The short-term incentive plan has significant effects, and the long-term incentive plan may further promote the prosperity of the Arbitrum ecosystem.

Written by Matt_StableLab

Compiled by: Nan Zhi, Odaily Planet Daily

Overview

This AIP proposal establishes a long-term incentive pilot program for the DAO to test new incentive designs and answer necessary questions to ensure we are ready to commit to long-term plans. The pilot program will distribute between 25 million and 45 million ARBs to Arbitrum-based protocols, with the exact amount determined by the DAO through snapshot voting.

Enable motivational reasons

Test the incentive mechanism of the long-term framework

The Arbitrum DAO has been experimenting with incentive programs over the past few months to attract new users and Arbitrum liquidity. While STIP V1 brought a lot of attention to Arbitrum and caused the protocol metrics to rise, we found that the structure of STIP Round 1 had many flaws.

This pilot program aims to implement new mechanisms to address issues arising in STIP V1. The DAO will use the pilot program as a trial run for the longer-term framework before committing to the one-year program.

The pilot program will operate through a council, staffed with implementation advisors to ensure protocols receive adequate feedback and assistance, and allow protocols more freedom to create innovative ARB incentive programs. We believe these changes will help address many of the pain points that emerged in the first round. Running a pilot program to test these new features will allow the DAO to compare different planning approaches before implementing the long-term framework starting in the second quarter of 2024. This will help ensure we have all the knowledge we need to implement the most effective long-term incentive program for Arbitrum.

(Odaily Planet Daily Note: STIP is the Short-Term Incentives Program launched by Arbitrum in October 2023. In the first round, 95 projects participated, 29 projects were selected, and a total of 50 million ARBs were distributed. The budget was then increased , an additional 21.4 million ARB incentives were distributed to 27 projects.)

Why is a second round of Grant needed?

STIP is an experimental program for distributing ARBs to protocols to incentivize their users. Initially intended to be two rounds, applications were so popular that funds were exhausted in the first round, leaving some protocols with no other way to apply for ARB incentives.

Many STIP first-round grantees saw their metrics improve, and the pilot program aims to bring similar incentives to other protocols.

This pilot program will replace the 2nd round of STIP and will provide 25 million to 45 million ARB grants to create an overall competitive advantage, not to compete with each other internally, but with other chains.

Specification

Problem/Solution:

The specifications for the pilot program are designed to correct the 3 biggest flaws regarding STIP Round 1. A trial run will be conducted to determine whether long-term use is required.

Issue 1: Voters are overburdened

In the original STIP, delegates voted on each incentive proposal individually, with nearly 100 snapshot votes.

Solution: The pilot program will establish a 5-person committee elected by the DAO to evaluate applications and select which protocols will enter the snapshot vote to receive ARBs.

Issue 2: The protocol did not receive adequate feedback on its proposal

One of the main comments about the protocol was that they struggled to get feedback from representatives before the deadline.

Solution: This pilot program introduced implementation consultants. This will be an impartial organization whose mission is to provide each applicant with detailed feedback and guidance on how to improve their application.

Issue 3: Strict restrictions on incentive mechanisms

The first round of STIP had strict restrictions on how ARBs could be used as incentives. This is done to protect the DAO and prevent misuse of funds. However, strict rules inhibit many innovative incentive designs. Many protocols have interesting designs that were not allowed in the first round, resulting in almost all protocols using a common liquidity incentive model.

Solution: The pilot program provides protocols with greater flexibility to create innovative incentive structures. With the board and application advisors on board, the pilot program no longer requires as stringent rules. Malicious or inefficient designs will first be filtered out by the application consultant and then rejected by the council.

Proposal execution timetable

• Application period (2 weeks): Agreements will have 2 weeks to apply using the Pilot Program application template. Application templates will be created by the Board of Directors and Application Advisors to ensure everyone has the same goals. *Feedback Period (2 weeks): During the feedback period, application advisors will provide feedback and guidance on all proposals.
• Screening Period (1 week): During this period, the Board will score each protocol using pre-determined scoring criteria and decide which protocols will enter the voting period to receive an ARB.
• Voting period (1 week): After screening by the Board of Directors, each application will be voted through Snapshot. After the voting is completed, funds will be received through Hedgey flow.
• Incentive Period (12 weeks): Selected protocols will receive their requested ARBs using a bi-weekly Hedgey stream for 12 weeks. During this period, the agreement will be required to provide bi-weekly incentive progress updates using this template.

Roles and Responsibilities

• Council: 5 people in total, responsible for scoring and deciding which protocols enter Snapshot voting;
• Application consultants: 3 people in total to help the protocol design, implement and update its incentive plan;
• Project Manager: Responsible for coordinating all relevant parties to ensure the smooth progress of the pilot project;
• Data providers: As with the first round of STIP, the pilot program will use service providers for data monitoring and reporting;

Proposal Costs and Incentives

• Protocol incentives: 25, 000, 000 - 45, 000, 000 ARB;
• Board members: 125,000 ARB - 25,000 ARB each;
• Application consultant: 105, 000 ARB - 35, 000 ARB per person;
• Research Bounty: Total 200, 000 ARB; *Data and analytics providers: 150,000 ARB;
• Project Manager: 100, 000 ARB;
• Retroactive community funds: 100, 000 ARB *Multiple signers: 20,000 ARB - 2,500 ARB per person *Proposal Creation Assistance: Alex Lumley received 15,000 ARB - 10,000 ARB and Bobby Bola received 5,000 ARB for their time assisting with proposal design, hosting proposal office hours calls, and communicating with representatives to gather feedback time.

(Odaily Planet Daily Note: The proposal estimates that the design, communication, and implementation of this incentive will cost approximately 800,000 ARB.)

Currently, the long-term incentive plan has opened Snapshot voting, with a total of four options: ① using 45, 815, 000 ARB, ② using 35, 815, 000 ARB, ③ using 25, 815, 000 ARB, and ④ not opening the incentive plan. options, option ① has the highest support rate at the time of publication, reaching 93.75%, and option ④ has the second highest support rate, reaching 5.54%.

How effective were the previous short-term incentive plans?

On October 13, 2023, the first round of STIP voting was completed, and the TVL of the relevant agreement was US$980 million; on November 14, 23, the supplemental incentive voting was completed. The TVL of the relevant agreement was US$1.12 billion, an increase of 14%; it reached the maximum peak of US$1.42 billion on January 5, 2024, an increase of 44.8% compared to October 13, and the stimulus effect was obvious.

(Odaily Planet Daily Note: Relevant data comes from Arbitrum official monitoring website, calculated using a 30-day moving average.)

Other data are as follows:

• On October 13, 23, the transaction volume reached US$150 million; DAU 11,650 people;
• On November 14, 23, the transaction volume reached US$600 million; DAU 16,384 people;
• On January 5, 24, the transaction volume reached US$1.14 billion; DAU 18,377 people;

Based on the above data, Arbitrum’s short-term incentive plan has indeed achieved certain results, and the ecological activity and amount of funds have increased significantly. Previously, Arbitrum was the Ethereum L2 with the richest ecosystem. This long-term plan may further enhance the prosperity of the ecosystem and enhance Arbitrum's chain competitiveness.

In addition, this voting first needs to go through multiple rounds of official organizational decisions, and will shift from community-driven to official-driven. The incentive model requirements after opening will also bring many innovative solutions, or small projects will stand out through this incentive.