TLDR; The TMC recommends that the DAO votes for #3 Only Deploy Stable Strategy

The four possible combined outcomes are:

• #1 Deploy Both Strategies
• #2 Only Deploy ARB Strategy
• #3 Only Deploy Stable Strategy
• #4 Deploy Nothing
• Abstain

If no ARB is deployed (#4 Deploy Nothing, Abstain win), we will make the necessary modifications and resubmit the proposal for another vote.

The vote will be conducted via Ranked Choice Voting (RCV): Rank options; results use instant-runoff counting.

Abstract

The TMC has divided the partner selection into two groups: one for managing the stablecoin allocation—which covers converting ARB tokens to stablecoins and their ongoing management—and one for managing the ARB allocation for on-chain strategies.

Specifically, the plan is to convert 15M ARB into stablecoins and manage those on-chain, while the remaining 10M ARB is deployed on on-chain ARB-only strategies.

Further information on the TMC mandate can be found here: Tally | Arbitrum | Treasury Management V1.2

Shortlisted Proposals

Stablecoin Allocation (15M ARB Equivalent)

• Scope: This group covers the full process of converting ARB tokens to stablecoins and managing these assets for DAO liquidity needs.

Partner Selection:

• Karpatkey
• Avantgarde & Myso
• Gauntlet

Allocation Strategy: The stablecoin management responsibilities will be evenly split among the three partners with a 33/33/33 distribution, ensuring diversification and balanced risk exposure while meeting the conversion and liquidity objectives.

ARB Allocation (10M ARB)

• Scope: This group is focused exclusively on deploying 10M ARB tokens into on-chain strategies designed to generate yield while safeguarding the principal.

Partner Selection:

• Karpatkey
• Avantgarde & Myso

Allocation Strategy: The on-chain ARB strategy will be managed equally by the two partners using a 50/50 split. Their proposals leverage proven DeFi protocols and ecosystem synergies to maximize risk-adjusted returns while maintaining liquidity and principal protection.

TMC Recommendation

We recommend a vote of YES for the Stablecoin Allocation and NO for the ARB Allocation.

Our analysis shows that the stablecoin strategies presented by the selected partners meet our criteria for DAO alignment, returns, risk management, etc.

Whereas the current ARB proposals lack sufficient risk management and clear operational details—resulting in low yield projections—we believe it is prudent to sit out on this allocation for now.

Voting Outcomes

Please cast your vote on each allocation separately. Your options are as follows:

Stablecoin Strategy Allocation Vote:

• Yes: Proceed with converting 15M ARB into stablecoins and manage them via a 33/33/33 split among Karpatkey, Avantgarde & Myso, and Gauntlet.
• No: Do not execute the stablecoin strategy; retain current ARB holdings without conversion.

ARB Strategy Allocation Vote:

• Yes: Proceed with deploying 10M ARB into on-chain strategies, managed in a 50/50 split between Karpatkey and Avantgarde & Myso.
• No: Do not execute the on-chain strategy; hold the ARB tokens.

The four possible combined outcomes are:

• #1 YES, deploy the Stable Strategy /// YES deploy the ARB Strategy.
• #2 NO, do not deploy the Stable Strategy /// YES, deploy the ARB Strategy.
• #3 YES, deploy the Stable Strategy /// NO, do not deploy the ARB Strategy
• #4 NO, deploy the Stable Strategy /// NO, do not deploy the ARB Strategy

We recommend that the DAO votes for #3 YES, deploy the Stable Strategy /// NO, do not deploy the ARB Strategy.

The vote will be conducted via Ranked Choice Voting (RCV): Rank options; results use instant-runoff counting.

Note. The first vote corresponds to the Stablecoin Allocation and the second to the ARB Allocation.

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Other Proposals

During our review process, we evaluated several proposals that ultimately did not meet the criteria, required further clarity, or didn’t align with DAO objectives.

• AnthiasLabs x XBTO: Their proposal did not provide adequate detail on stablecoin conversion, DAO alignment, or custody arrangements, which are critical to our objectives.

