Hey, hey, DMDM, we are back with a new AMA with the Arbitrum Dao.
Today, we have a very amazing guest with us, Arbitrum Dao contributors that are doing
the Arbitrum Stable Treasury Endowment Program, which is super exciting and yeah, very cool
to get to know more about it.
And yeah, well, Devansh, thank you very much for joining us today.
I see you too, Santinomics, Ainz, and Hotlayer.
So yeah, maybe, I don't know if you want to share a brief intro about yourself or also
about the program, like what is Arbitrum Stable Treasury Endowment Program?
Yeah, Sean, I'm happy to go.
You can give a thumbs up if you can hear me.
So at a very broad level, we're trying to, Arbitrum has so far used its treasury for
giving out grants and we really think that we need more creativity in how we are employing
So step program is really the first stab at doing that, where a lot of the best projects,
and I see a lot of them here, I see Fortunify and Nick and I see some of the other providers
But what they shared with me was that they didn't actually want grants as much as asked
to actually be a user of their product.
And I thought that was really interesting because if you have a good product, you want
That's what allows you to raise more funds and that's what gives you validation.
So that's why really the inspiration for step was born, that like, why don't we Shiversify
our treasury by actually investing in the products on Arbitrum, that we are actually
sending a signal saying that, hey, these are the good products that we stand by and
we are using our treasury to support them.
So that's really how it started.
And our proposal is up on snapshot right now.
I can share more details about it in a bit.
But I think what I want to hear first is actually why even we should like we're starting with
tokenized tables or like yield bearings, table coins.
So very safe assets is what we are starting with.
So limiting ourselves to those products and protocols.
And that was in part actually inspired like in our decision to stick to such safe assets
was in part because of research that we commissioned from Avogard.
And I see that they are here, they released their report around a week ago.
So Ainsley, I see you're a speaker over here.
Maybe you can share a little bit about what you found in the report and why it's important
and just introduce yourself.
So Ainsley here from Avogard Finance.
So we do research on thou treasury management and a number of other things, including running
institutional DeFi platform built on top of enzyme protocol.
And yeah, we were delighted to contribute to sort of season one of the treasury management
group with our study on demystifying risk reduction in thou treasury.
So it was really abstracting layer up in terms of, OK, you know, why, why are certain assets
interesting for for for holding from a from a treasury management perspective?
And yeah, you know, happy to dig into that.
I think I'll just start off by saying, obviously, our research is a broad study on risk reduction
in thou treasuries and doesn't go into implementation, which is obviously some of the other props
So it's not financial advice.
So please consider it that way.
So I mean, our reports focus on a number of things.
And at a very high level, it really looks at the impact of holding different assets
from a volatility perspective.
And also volatility can be an abstract concept.
So expanding a little bit about what that means from a from a treasury management point
of view, especially when you're talking about longer time horizons.
So in a nutshell, the more volatile the value of your treasury and the more difficult it
is to really make long term planning decisions and, you know, for for within crypto.
And we're obviously, you know, on the more volatile end of the spectrum in terms of assets
that you can measure prices on and for for across the Dow Treasury landscape, at least.
And what we found is that most Dow Treasuries hold very, very concentrated portfolios and
the majority of them holding over 90 percent in their own native token.
And what we tend to find as well is that Dow Treasuries native tokens are much more
well, they're very volatile.
They're on the most volatile end of the spectrum.
You know, just just there are there's no exception to this.
So the ARB token, for example, it's got an annualized volatility of about 80 percent,
which for context is about double that of ETH over that same time period.
ETH has just over 40 and ETH itself has a volatility which is is much more than double
the long term volatility of the equity market.
So that just gives you some context for those that are, you know, sort of less familiar
with with, you know, the the longer term and bigger on prices there.
But yeah, you know, maybe I'm happy to go into the rest of it and dive in there.
But yeah, you know, ultimately the high level is that risk reduction really helps with with
management, financial planning, and it also goes into obviously there's some constraints
But the report touches on a number of a number of things along that and through that lens.
Yeah, I think it was really interesting to read that you actually studied the top twenty
five dollars and you found that 60 percent of them hold 90 percent in their native token.
So the good news is that arbitrum is not an exception in actually holding the majority
But we but like, you know, we probably want to be in the 40 percent, which are a little
more diversified, but not too diversified because then we would lose alignment with
So it's kind of maintaining that careful balance between the two.
