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

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. The following benchmarks guide Entropy’s allocation strategy:

• ETH: stETH staking APY (currently ~2.56% based on 30D average)
• RWAs: Avg APY of Largest Onchain U.S. Money Market Funds (currently ~4.11% based on 30d average)
• Stables: USDC Supply APY (most liquid lending market on Arbitrum and currently ~4.54% 30D average)

Entropy recognizes and agrees with delegates that at certain times a deployment to support ecosystem growth should be prioritized over a pure yield strategy. Our team weighs growth opportunities against foregone yield based on a few factors:

1. Estimated Value of Growth: Does the estimated dollar-denominated value of the ecosystem opportunity directly outweigh the forgone yield. Elements that influence the estimated dollar-value of the opportunity include growth potential, broader ecosystem synergies, competitive landscape, and potential onchain fee impact.
2. Pricing the Opportunity Cost: Evaluating the opportunity cost for specific growth allocations based on the established benchmark rates. This involves looking at the expected yield and rewards, required deployment size, and time to deploy/remain allocated.
3. Comparative Effect on DAO Income: The opportunity cost is scaled based on its influence on the DAO’s total income. As Arbitrum’s total revenue increases, it allows for more opportunity to pursue growth. The percentage of Arbitrum DAO’s top-line revenue foregone for an opportunity is a factor in when a strategic deployment makes sense. An opportunity with more substantive impact as a percentage of total revenue has a higher required perceived value versus cost multiple to be deemed worthwhile.

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. Tally: October 16th - 30th
4. Following a successful Tally vote: Begin deploying capital once OAT greenlights a granular allocation list

https://tally.xyz/gov/arbitrum/proposal/57495998481040869152703890521939307107269690440073097268210566577740258992963