AIP-1.1 - Lockup, Budget, Transparency [UPDATED]
ATTENTION:
This is an updated version of a similar proposal that has been put up for a vote a day prior to this one. We have discovered that the target vesting contract in the previous proposal had an incorrect "start" date. A more detailed explanation is provided below. Please do not vote on the other proposal and vote on this proposal instead.
What happened?
The way this proposal works is that there is a special AIP smart contract (AIP1Point1Target) that references the location of the vesting vault for the Foundation Administrative Budget Wallet. The on-chain action that the proposal is executing is changing of the “passed” parameter on this AIP smart contract from false to true, documenting DAOs approval for the Foundation to use this referenced vesting vault, after the vote the Foundation will move 700M ARB tokens that are subject of AIP 1.1 to this contract and will be able to retrieve the vested amount to the Foundation’s multisig.
One parameter of this setup is a “start” timestamp, which determines the point in time from which the vesting schedule is being calculated. According to the text of AIP-1.1: “…ARB tokens in the “Administrative Budget Wallet” will be subject to a four year lockup schedule, unlocking on a continuous linear time basis commencing from the date of the Snapshot approval of AIP-1.1 by the DAO…”. So this timestamp should be set to 1681754400, which translates to Monday, 17 April 2023 18:00:00 GMT, the date of the Snapshot approval. However, in the vesting contract that was subject to the original vote, it has been wrongly set to the date of the ARB Airdrop (1679590871, which translates to Thursday, 23 March 2023 17:01:11 GMT). This means that the smart contract configuration did not reflect the text of the AIP and would result in the effective unlocked vested amount being too large.
Resolution
Since we cannot cancel the vote at this point (it could be canceled by the Security Council, but only after the vote has passed), after thorough discussion, we have decided to create a new proposal with the correct smart contracts that are referenced in the vote. We recommend that the DAO ignore the other AIP-1.1 vote, and instead vote on this one.
If you’d like to check the parameters are set correctly this time, you can check (for example using Arbiscan) the AIP smart contract referenced by this vote: https://arbiscan.io/address/0x9E43f733Da0445b35f038FB34a6Fb8C2947B984C#code. In the Contract tab you can go to the Read contract sub-tab and check that the arbitrumFoundationWallet parameter references smart contract at 0x15533b77981cda0f85c4f9a485237df4285d6844, which is the vesting vault. You can now go to this smart contract and, again, go to the Contract tab, and Read as Proxy sub-tab to see that the “start” parameter is set correctly to 1681754400.
We hope that this resolution will cause as little confusion as possible among delegates. We plan to publish "lessons learned" from this case at a later date to elaborate on this case and suggest certain procedures to be implemented in the future to minimize the chances of such mistakes happening again.
Category: Non-constitutional
Abstract
tl;dr: AIP-1.1 proposes (1) a lockup, (2) a budget and (3) transparency reporting regarding the 7.5% of the $ARB tokens distributed to the Foundation’s “Administrative Budget Wallet”.
The Administrative Budget Wallet will be used for covering ongoing administrative and operational costs of The Arbitrum Foundation, payment of service providers, and for the purpose of fostering the growth and development of the Arbitrum ecosystem. In respect to the 7.5% that has been distributed to the Administrative Budget Wallet, a transparency report regarding the 0.5% that has already been transferred is available here 163.
The remaining 7% of tokens will not be used until the approval of a budget, such as the one proposed in this AIP. The proposed budget is in-line with the Foundation’s strategic needs to represent and service the DAO and the allocation is smaller than initial allocations to peer foundations. This AIP proposes placing the 7% outstanding distribution in a smart contract-controlled lockup – linearly unlocking over 4 years – alongside transparency report structures to allow the DAO to periodically monitor expenditures and other activities of the Foundation.
The Administrative Budget Wallet will be used in pursuit of the Foundation’s mission statement as set out in the bylaws 24, which includes financing technical improvements and operations of the Arbitrum network, fostering ecosystem growth through grants to align with partner projects and educational initiatives with in-person and online events.
Motivation
On March 16, 2023, the Arbitrum networks (Arbitrum One and Arbitrum Nova) were decentralized and given to the newly formed Arbitrum DAO. Included in this transition were:
- Control of the upgradeability and technical future of the chains
- Control over the DAO treasury
- Control over net fee revenue - i.e. the net difference between fees collected by on-chain operations and L1 fees paid by the Sequencer
- All Arbitrum social media platforms and accounts
- Ability to elect and, if deemed appropriate, remove the Security Council and Directors
Full responsibility of the chain’s technology, future, and fee revenue were given to the DAO directly. With the DAO assuming those rights and controls, the DAO also assumed the responsibility to fund the ongoing operations of the chains and the costs of running critical chain infrastructure, including RPCs, the Sequencer, and third-party vendors and service contracts.
While there are many activities that the DAO can do directly on-chain, several of its responsibilities require a representative that can engage, maintain and enter new agreements with service providers to run infrastructure that’s critical for the ecosystem (e.g. servers, RPCs, block explorers, data feeds and analytics platforms, and tooling), and ensure that both the chain and the ecosystem have the support they need to continue to thrive. In order to ensure a smooth transition to the DAO without any interruption of services, it was necessary to create an organization that would be ready to service the DAO immediately from launch.
The Arbitrum Foundation was created to fill this need, with its mission and scope outlined across the Foundation Bylaws 24. Prior to the launching of the DAO, The Arbitrum Foundation assumed responsibilities for funding and running chain infrastructure. However, in an arrangement that appears to be unique amongst Arbitrum’s peers, the Foundation does not receive or control the net revenue from transaction fees as this is given directly to the DAO treasury.
