[ARBITRUM] DeFi Renaissance Incentive Program (DRIP)

Non-constitutional

Changes on 5/12/25

• Added specification that funds will be sent to a foundation-controlled wallet with DAO-clawback capabilities
• Added a clear responsibility for the program's successes/failures to Entropy, even with the committee structure
• Added additional details surrounding community input, more specification that builders and procurement experts will be called on to give input through Entropy.
• Added flexibility around timeline in place of targeting July 1 start.

This proposal will be going to Snapshot this Thursday, 5/15.

Abstract

Entropy proposes a new type of incentives framework focused on targeting specific assets and activities across Arbitrum rather than specific protocols. Incentives per specific assets/activities will run in 3-month seasons through the DRIP so that the program can be adapted and different assets and activities can be selected as learnings are taken into account. Each season must have a singular, specified goal. For example, Make Arbitrum One the best place to borrow USDT against wstETH or Ensure Arbitrum One Has the deepest liquidity for trading USDT/ETH.

A season selection committee made up of the Arbitrum Foundation, Entropy Advisors, and Offchain Labs will be tasked with creating eligible, viable seasons with ideation input from partner companies and key stakeholders. The committee will maintain the right to modify, extend, or discontinue a season during its lifecycle. The “3-month” timeline is somewhat arbitrary, and is open to change dependent on perceived program success and market conditions.

The DRIP seeks funding of 80M ARB for the first 4 seasons, with a maximum of 20M allocated per season and a portion set aside for operational costs related to vendors utilized by the season selection committee. The season selection committee will procure partners for distribution and evaluation at their discretion, and potentially other partners as it sees fit. For example, the distribution partner will check the chain for wallet eligibility and distribute rewards to the wallets that have met the mandated goals of a season and create a frontend through which all eligible protocols will be shown. The evaluation partner will host open data around the program and recommend optimization improvements to the committee throughout a season’s lifecycle; after a season is complete, the evaluation partner will provide a more holistic analysis to the DAO. The same partners will likely be utilized throughout all 4 seasons. 80M ARB is the maximum amount that can be allocated throughout the 4 initial seasons, but there is no requirement to use all funds. All remaining ARB not used as part of the program will be held for further seasons or returned to the DAO if further seasons are not approved by the end of the 1-year mandate.

Motivation and Rationale

As the Incentives Detox concluded on December 17th, 2024, and with many parties exploring the next phase of incentives, Entropy has decided to take a first-principles approach to redesign the DAO’s incentives framework. After analysis of Chaos’ and Blockworks’ incentives reviews, and in collaboration with Gauntlet and other stakeholders, we have identified that taking the approach of incentivizing specific activities that the DAO would like to increase Arbitrum’s market share in will deliver better results than more generalized programs that are harder to evaluate and adapt. This is especially true for activities where Arbitrum has not yet achieved an established, stable market share or where the underlying vertical will be experiencing a systemic shock.

The DRIP is purposefully simple, targeted, and measurable, and focuses solely on the goal of bringing popular activity taking place on other ecosystems to Arbitrum One in a sustainable manner. In past programs, by lumping together oracles, perps, lending, dex trading, dex liquidity, bridges, and more, evaluation and iteration became an impossible task. One reason for this is the fact that protocols across different verticals and long-tail vs. core assets inherently cannot be judged on an apples-to-apples basis. The DRIP focuses on a controlled experimentation approach.

Looking across the space at activities that real DeFi users are executing in practice where Arbitrum’s market share shows growth potential either through innovation/potential partnerships on the application layer or through changes to the underlying market, a few ideas come to mind. For example, borrowing against yield-generating ETH a.k.a. “Looping,” creating the deepest liquidity on specific high-attention assets (per IOSG), bringing a vibrant wrapped BTC ecosystem to the network, increasing Arbitrum’s RWA utility and dominance, or focusing on attracting liquidity to restaking and LRTs. These are just a few examples of activities through which Arbitrum One has substantial room to grow, but the list goes on. We believe that for an incentives program to succeed, even within these targeted activities, target assets need to be selected in order for the program to proceed smoothly. By limiting programs to category-leading assets, or the category’s highest-growth assets, Arbitrum can take an opinionated stance and bet on what areas of growth it envisions as crypto’s most valuable use-cases into the future. Notably, the DRIP focuses on quality activities and assets that the DAO views as high-growth and -retention, rather than attempting to create a program that treats everything equally. The program focuses solely on using incentives as a tool in more holistic strategies around promising verticals where Arbitrum's penetration has room to grow sustainably in its competitive environment.

Another benefit of the DRIP is its value in business development and growth. Potential Arbitrum partners will see a program that could benefit them if they put a primary focus on Arbitrum. This will allow Arbitrum’s partnership teams, including Entropy Advisors and Offchain Labs, to use the DRIP as an incentive that makes Arbitrum more attractive to protocols exploring alternative/genesis chain deployments. This will create a frictionless path that effectively attracts new Arbitrum entrants while still supporting incumbents.

Upon ARDC analysis of our past incentives programs, a few findings are particularly notable:

[quote="chaoslabs, post:1, topic:25515"]

• Experiment and Iterate: Each of the studied protocols did this successfully in their own way. This was the clearest takeaway from the program and incentive programs should be thought of similarly to paid marketing campaigns in web2. The optimal design is constantly evolving and not always obvious purely to reasoning. There is no substitute for controlled experimentation.

• Keep the Incentive Criteria Clear and Simple: Users need to know what to do to react optimally to incentives. If the criteria are too complex, education becomes an issue, and attention will go to easier-to-earn incentives. All three protocols made the incentivized activity and payoff extremely clear and easy to understand.

• Use Incentives to Amplify New Features and Announcements: This was done by all three protocols studied and significantly impacts bootstrapping new markets, bringing visibility to new features and generally leaning into growth areas.

[/quote]

[quote="chaoslabs, post:1, topic:25515"]

• Do Not Interfere with the Natural Balance between Supply and Demand: Focusing too much on either side of the market can upset the state of equilibrium. This will likely correct once the program ends rendering this allocation of resources sub-optimal. This does not apply when the market under-compensates certain activities and require long-term subsidies.

[/quote]

[quote="BlockworksResearch, post:7, topic:23438"]

To summarize, all of the analyzed protocols saw their top-line metrics increase during the STIP, but in the months following the program’s end, figures trended back toward September 2023 values. There was some variability in how much capital/volume each protocol had managed to capture per ARB spent at the end of the STIP, but in the long term, these multiples tended to converge to a tight range. There are a few exceptions to this—protocols that are on the younger side and generally offer differentiated products. These protocols have successfully reached notably higher “steady states” compared to the beginning of the program, with incentives likely amplifying market penetration deriving from intrinsic drivers and on a few occasions, leading to more robust collaboration between the outperformers and other Arbitrum protocol

... please visit link below to view full proposal

https://snapshot.org/#/arbitrumfoundation.eth/proposal/0x0b62de171fbff7a81833f9ebb44b9747189264d7a2cf95e3446223b1c413d2b0