Long Term Incentives Pilot Program

Abstract

This AIP establishes a Long-term Term Incentives Pilot Program for the DAO to test new incentive designs and answer the necessary questions to ensure we are ready to commit to the long-term program. This Pilot Program will distribute a maximum of 45M ARB to protocols building on Arbitrum that were not funded during STIP or the Backfund. The program will distribute ARB to protocols for 12 weeks.

Motivation

Testing Incentives Mechanisms For a Long-Term Framework

The Arbitrum DAO has spent the last few months experimenting with incentive programs to attract new users and liquidity to Arbitrum. There is a consensus the DAO will use what we learn from these short-term programs to establish a long-term framework. While STIP V1 brought tons of attention to Arbitrum and has resulted in upticks 1 in protocol metrics, we have learned there were many flaws with the structure of STIP Round 1. This Pilot Program looks to implement new mechanisms to address the issues seen during STIP. The DAO will use this Pilot Program as a test run for a long-term framework before committing to a year-long program.

The Pilot Program will operate using a Council, have Advisors to ensure protocols receive adequate feedback and assistance, and allow protocols more freedom to create innovative ARB incentive plans. We believe these changes will help remedy many of the pain points seen in Round 1. Running the Pilot Program to test these new features will allow the DAO to compare different program methods before implementing a long-term framework beginning in Q2 2024. This will help ensure we have all the knowledge necessary to implement the most effective long-term incentives program for Arbitrum.

Why Protocols Need a Round 2

STIP was an experimental program to distribute ARB to protocols to use as incentives for their users. While it was initially intended to have two rounds, the program was substantially more popular than expected, and the entire 50M ARB budget was used in Round 1 and an additional 21.4M ARB was passed through STIP Backfund for teams that were “approved but not funded”.

This meant no funds remained for Round 2, leading to its cancellation. Many protocols either missed the Round 1 deadline, intentionally waited for Round 2 or simply did not know about STIP. This left several protocols with no alternative route to apply for ARB incentives.

Many STIP Round 1 grantees have seen upticks 1 in their metrics. This Pilot Program would allow protocols that missed out on Round 1 the opportunity to apply to gain these benefits, which will help level the playing field for these protocols. The Pilot Program will replace a round 2 and will be funded with 45M ARB to accommodate the large expected protocol demand we have already seen. This will complete the incentivizing of Arbitrum-based teams to create a holistic competitive edge not against each other but against other chains.

Rationale

There is a DAO consensus that Arbitrum will need a long-term incentive program in 2024. However, many delegates feel the DAO is moving too quickly and spending too much money on backfund or V2 proposals without yet receiving any of the data on STIP’s effectiveness.

We have learned a lot from STIP and can use what went wrong in STIP and the Backfund to hypothesize what changes would create a better long-term framework. However, we have little evidence to prove these new ideas would be a better solution. DAO members currently don’t have the resources or funds to create a long-term program, nor do we understand what a good long-term program looks like.

This proposal focuses on obtaining this evidence using a committed working stream to guarantee we come away from this program ready to make informed decisions on a long-term framework. The pilot program also allows the DAO to test new aspects of an incentive program such as Advisors, Councils, and more flexible incentive distributions before committing long-term.

This will help save the DAO money and time in the long term by preventing the need for more short-term programs before we are ready to commit to the Long-Term Framework.

Specifications

Problem / Solutions:

The specifications of the Pilot Program were designed to remedy the 3 largest complaints regarding STIP. The Pilot Program hopes to be a test run for these additions for the DAO to determine if they should also be included in the long-term framework.

Problem #1: Too large a burden placed on delegates

In the original STIP, delegates voted on each incentive proposal individually, with almost 100 snapshot votes. This was extremely tiring for delegates and left many feeling they could not make informed decisions on every proposal.

Solution #1: Elected council

To remedy this problem, the Pilot Program will have a 5 person council elected by the DAO responsible for evaluating applications and selecting which protocols will advance to a snapshot vote to receive ARB. This will ensure all applications are thoughtfully evaluated with only the most deserving receiving incentives. Not only will this help to reduce the burden on delegates, but it will also help expedite the process and allow protocols to receive incentives quickly and efficiently.

Problem #2: Protocols did not receive adequate feedback on their proposals

A major gripe from protocols was they struggled to get feedback from delegates before the deadline. This left many feeling as though the better-connected protocols had an advantage as they were able to modify their proposals based on feedback to make them more competitive during the vote. Many protocols were willing to make changes to their applications to make them more appealing to the DAO but never received the proper feedback necessary to do so.

Solution #2: Advisors

The Pilot Program introduces Advisors to assist protocols throughout the pilot program. This will be impartial organizations tasked with providing each applicant with detailed feedback and guidance on how to improve their applications and eventually their incentive programs. This ensures each applicant can iterate on their proposal so they can put forward the best possible incentive plan for the council.

Problem #3: Strict Limitations on Incentives Mechanisms

STIP Round 1 had strict limitations on how the ARB could be used as incentives. This was done to protect the DAO and prevent misuse of funds. However, the strict rules resulted in the stifling of many innovative incentive designs. Many protocols had interesting designs that used the ARB in ways that increased alignment, improved cost efficiency, or helped to limit the dumping of ARB. However, these designs were not permitted in Round 1 leading to almost all protocols resulting in generic liquidity incentive models.

Solution #3

The Pilot Program provides more flexibility to protocols to create innovative incentive structures. With the addition of the Council and Advisors, the Pilot Program does not require the rules to be as stringent. Malicious or inefficient designs will be first filtered out by the Advisors and then rejected by the council. Allowing protocols to innovate on incentive distribution mechanisms will allow Arbitrum protocols and community members to get a better idea of which designs work and which don’t work. This will help everyone as we prepare for a longer-term incentives program.

Flow of Pilot Program

Application Period (2 week)

Protocols will have 2 weeks to apply using the Pilot Program application template. The application template will be created by the Council and the Advisors to ensure everyone has the same goals and make it easier for the council to process applications. Applications will be posted in the Pilot Program section of the Arbitrum forum. Protocols only need to post the initial draft of their application during this period. They will then have 2 additional weeks during the feedback period to edit their applications. No late submissions will be accepted.

Feedback Period (2 weeks)

During the feedback period, the Applications Advisors will provide feedback and guidance on all proposals. Protocols will be assigned an Application Advisor who will provide feedback and guidance on applications on a rolling basis. Protocols will then use this time to work with the Advisors to edit their proposals before applications lock at the end of the 2 weeks.

Protocols can continuously adjust their requested ARB amounts until the feedback period is finished. No changes can be to the requested ARB amount during the screening period.

StableLab will also read all submissions during this period and highlight any rule violations to allow applicants to edit their submissions to ensure they comply with all program rules.

Screening Period (1 week)

During this period, the council

... please visit link below to view full proposal

https://tally.xyz/gov/arbitrum/proposal/110767177349707239820875764565747830009768307680609166467172874966002003291288