One question that kind of comes to mind is about like, you know, like one is that you
write that C bills are actually negative when you are just for inflation.
So why should we even hold the bills like what if they're not even if they're not even
useful for adjusting to inflation?
And the second is why not just use stable coins like USDC or die or USDT rather than
getting into real world assets?
Thanks so much for the question.
So I mean, you picked up on a detail that which is looking at the and there's more detail
on the report, but looking at the very long term returns on on different traditional asset
classes, one being T bills and then, you know, to the more popular asset classes being government
bonds, which is just longer term government bonds and and equity markets across different
But a point that Devanj mentioned, which is a crucial point, is that we show nominal returns.
And actually, when you look at real returns, T bills tend to be and it's different across
But I would say on average, maybe a better characterization is that they're flat when
you account for inflation.
So there's no real return.
And this goes back to my my earlier point in terms of the volatility and then and why.
Yeah, some of some of the aspects of the current Dow Treasury landscape.
But for a lot of for one of the most attractive features of T bills is actually not is not
to do with return, is to do with capital preservation.
So they're seen as the risk free asset for USD investors and local, you know, local short
data government debt is tends to be the risk free asset of choice for for for most investors
in there in their local fiat currency.
So, you know, it's it's with a different lens.
If you're looking for people use the phrase inflation hedge, there's there's a lot of
What does it mean to hedge something?
Well, you know, one perspective is hedging something means that you need your hedge needs
to be very correlated to the thing that you're hedging and T bills.
And this goes for a lot of government bonds.
When you look over the last, you know, a couple of hundred years of data on these within within
TradFi, cash tends to be actually one of the best hedges from that point of view in
terms of correlation to inflation.
And that's you know, that's quite counterintuitive, but it's you see it in the data.
And that's because of these central banks tend to have have some inflation targeting
So when they adjust the rates, that that rate is what you're capturing with short term T
However, what we talked about differently is, oh, you know, the actual average return
over a long time, over a long time, you're not getting anything after inflation.
That's not quite an inflation hedge that we're now talking about stores of value, which is,
you know, sort of a slightly different conversation.
And as we mentioned in the report, other other traditional asset classes have been better
stores of value that provided higher real returns.
So hopefully that helps T-bills, you know, in terms of why why hold them.
A lot of it is much, much more for capital preservation in line with what I said previously,
which is that, you know, for all, for example, you know, that token being very, very volatile,
T-bills on the other side of the spectrum, they're much less volatile in terms of your
other your other question on, you know, stable coins.
So obviously a lot of within not just ours, but, you know, in crypto, generally all the
people proxy the risk free asset with stable coins.
And you know, there's there's there's a number of tradeoffs to that.
The one advantage, obviously, it depends on the stable coin and it depends on that,
you know, whether sphere backed or, you know, another form.
And that's the you know, the nice thing is that it's very easy to use in terms of one
There's and there's, you know, a lot of use cases through DeFi and otherwise.
One of the one of the downsides that is that in there and, you know, in the base form,
they don't provide a return at all.
Whereas T-bills you get, you know, you get the you get the base rate with stable coins.
And otherwise they tend to pocket that.
Now, of course, you know, you've got things like the die savings rate where where there
is some pass through there, but that's that's one of the that's one of the downsides.
Another downside is that if you if you think about actually what's particularly when you
look at the larger, you know, USDC, USDT, what's back in these fiat, fiat backed stable
coins is obviously there's, you know, that you've got you've got bank deposits, whether
it's zero dollars in the case of tether or on chain, you know, sorry, on chain, onshore
US bank deposits for USDC.
And those have their own property.
So in the report, we just talked about that where, you know, the asset itself, even though
it's a proxy for the stable was a proxy for the risk free asset.
We've got things like March of last year and the, you know, and the SVP crisis, you can
you know, that's when you see some of some of these frictions and then where this where
these tail risks come in.
One other point, and again, you know, I'll just touch on it, but you know, it's in the
report is that whilst you can earn, obviously earn yield on on stable coins within DeFi
for large adults such as Arbitrum, you've run into issues of capacity.
So if you just look on Aave, for example, on Arbitrum, you can then you can estimate
what yield you'd be you'd be earning on just depositing USDC, DAI, USDT into Aave on
Arbitrum, because it's a function of the utilization rate.
