TLDR; We recommend that the DAO votes for NO, Deploy Nothing

The four possible combined outcomes are:

• YES, Deploy ARB Strategy
• NO, Deploy Nothing*
• Abstain

The vote will be conducted via Single choice voting. Key changes:

• No key changes in the proposal; strategy remains the same as in the previous vote aside from being split into two separate Snapshot votes per the Community's request.

---

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

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 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

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.

---

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.

---

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).

---

Arbitrum Strategy

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

---

Key Risks

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.

---

ARB Strategies: When it comes to the ARB proposals, our review was less encouraging. Although there are some promising elements—for instance, Karpatkey and Avantgarde/MYSO show potential—the ARB strategies did not meet our strict criteria for transparency and risk mitigation. Our internal grading highlighted significant concerns:

• Lack of Transparency: Key operational details—such as ARB option liquidity, allocation splits, and execution mechanisms—were either insufficiently detailed or not publicly verifiable, particularly for strategies involving off-chain fund movements.
• Inadequate Risk Management: Given recent security breaches and governance failures across the industry, we believe that preserving the DAO’s capital is a priority. Without a clear risk framework, moving forward with these strategies would introduce unnecessary exposure.
• Trade-Offs vs. Returns: The proposed strategies projected yields between 7% and 30%, depending on the strike price and maturity of options sold, and if the options are sold. If no counterparty is found the options strategy would yield a 0% return. Lending-based strategies offered minimal returns, around 0.16% per year which, even at our maximum allocation, would generate only $10,000–$12,000 annually at current prices. Given the scale of the allocation ($7.5M), these returns do not justify the associated risks.

Given these trade-offs, we believe the risk is not justified for an allocation of $7.5M worth of assets. Until proposals can deliver fully detailed strategies that meet our risk-adjusted return standards, it’s prudent to vote NO for the ARB allocation.

---

Arbitrum Alignment Consideration: A key criterion for evaluating submissions was alignment with Arbitrum. While most strategies will be executed on the Arbitrum network, not all will involve Arbitrum native protocols.

There are multiple reasons for this but the main ones are the absence of proposals by Arbitrum native protocols and the fact that most liquidity on Arbitrum is on non-native protocols, making it difficult to allocate a large amount of stablecoin while retaining a competitive yield.

Given the dearth of sufficient proposals, our recommendation is to do nothing rather than something not justifiable from a risk-reward perspective.

---

Edit 06.03.2025 V3

Further Clarification on the Shortlisted Rationale

TMC Clarification on ARB Strategy Decision

Hello everyone,

First, we want to sincerely thank the teams at @avantgarde, @karpatkey, and Myso for taking the time to discuss their proposals in greater detail with us. We appreciate your proactive approach and the thoughtful contributions you have made, both privately and in the forum.

Below, we provide additional context on our recommendation to defer active deployment of the ARB allocation at this time, along with feedback on each proposal’s approach and risk management.

Overall Rationale for the “Hold ARB” Recommendation

Risk and Transparency

While both teams have made significant efforts, the operational details for the ARB strategies, such as liquidity for options, counterparty arrangements, and daily/weekly execution, remain unclear. Given the large ARB allocation, this uncertainty makes us cautious.

Yield versus Complexity

The proposed yields for ARB strategies vary widely, ranging from near zero (for example, simple lending) to around 30% (for example, covered calls). However, the higher-yield strategies depend on liquidity or counterpartie

... please visit link below to view full proposal

https://snapshot.org/#/arbitrumfoundation.eth/proposal/0x9d13c56f911796a578812959f775092b3644901be17738a2d41c516d8a8f2e9b