The DAO is also tasked with fostering and developing the Arbitrum ecosystem, where the DAO may seek to partner with companies or organizations that either cannot or will not publicly negotiate collaborations or partnerships due to confidentiality and other operational requirements. Often, large enterprises negotiate partnership opportunities in private without public processes, where these relationships can only be disclosed after they are agreed upon. Having a well-funded Foundation empowered to represent the DAO in this arena, alongside peer foundations, is in the best interests of the DAO to further develop the growth of the Arbitrum ecosystem.
Rationale
While the need for the Foundation to exist and represent the DAO is well-motivated, it became clear through community discourse around AIP-1 that it was important to have additional insight and restrictions on the Foundation’s initial funding. This AIP-1.1 proposes a detailed set of controls and initiatives to achieve that goal.
- Smart Contract Lockup:
The remaining 7% of ARB tokens in the “Administrative Budget Wallet” will be subject to a four year lockup schedule, unlocking on a continuous linear time basis commencing from the date of the Snapshot approval of AIP-1.1 by the DAO (i.e., a total of 175m $ARB released over each year for 4 years). The lockup will be enforced on-chain through a smart contract which will designate a multisig wallet controlled by The Arbitrum Foundation as the beneficiary. The lockup contract will be configured in a manner that allows the DAO to adjust future funding and/or modify the unlock schedule.
- Operating Budget:
Below is a proposed annual operational budget for the first year of the Foundation. While the operational costs are denominated in USD, the expectation is that approximately half will be paid in USD and half will be paid in locked $ARB tokens.
As this will be the first year of the Foundation’s operation and as the Foundation is still young at the time of this AIP, it goes without saying that these are estimates with the expectation that this will be an upper bound on the operational costs for the first 12 months. The transparency reports described in the next section will be an opportunity to track the actual expenses against the budgeted categories and keep the community informed.
- Operating Budget: Cost ($USD)
- General and Administrative: $16,000,000
- R&D: $9,000,000
- Technical Infrastructure: $5,000,000
- Events, Marketing & Communications: $6,000,000
- Total - Next Twelve Months: $36,000,000
- (50% $USD/50% $ARB)
*The General and Administrative line-item includes personnel, contractors, legal, insurance and other operational costs. As of the date of this AIP, the Foundation currently has five full-time contributors, 8 contractors, and the Security Council engaged to support the Arbitrum ecosystem. The Foundation’s budget anticipates the need to hire an additional 15 full-time contributors across technical, growth and community functions over the course of this year.
This operating budget presents best-faith estimates of the Foundation’s anticipated budgetary needs which may be subject to change.
- Ecosystem Growth Initiatives
Any additional funds released in compliance with the lock-up schedule above will be made available, but not necessarily deployed, to opportunistically pursue ecosystem growth opportunities and strategic partnerships on behalf of the DAO. The expectation is that the vast majority of ecosystem growth funds will be paid in tokens, and thus will not require the Foundation to sell any tokens. Wherever reasonable, the Foundation will include additional lockups and/or vesting when making distributions in tokens.
The Mission Statement in the Foundation’s bylaws 24 highlights the varied nature of the opportunities the Foundation intends to pursue, and a set of KPIs that can track all of these opportunities being developed. The basis of those KPIs will stem from a focus on onboarding and growing both the developer and user base of the Arbitrum ecosystem, attracting best-in-class infrastructure providers to the network, expanding across various industries, use-cases and scope of projects that engage with Arbitrum technology. The ultimate goal of the Foundation is to continue to foster the development of the technology and expand the Arbitrum ecosystem globally.
In addition to the Foundation’s processes for selecting grants, it is important to note that the DAO maintains control over the 3.527 billion $ARB and has the ability to distribute any additional grants as it sees fit. Additionally, should the DAO choose, it has the ability to trigger the inflation of the total supply of $ARB which will supplement the on-chain DAO treasury with 2% growth of the total supply of $ARB each year.
- Transparency Reports
The Foundation understands and agrees that the community should have oversight across how these funds are being utilized to gain comfort that spending is in the interest of the community. In furtherance of this goal, the Foundation is committed to providing a comprehensive annual report and a semi-annual progress update. This will provide the community with a better understanding of the Foundation’s expenditures, balance sheet and its pursuit of ecosystem growth opportunities alongside partnership developments, as well as the various internal and external committees and stakeholders that are involved in the decision making process.
The Foundation is continuing to build out its internal personnel to service grant requests and has already engaged a DAO service provider to assist with the administrative components of servicing grants. The Foundation is also talking with a number of different external service providers to assist in both the review and diligence processes.
The financial element of these transparency reports will include a breakdown of operational costs incurred while running the Foundation, including infrastructure spending for the Arbitrum chains, events, community building efforts, grants, etc.
In addition to the aforementioned reports, the Foundation is providing an initial transparency report alongside this AIP covering all major actions and decisions the Foundation made during set-up, including the costs incurred up until now, which can be found here.
Links:
Previous version of this proposal with misconfiguration issue: https://www.tally.xyz/gov/arbitrum/proposal/79904733039853333959339953965823982558487956291458141923259498272549038367575
Snapshot temperature check: https://snapshot.org/#/arbitrumfoundation.eth/proposal/0x7203289844e807781e8d2ec110d4b97a79a29944cae06a52dbe315a16381a2ae
GitHub PR: https://github.com/ArbitrumFoundation/governance/pull/44
Forum discussion thread: https://forum.arbitrum.foundation/t/proposal-aip-1-1-lockup-budget-transparency/13360/1