It's a function of the amount that's being supplied relative to the amount that's being
borrowed. And obviously, you know, you need to make a couple of assumptions of, you know,
keeping all things equal, but for very small sizes of deposits of stable coins relative
to the size of the Arbitrum DAI, you're already talking about a significant reduction in
the headline rate, lending rates that you can achieve.
And whereas with with real world assets and, you know, traditional asset classes,
obviously, the liquidity is in the trillions. And, you know, one caveat is obviously in
terms of implementation, which is, you know, beyond the scope of our study.
But you've got to make sure that the actual the way that you're getting access to those
underlying return streams and those underlying traditional assets are, you know, they've got
low tracking errors, we say, so that, you know, they track the assets properly, but also,
you know, you can gain access to the underlying liquidity.
But yeah, you know, that's those are a couple of the tradeoffs there.
So and, you know, I should also highlight that, you know, it doesn't need to be either
all in terms of real world assets or stable coins, you know, both can certainly play a
role for most hours. But those are some of the some of the tradeoffs.
So I've talked for a while, but hopefully I've covered those those two points.
Yeah, I think that was really useful to hear that.
I think in your report, I love the specifics you gave that if you if you deposit USDC or
die into into compound or on our way on arbitrary, the yield can be reduced by more than half
at times. Just quite a shocking number that you kind of found through your research.
And the other point I really liked about is how you said that when you are like, you know,
like 60 percent of DAOs hold 90 percent in their native token.
And that actually makes it more expensive for them, because when there's a bear market
and the value of their token has fallen, they still need to cover expenses.
So that becomes much more expensive.
Whereas when you diversify, then in a bear market, you're able to use the diversified
assets. And in a bull market, you can use your native token.
So overall, your costs are really reduced.
So that's all. So I think it was really good.
And I'm glad we got to work together.
Anna, do you have any other questions?
Yeah, thank you. I think you really summarized it very well.
And yeah, by the way, if you want to find out this analysis that Ains what was talking
about and also the bench, I'm just going to share here the link so you can check it out.
But yeah, there is many graphics there.
So you can you can yeah, you can read it.
Go read it. It's it's a very well done analysis there.
So yeah, I really recommend you to go there and check it out.
And and yeah, just just for a small recap for for everyone who just joined, we are talking
about a proposal that is currently active in the Arbitrum DAO snapshot, which is called
Arbitrum Stable Treasury Endowment Program.
And yeah, as a TLDR, it's it's it's like in the proposal.
It's a framework that that supports the body in real world assets ecosystem on Arbitrum
by diversifying three, five million off of ARP from the Treasury, which is like one
around the one percent into a stable and liquid bills or money market.
And yeah, the moment is on a snapshot.
So yeah, I encourage you to go and vote.
It's only one day left for you to be able to vote.
And then is is going to be time to vote in the own chain and in the own chain voting
procedure, which is going to be on tally.
So yeah, be alert on that.
Cool. Yeah. Well, I want to ask you, like, what do you think about this proposal?
What are your thoughts on it?
Perfect. No, thank you for the question.
Yeah, obviously, very, very interesting.
And there's there's there's many aspects that are interesting in terms of the way it's
aligned, the way it's bringing bringing activity on onto Arbitrum, but also at the same
time is addressing some of these initial steps in terms of diversification.
I mean, in terms of just and just focusing on the diversification point and maybe
linking it back to back to our study as well.
So I think, as I mentioned, when you talk about real world assets, whether it's T-bills,
bonds, equities, as I mentioned, crypto tends to be a lot more volatile, multiples off and
there's no exception, as I mentioned.
So what you find in terms of the benefits to diversification, they tend to kick in at
higher allocations and appreciate, obviously, in the context of this proposal, there's some
part-dependent elements and also it's a first step.
But because you're talking about a smaller amount of the Treasury and what you're
diversifying into is much less volatile at these sort of levels, absolutely, you're
generating some revenue, et cetera.
But the proportion of risk that's coming from the ARB part of the Treasury is obviously much
higher because it's a higher weight.
But also when you incorporate the fact that it's more volatile, it's overwhelmingly
driving the value of the Treasury, which is no surprise, obviously, as I mentioned, early
stages. But that's something to consider.
And that's in the report as well.
In terms of limits of diversification, it's thinking about, oh, not just the weight you're
applying to it, to different assets when you're diversifying the Treasury, but also the
So when you think of risk from a risk-adjusted perspective, there you can make some
judgments about the right allocations when you're balancing it from a risk perspective.
So hopefully that helps on the proposal.
