Abstract
The Arbitrum Token Swap Pilot proposal is the next step toward the long-term effectiveness and sustainability of ecosystem support programs in the broader Arbitrum ecosystem.
In this initial pilot phase, we prioritize mature protocols on Arbitrum, the so-called Arbitrum Blue Chips, of which 19 have been identified. The pilot aims to swap with 3-7, with a maximum swap budget of 2M ARB and a cap of 0.5M ARB per project.
We foresee token swaps as a complimentary mechanism to the current incentive programs for Arbitrum DAO to participate in the development and success of its ecosystem projects.
Motivation
One of the primary limitations of the initial incentive programs is that they were all one-directional, with Arbitrum treasury allocating ARB to projects and only receiving network transaction revenue in return. While project growth resulting in additional network activity does provide some upside for Arbitrum treasury, the effects will likely take years to accrue to a point where the net resources flow of the Treasury is positive, only once Arbitrum and the applications on top reach maturity.
Token swaps provide a robust mechanism for value alignment and bidirectional upside between organizations. In addition to potential financial benefits, they come with governance and utility perks associated with tokens.
Moreover, Treasure DAO’s recent move from Arbitrum to ZKsync has shown that bidirectional, long-term alignment is even more critical, especially for protocols that play an essential role in the ArbitrumDAO ecosystem and have received significant ARB incentives.
By embedding Token Swaps as a vital element of Arbitrum Ecosystem Development and critical programs such as LTIP, Arbitrum can continue pro-actively incentivizing ecosystem growth while receiving additional upside and leverage in the most promising project’s building in its ecosystem.
The detailed Token Swaps to DAO Token Swaps as Ecosystem Enablers report, 5produced by LuukDAO and JashFi through the Thank ARB Firestarters Program powered by Thrive Protocol, offers insights from over 50 DAO token swaps, which are the basis for this pilot proposal.
Rationale
The Token Swap Pilot contributes to Arbitrum DAO by:
- Increase bi-directional alignment with top ecosystem projects.
- Gain valuable insights into strategies for ecosystem development, which can inform grant and incentive programs like STIP and LTIPP.
- Create incentives for protocols to remain loyal to Arbitrum through a token swap program. In the pilot phase, reward those who held on to (at least 50%) of their initial ARB airdrop.
Steps to Implement
Projects eligible for a swap
During the initial Token Swap discussion, it became clear that stakeholders and delegates value the ecosystem alignment and contribution nearly as much as the financial upside. To optimize Arbitrum ecosystem alignment and longevity, the Token Swap Pilot prioritizes projects with significant past engagement with Arbitrum.
Only projects that received the initial ARB airdrop and still hold at least 50% of their tokens, participated in one of the STIP or LTIPP programs, and have a token available on Arbitrum Mainnet will be eligible for this pilot.
19 projects that fall within this category have been identified. These projects still hold over 27,2M ARB in their treasury and have received significant rewards from the incentive programs. Projects outside of the group of 19 can demonstrate their eligibility.
Any project that does not fall within the above categories will not be eligible for the Arbitrum Token Swaps Pilot. Still, if the pilot is successful, it may be an addition to future grant programs and expanded to prior STIP or LTIPP grantees.
To determine the exact swap size, the following parameters will be considered by the Committee members:
Airdrop Size:
Airdrop % Sold:
Incentive Rewards received:
Market Cap:
FDV:
Lifetime Fees Generated:
6 month Fees Generated:
Lifetime GAS consumed:
6 month GAS consumed:
% of protocol usage on Arbitrum:
Project Treasury Size currently:
Token Pool depth on Arbitrum:
Token Utility:
ARB utility plan:
Swaps will be executed through Hedgey Finance’s Token Swap solution, the most used DAO token swap solution.
Note: If insufficient projects are willing to participate in the exchange, we’ll explore alternative eligibility requirements and submit an additional Snapshot vote to ratify these changes.
Token Swap Budget
The Arbitrum Token Swap Pilot will have a Token Swap budget of up to 2M ARB, which the Pilot Council will manage through the MSS multi-sig.
- The initial pilot program is anticipated to conduct between 3-7 token swaps.
- Each swap is capped at a maximum of 500,000 ARB, comparable to some previous swaps executed on Arbitrum One by GMX and its partners.
- The minimum swap size will be 100,000 ARB.
Non-Sales Clause
Arbitrum DAO and the third-party DAO will swap tokens with a 3-month lock. After the three month lock, the tokens will unlock 10% monthly for ten months. If no Arbitrum Treasury Management team is in place within nine months of executing the token swaps, the Pilot team will propose a solution for managing these tokens before they unlock.
All tokens received by Arbitrum will be kept in its main Treasury (0xF3FC178157fb3c87548bAA86F9d24BA38E649B58).
Pilot Program Implementation (timeline)
The Token Swap Pilot Council
The initiative will comprise 3 voting members and 1 non-voting facilitating member.
The following 3 voting members are nominated as they provide a deep understanding of ArbitrumDAO and Token swaps.
@LuukDAO, for producing the initial research and various Token Swaps programs
@GFXlabs, for being an active LTIPP and STEP Council member
@CastleCapital, for doing in-depth airdrop research and being an application advisor in LTIPP.
The non-voting member (except in case of a tie) will be Arbitrum Treasury and Sustainability WG, lead by @thedevanshmehta, who supervised the token swap research and performed a similar role in the STEP program.
![Screenshot 2024-10-17 at 12.32.43 PM.png]()
Conflict of interest rules
The dealmakers are not allowed to be involved in a token swap if they have direct or indirect exposure to the counterparty; this includes holding over 0,001% of the total supply of the token personally or through the affiliated company and having a direct, active working relationship with this protocol.
Program KPIs
This pilot’s objective is to better understand the impact and logistics of DAO token swaps as a value-alignment tool for growing Arbitrum DAO’s ecosystem.
The following KPIs are identified for the pilot:
- Execute at least three swaps and document the process and learnings
- Gain a better understanding of the change of behavior and perception of ecosystem players following a token swap with Arbitrum DAO
- Provide a comprehensive summary of the pilot and support future incentive programs, allowing them to leverage Token Swaps in their program design.
Overall Cost
Total Cost: 2,130,000 ARB
- Token Swap Budget: 2,000,000 ARB. The entire budget does not need to be spent. Any unused funds will be returned to the DAO.
Implementation Budget: 130,000 ARB. All staff involved are paid 3,500 ARB per week for their involvement.
- Application period: 21,000 ARB will be split equally between LuukDAO and Devansh for drafting the application form in week 1, and helping protocols apply in weeks 2 and 3.
- Review period: 56,000 ARB, split equally between all four committee members for four weeks, to negotiate token swap deals and put forth recommendations for approval on snapshot.
- Execution (~6 weeks) and monitoring period (~10 weeks) to formulate continuation of the program - 53,000 ARB to 1 member (LuukDAO).
Work on this proposal was funded through the Thank ARB Firestarters Program powered by Thrive Protocol
