present, over 10,000 ETH sits idle in the treasury, generating no yield and contributing minimally to the growth of the ecosystem. Allocating a portion of this to yield-generating strategies is in line with treasury management best practices.

Since May, the ATMC ETH-denominated strategies have generated 43.4 ETH, utilizing AAVE, Fluid, Camelot, and Lido. Performance and a detailed breakdown of the ETH allocations, as well as other treasury strategies, can be seen here.

Assuming a prospective allocation of 8500 ETH and a conservative ETH-denominated yield of ~2.4% (illustrative figure based on the 30-day average annualized yield for existing ATMC strategies), the DAO is foregoing approximately 204 ETH annually, which is $891k at current market prices. Even at the lowest 30-day average annualized yield rate of 2.04% (recorded July 15th), the projected opportunity cost of letting this ETH sit unallocated is 173 ETH, or $756k at current market prices.

From a treasury management perspective, maintaining a large 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 native staking, restaking, DEX liquidity provision, and lending market supply.

DeFi Ecosystem Support

This proposal is in direct strategic alignment with the current DRIP campaign, fulfilling treasury management’s dual mandate of:

  1. Generating yield and growing/diversifying the treasury
  2. Supporting growth in the Arbitrum ecosystem, particularly within DeFi

A major goal of the Arbitrum DRIP program is to spur activity within the broader Arbitrum DeFi ecosystem, initially focusing on boosting leveraged looping strategies within DeFi utilizing yield-bearing collateral. Decisions regarding these funds will prioritize supporting these initiatives where possible, deploying productive capital across various venues, though this will not take absolute precedent over existing considerations regarding risk, liquidity, partnership opportunities, sustainable yields, etc.

Some indicative examples of DRIP-aligned treasury strategies would be supplying unstaked ETH to lending markets, or staking ETH with LST/LRT providers, and exploring adding DEX liquidity across native ETH and LST/LRTs pools. With some of these strategies, we can ensure that users who are looking to participate in DRIP have ample liquidity, and we can even make an impact by stabilizing lending market utilization rates, reducing borrowing costs or slippage.

As with prior deployments, we intend to communicate with prospective partner protocols to negotiate terms beneficial to the DAO or reduced costs on any deployments when possible or appropriate.

Specifications

Entropy proposes that the new tranche of 8500 ETH be used in a variety of generally lower-risk, ecosystem-supporting protocols, including but not limited to

  • Liquid Staking
  • Liquid Restaking
  • Lending Markets
  • Liquidity Provision on DEXes

The 8500 ETH is not intended to mirror the existing treasury strategy deployments, unless extenuating circumstances indicate these to be undoubtedly the best option to support the ecosystem and generate risk-adjusted returns. The DAO’s wallets will be blacklisted from receiving any possible DRIP incentives.

For this proposal, we will not be conducting an open RFP process for protocols to apply for funding. Entropy will proactively engage with protocols providing services that align with our strategic goals. To have full confidence in the deployment of this capital, evaluations of various strategies will heavily take into account criteria such as protocol maturity, ecosystem impact, yield sustainability, and economic and smart contract risk.

As structured in the ATMC proposal, the elected OAT body will maintain full ability to approve or deny granular selection decisions. No allocation can be made unilaterally by Entropy. 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.

Given that the 8500 ETH requested represents a material portion of the non-ARB, unallocated treasury funds, capital preservation and long-term impact remain primary priorities. Future proposals could consider allocating a smaller amount of ETH to newer and novel protocols requiring bootstrapped liquidity support.

Timeline

  1. Forum Period September 16th - September 25th: Requesting comments and time to edit the proposal with delegate/broader community suggestions.
  2. Snapshot September 25th - October 2nd
  3. If approved on Snapshot and no additional major comments/objections arise, the proposal will be moved to Tally on October 6th, with voting active from October 9th to ~23rd.
  4. Following a successful Tally vote: Begin deploying capital once OAT greenlights a granular allocation list
2 Likes
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Isn’t this underperforming just passively staking the ETH? Eyeballing yields from May to now, it looks like it’s equal to Rocket Pool and less than Lido, neither of which require active management or movement out of the treasury.

Can we get a breakdown of the costs (inclusive of fees and operating expenses) along with risk profiles to get what appears to be an equal or lower return to just staking the ETH?

2 Likes
3

Agreed, I was wondering the same.

Also wondering why, of the DAO Treasury’s ~10.5K ETH unallocated, this proposal is for just 8500?

1 Like
4

I support activating the idle ETH, and I believe we could get the most of these ETH if ATMC were to include a DVT (Distributed Validator Technology) allocation that routes stake to home-staker clusters via Obol/SSV. DVT splits validator key duties across multiple operators, improving fault-tolerance and reducing slashing risk, while directly strengthening Ethereum’s decentralization. A practical path is either (a) a small native ATMC DVT vault or (b) using an existing venue like Mellow’s Decentralized Validator Vault with Lido + Obol + SSV, currently showing ~4.8% APR (base stETH yield plus DVT incentives), which compares favorably to the ~2.4% 30-day APY cited for current ETH strategies. This would let Arbitrum earn yield, improve network security, and support home stakers, all aligned with our ecosystem goals.

1 Like
5

in general in favour. With one caveat. We need to set expectation properly for this round.

Last time, plenty of builders reached out proposing their infra, vaults and product to put the assets at work. Most of them didn’t make it, and was later explained how the proposal goals was mostly to produce yield in a very safe and would say passive way from the DAO. I will just assume that this process won’t happen again, and we will rely on the consideration and decision of the committee.