But it's incredible work.
and all the others as well for the work they put into getting this on the right.
Yeah, I see Christoph has his hand up.
Go ahead, Christoph. Good to have you on stage.
Hey, hello, it's Chris from Little Beat.
I've got a question as a delegate for the proposal.
I've read it carefully today.
Sorry for late questions.
I'm supporting for the proposal itself.
However, what I find lacking in the proposal itself is the execution plan.
As the timeline and procedure mentions that there will be screening committee, that the
screening committee will review each application, that there will be assessment report.
And so on and so on and so forth.
And there is also some anticipated expenditures included mentioned.
And there is also, if I understand correctly, the only place where we've got the implementation
budget mentioned is this 200000 up that is reserved for the implementation of the proposal.
But I can't see how is this like what I would like to understand is like is this proposal
just an approval for the amount?
And then we will have some other proposal that will outline the execution of this plan.
Or is this is the execution of this plan included in the 200000 up budget reserved for the
implementation? And if so, how does it divide?
How do we compensate the screening committee?
How do we compensate all the other sections?
How does it look like in terms of the timeline but concrete dates?
Like are we looking to have it done in half a year, three miles a year?
Like what are your thoughts on this?
Yeah, thanks for that question.
It is one of the parts of the proposal that we've kind of expanded on the least.
But I have done the research on it.
It's just not written up.
But basically the costs are, as we mentioned in the proposal, it's 500 up per application
So since we have six committee members, five of whom are voting and one of them is a facilitator,
assuming that we get even like say, I think a paper had said that we might have 15 to 20
So even if we take the higher end of 20 into 500 into six, that would be one zero.
That would be around 60,000 up in itself.
So the committee itself would then if we get 20 applications which are valid, that would be
I spoke to RWA dot XYZ, which is kind of about managing this program, like tracking assets and
other things. And they quoted an amount of around twenty five thousand dollars per year
to manage four to five assets.
So if we end up using four to five providers, we can be looking at twenty five thousand as
And other than that, even the foundation has asked me to keep aside a budget for legal due
So and also third party audits, because we'll be doing our own audits of the providers like we
won't just be use it like relying on their audits from their people like we'll be doing our
So that's kind of where the remaining expenses would most likely come from.
So we have shared that like once these expenses are actualized and once we have it, then we
would be sharing a complete breakdown of the budget.
But these are just some rough numbers that we have so far.
And, yep, go ahead, Chris.
So could you like could we expect that this breakdown will be presented before the on
So that's my first question.
And the second one, did you confirm with the with the partners, like, for example, with the
screaming committee that they commit to do all of this for this five thousand?
Because like it sounds like quite a lot of work to do, especially with the assessment report at
the end within this budget.
So and I would like to understand correctly that the five thousand per its five thousand per
application, like anyway, that's five hundred or it's it's five hundred per application per
OK, so if we have, let's say, twenty twenty applications, then it will be ten thousand
It would actually get ten thousand per member.
OK, OK, simply so if you could, can we expect to have discussed breakdown and details of
execution presented before we go to the on train vote?
Yep, definitely, including the program manager.
I think the foundation also asked me if they have budgeted a program manager.
So I have spoken to kind of a pretty well-known name in the space RWA dot X, Y, Z, which is like
conglomerate of the RWA movement and whatnot.
So maybe we can even include details of what they've quoted and others.
I thought it might have been unnecessary detail, but I guess I was mistaken.
So I think adding some of that would definitely be needed before the on chain vote.
I can't give you the numbers on the lawyers and the due diligence and the audits, the third
party audits that is going to remain an estimate.
But if it's needed, I can even dig into that before the tally vote.
Yeah, so at least some, you know, some kind of a cause breakdown for us to understand what
the execution is going to look like.
And also my last I promised my last part.
How do you see it in terms of the timeline?
When can we expect this to be put into action?
Like what is your expectation at least?
And also that something that I would like to see written down before we go to the on
Yeah, so I mean, the last timeline I have in my head is that allocations begin in May.
How we see it working out is that after the snapshot is complete, like we would start
working on the RFP and paper is here.
So maybe after I complete paper can talk about how long he might expect the RFP drafting
So after we after the snapshot is passed, we start drafting the RFP.
Once the Shally vote is passed and the funds are in the multisig, then we would release
the RFP and have a one month window submission period.
So we are giving a good amount of time because we're trying to keep a very detailed
application so that it kind of so we only get high quality providers.