• August Digital: While proposing a single-sided AMM strategy for both ARB yield and ARB-to-USD conversion, the proposal provided minimal details. There was no evidence of existing ARB strategies or a dedicated vault, and the timeline for necessary audits—if smart contracts are involved—was not addressed. Moreover, the risk management section appeared generic, with much of the content seemingly repurposed from other contexts.

• Bracket Labs: The submission lacked clarity on key operational components, such as the choice of OTC counterparties or DEXes. Additionally, the rationale behind the 2% trading volume figure and the associated price impact considerations were not explained. Although a Stablecoin Vault is reportedly live, the lack of public transparency and reliance on historical yield figures from related funds (rather than the target vault) were significant concerns, compounded by high fee structures.

• WINR: The implementation details were insufficient, leading to concerns over the alignment of risk and reward.

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24.02.2024 Edit -- Further Clarification on Shortlisted Rationale

Stablecoin Strategies: Providers like Karpatkey, Avantgarde/MYSO, and Gauntlet stood out due to their provided backtests, clear execution plans, compensation structure, and risk management frameworks.

We have high confidence in their ability to execute the conversion of 15M ARB into stablecoins with minimal slippage and market impact.

As well as deploy these assets in well-established, low-risk protocols—aligned with the intended use of funds. The shortlisted proposals target an average yield of 8% to 12% under varying market conditions while primarily holding USDC and USDT.

This is why we’re recommending a YES vote on the stablecoin allocation.

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24.02.2024 Edit V2

Below is a summary of the strategies, including fees and expected returns. Please refer to the tables for full details and note the associated risks outlined below.

Note that strategies might share the same general risks, and differences in returns may come down to how effectively the providers optimize yield under varying market conditions.

There are no guarantees or risk-sharing by the providers. As described below, fees are based on the allocation of assets to each provider and/or their performance.

Note that for the Arbitrum Strategy, while both applicants use Myso they have wildly different reported return profiles (hence different risk profiles).

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Stablecoin Strategy

Stablecoin Strategy	Protocols Used	Exp. Returns	Fees
Gauntlet	AAVE V3	8%	Free
Karpatkey	Uniswap v3, Camelot v3, Balancer v2/v3, GMX, Aave v3, Compound v3, Fluid, Vertex (Perps), Pendle (Yield)	12-20%	0.5% management
AvantGarde/MYSO	AAVE V3, Compound (core), Pendle, Fluid, and Uni v3 (satellite)	5-15%	0.5% / 10% management/performance

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Arbitrum Strategy

Arbitrum Strategy	Protocols Used	Exp. Returns	Fees
Karpatkey	Myso	7-20%	0.5% mgnt
Avantgarde/MYSO	Myso	30%+	15% perf

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Key Risks

Stablecoin Strategy

• Stablecoin Risk: The possibility of a stablecoin depegging.
• Smart Contract Risk: Exposure to potential hacks of the protocols used by each provider.
• Liquidity Risk: Funds may become locked if the lending rate reaches 100%.
• Optimization Risk: The provider’s optimization might not perform as intended or may fail to beat the benchmark.
• Custody Risk: Since the Foundation remains the custodian, custody risk is effectively transferred to the Foundation.

Arbitrum Strategy

• Smart Contract Risk: Inherent risk of the protocol being compromised.
• Asset Risk: ARB could lose all value.
• Counterparty Risk: If no counterparty is found, the strategy’s yield could drop to 0%.
• Liquidity Risk: Liquidity is locked for the duration of the call (30 days for monthly, 7 days for weekly).
• Covered Call Risks:
  • Potential Conversion Risk: If the strike price is reached, the ARB allocation may convert into stablecoins (see “Managing Potential Conversions”).
  • Premium Fluctuations: Option premiums vary based on ARB’s volatility.
  • Secondary Market Risk: If a covered call isn’t held to expiry, exposure to secondary market prices may result as the matched trading firm buys back the call.

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ARB Strategies: When it comes to the ARB proposals, our review was less encouraging. Although there are some promising elements—for instance, Karpatkey and Avantgard

... please visit link below to view full proposal

https://snapshot.org/#/arbitrumfoundation.eth/proposal/0xc37793b67f39a6af9e9434003205b1d9b67dd6f75638329045257be823da4f18