I would personally prefer an allocation skewed toward ecosystem growth.
Arbitrum is not only lending: is dexes, is automated vaults, is perps, and we we should be mindful of every aspect of it and of the key players of our chain, albeit I do understand how lending market are often time a very good primitive to start enhancing the capital available.

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We are supportive of this proposal to transfer the ETH accrued from Sequencer fees and Timeboost into ATMC’s treasury strategies. Right now, these assets are sitting idle, and we believe they could be put to much better use. By moving them into active management, the DAO can strengthen its long-term financial sustainability while also creating opportunities to support ecosystem growth, particularly within Arbitrum’s DeFi.

In fact, we would encourage the DAO to make this a recurring practice rather than a one-off transfer. Regularly channelling the ETH generated from Sequencer fees and Timeboost into ATMC would ensure that capital doesn’t accumulate unused and instead becomes part of a structured treasury management approach. Over time, this could both improve the DAO’s yield and align our treasury strategy more closely with ecosystem development goals.

The key consideration will be ensuring that any chosen strategies are transparent in their risk profile and cost structure so the DAO can make informed decisions. Overall, we think this is a positive step forward and strongly support it.

3 Likes
7

IMO, the core idea makes complete sense: put idle assets to work. I’d like to share a few options and suggestions for consideration, some of which I already mentioned in my comment on the DRIP recap post.

  • Consider solutions like Balancer boosted pools (LPs deposited into Aave), which enhance the impact of assets within the ecosystem.
  • Expanding beyond lending/DEXes could set the stage for future DRIP seasons. If liquidity in these verticals is already reinforced, it becomes easier to accommodate new demand. Additionally, if funds from lending/looping are redirected to other verticals, liquidity becomes stickier.
  • Reserve a small percentage (up to 20%) of the current requested amount to support new protocols and/or other verticals. This would demonstrate stronger alignment with item 2 of the mandate (“Supporting growth in the Arbitrum ecosystem, particularly within DeFi”). It seems that there is no strong reason to postpone it (this item is related to my previous comment in the DRIP post).
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Performance attribution can best be explained and seen by looking at the current ETH-denominated allocations here (pictured below) and by looking at the monthly updates. All yields displayed and referenced in both are net yields, with the exception of gas and bridging costs, which at this scale are considered de minimis and excluded.

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We acknowledge that the current positions’ blended performance figures are below the staking return rate of simply holding wstETH. However, as detailed in the governance post defining the goals and justification for those allocations, simply staking all of our ETH and not providing or bootstrapping any liquidity to native or migrating blue-chip protocols to spur ecosystem economic growth was at odds with the intent of the deployment.

It’s also worth noting that although some of the allocations are providing lower yield than a simple staked ETH LST strategy, this was not an unintended consequence of past allocation decisions, but expected. In the governance post regarding the deployment of these funds, we anticipated that the Fluid ETH deployment would provide “1-2% native ETH yield,” and so far, performance is in line with expectations. Fluid’s growth on Arbitrum has been impressive, and this is a key example of return on investment that is slightly less tangible when looking at treasury return figures, but highly beneficial for the broader Arbitrum DeFi ecosystem.

To answer some of the general questions raised by @Jonezee @JoJo @karpatkey @jameskbh

  • We are not requesting the entirety of the ETH accumulated in the treasury to be transferred over as we believe it is responsible to leave a “buffer quantity” of ETH for any unexpected DAO needs or any future treasury management proposals with differing goals from this one.
  • As mentioned in the proposal, no open RFP process will occur for this tranche so expectations are properly managed regarding goals and intent of the deployed capital. The committee will primarily focus on and account for factors such as yield sustainability, protocol and economic risk, ecosystem impact, liquidity, etc. when evaluating allocations.
  • The proposed high-level strategy and goal enables the committee to deploy ETH outside of just lending/DEX LP opportunities. We agree all viable strategies should be considered and our list of potential categories was not collectively exhaustive.
1 Like
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We agree with @karpatkey that these transactions should become a recurring practice. We suggest the DAO establish a threshold for the amount of capital needed on hand (stored in the treasury) and any excess funds are automatically transferred to the ATMC. ATMC funds should be divided into tranches based on risk and liquidity, allowing the DAO to access certain capital for discretionary spending.

Michigan Blockchain | Jack Verrill | TG @JackVerrill

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Can you shed some light on how this works in practice? Specifically around:

  • How are we determining where to offer this below-market-rate capital?
  • What metrics are those recipient protocols/below-market-rate positions being evaluated upon?
  • What is success or failure defined as? Preferably this is determined ahead of time so there’s no moving of goal posts.

For example, Fluid Lending on Arbitrum is pretty much up and to the right. Does that mean it’s now graduated from needing this implicit subsidy?

Camelot is the inverse – the TVL and volumes are flat while Uniswap and Fluid (DEX) are growing. Does that mean it’s no longer worth providing the implicit subsidy since there’s no noticeable impact from it beyond the forgone revenue?

In general, we would recommend governance funds avoid these types of positions. It feels unfocused and unproductive without some specific plan from the supported project. We’d much rather see, for example, targeted subsidies for those who move an LP or borrowing position from another chain than generic subsidies that benefit traders/borrowers/protocols that would have just done the same activities they’re already doing.

In short, we’d like to see anything below the “risk free rate” for ETH staking be accompanied by a clear plan to alter behavior of specific users. After all, we don’t need to provide subsidies to users who Arbitrum is already won – it’s the next marginal user that needs to be onboarded who should be targeted.

1 Like