So we expect a very detailed application from any provider.
And after we receive applications, it will take another month for us to review and then
we will be able to hold the weighted snapshot poll.
So assuming the timelines are that by the end of this month, we get the tally vote done
and we and we and we release the RFP.
So the entire month of March is to get applications like which respond to the RFP.
The entire month of April is for the committee to to actually review applications under
the RFP and write these assessment reports.
And the month of May will be for the snapshot poll, which determines which provider gets
how much. Yeah, like I hope that answers the question.
Christophe and Papar, I wanted to know, do these timelines make sense and how long you
might and how you're going to approach the RFP drafting, how long it might take?
Yes, thank you very much.
Yeah. So I know a lot of folks have asked what RFP is going to look like.
So I volunteered to go ahead and make the first draft once the snapshot is closed, then
it'll probably be, you know, at least a week to make sure that that circulates
amongst all the screening committee and folks that are involved in this proposal, make sure
that they think that it's it's it's been tightened up and will only it will answer all
the questions. So I think it's important to think about like, you know, there's the goals
for the program and the goals for the RFP to focus narrowly on the RFP.
I would say, you know, the big thing is we want to be able to provide ARB holders with
choices that are complete. Right. All the relevant information is there that they are
high quality. And part of that will the RFP will help, you know, help signal what our
standards are because of the questions that it asks about the various needs for things
like, you know, management, implementation, self-reporting, which, of course, will also
have our third party audit or, you know, report on these things as well.
If they need to do any custody or conversion, currency conversion, anything like that, all
the make it clear like what the full scope of needs are.
And then that'll help ensure high quality.
We want to make sure that all of these we provide our voters with choices that set clear
benchmarks up front and have transparent cost structure.
There's already been some discussion that perhaps the way we were phrasing like caps on
the cost structure might need to be thought about.
But I think we definitely want to absolutely make sure that people know what they're voting
for. And of course, the big thing, since this is to go to delegates in general and ARB
holders in general, you know, part of the one of the main things about the RFP process,
aside from just weaving out very low quality applications, is just to make sure that they're
That there are apples to apples so that someone can look at, you know, 10 different choices
and say, well, you know, these are the fees, these are the projected, these are the like
the goal returns, these are the, you know, the risks that are specific to this one or
You know, in an ideal world, people will be able to put this all in a spreadsheet and
just like kind of like eyeball it.
We'll we'll see if we can get get it that standardized.
I'm hopeful that we can if we structured RFP properly, but that's that's kind of like the
high level, you know, luckily, RFPs for investment management services are not like a novel
thing. Nonprofits and endowments and the stuff and the like do this all the time.
So I think we'll be able to implement best practices here.
Awesome. Super cool to know.
Thank you very much for your input.
And yeah, I see also Joseph has a question.
You can go ahead, Joseph.
And I want to thank Davanche for all of the incredible work he's been putting into this for
I've been following on the forums and I know that this is not something that, you know, these
proposals is not something that was written overnight.
I've been working on this, you know, since since last year.
And yeah, incredible work.
I just voted yes on Snapshot.
I wanted to ask briefly about the ask the actual risk associated with T-bills on-chain.
And if, you know, the RFP is going to be specific to that type of stablecoin or it's going to be
You know, I'm the founder of OpenDollar, which is a new over-collateralized stablecoin being
built on Arbitrum and launching soon.
So, you know, I think there's a lot of really incredible DeFi products unrelated to
centralized securities on Arbitrum.
And I would like to see, you know, some of this funding support more decentralized projects
rather than things that could potentially be seized by the government at any time.
So I'm wondering if, you know, the security of having T-bills on-chain, like, you know, the
custody providers of those, is that going to be part of the risk management assessment and how
you all are thinking about that?
Yeah, no, that's a great question.
So keeping in mind that the RFP is not yet drafted, much less like approved.
So this is just my personal opinion here because I've not yet conferred with the other
committee members on this specific topic.
I tend to think about it in terms of the goals for this overall program are to avoid losses or
stranded funds, number one.
Number two is to accrue income.
And the third objective is like to grow the real world assets ecosystem in Arbitrum.
And I would kind of rank them in that order.
So I think, you know, at the end of the day, the screening committee is not going to make the
decision about allocations for any of this.
The goal is mostly to solicit proposals, get them organized in such a fashion that delegates
can just, you know, sit down for a couple of hours and go through the ones that make it
And then they will make that decision.
So I think that's ultimately going to be up to delegates at the ballot box.
But our job as the screening committee is to make sure that risks are clearly identified,
delineated, and, you know, they may not be the same risks for every proposal.
So I think that's kind of where you're getting at is it's different risks.
So we ultimately it's going to be up to Arbitrum holders, though.
I really appreciate the candidness there.
But, you know, everyone remembers USDC depegging last spring.
And, you know, if you go to bluechip.org right now, which is a stablecoin rating agency,
Liquidy, which is only backed by ETH, is actually the highest rated stablecoin for safety.
It's not USDC, it's not Tether or any other centralized stablecoin because the lowest risk
stablecoins and the lowest risk yield bearing assets are ones that you can get out of.
Even when the government shuts down a bank or a bank, you know, or they're at 2 a.m.
So with Liquidy, you can redeem the stablecoin for the underlying collateral.
And you can do that also with OpenDollar and, you know, other protocols on Arbitrum.
So I would just hope that, you know, the the rating of stablecoin safety is, you know,
a top priority, like you said.
Yeah, before we go to Chris, I'll just quickly say my own thoughts on it, which is the two
factors that I think the committee should consider are size and variety.
So on the size, like, do we want to favor protocols that have already got a large amount
of volume rather than protocols that haven't launched yet or those that have still in the
early stages and don't have a lot of traction?
I don't have an opinion on the size question, but I do have one in the variety question that.
So the way I see it, that there are three actual classes that we have.
One is tokenized T-bills, where we actually have the underlying T-bill backing the tokenized
version of it. Like OpenEden might be an example of that.
We have permissionless stablecoins like USD Mountain or OpenDollar, which you're building.
And we have money market instruments, which I've not dug too deeply into yet.
So ideally we want delegates because the way we structure this proposal is any like, you know, we
want to narrow it down to a pool of eight to twelve providers at most.
And we want to include like a provider from each category, ideally.
And so if and like if any provider gets more than 10 percent of all the votes, they get an
allocation in proportion to the votes that they've received.
So ideally we'll have different buckets, like in a different and like as much variety as we can
So one thing I wanted to ask is, is the screening committee, I see that it's supposed to provide
an assessment report on eligible service providers.
And as paper mentioned, there will be there will be risk assessment in this assessment report.
But will we receive also some kind of a recommendation on how to allocate and what the
screening committee thinks would be a reasonable and and optimal allocation between those
Because thinking as a delegate, if I will be will have to then divide the whole allocation
between the providers by, you know, providing some personal just I will probably have no
idea how to how to do it in a rational way right now.
So it would be great if we could include somewhere in this process, this kind of apart
from the sole risk assessment, also some kind of recommendation on how to how to distribute
and how to divide this allocation between the service providers and also risks involved
So maybe some different stories, something I would like to suggest that maybe instead of the
committee presenting one recommendation from the whole committee, maybe if we could have all the
members present their own version so that you can have a diversity, the diversification of
opinions to choose from, it will be great for me as a delegate to make up my mind in terms of
Yeah, I think that's a really great idea.
And we came to hear from Steakhouse and Karpatky, their thoughts about it, that what if like, you
know, at the end, we can we can give our recommendation that we think that if we were to
unilaterally make this decision, we would do these allocations to these providers.
And like, if we have five such opinions from each of the committee members, I think that would be
I see Christian Steakhouse and Karpatky here, so maybe we can hear their thoughts on that and on
people's and people's thoughts as well.
I mean, I think that makes a lot of sense, just because the ultimate decisions can be made by
ARB holders and people may have so this is like it or not ultimately a political decision and
people may place different weightings on their their goals and objectives of this program.
You know, if your number one goal is to bootstrap a real world asset ecosystem in
Arbitrum, then maybe you only want to do things that are tokenized and on Arbitrum.
Whereas if your number one goal is to prevent, you know, capital loss or stranded funds, then, you
know, maybe we get BlackRock or somebody to show up and but they don't have a fancy token or
anything. So these are all I think it would be hard for us to say these are, you know, A is better
than B because we can't, you know, individual delegates are going to have slightly different
priorities. But I think as long as we can inform delegates so that they can say, well, the risks of
this one are all their smart contract risk and custody risk and I'm just making up, you know,
brand putting random risks together, you know, and because of XYZ over here, and because of ABC,
there's risks A, B and C over here on this other one, and they're just different, right? It's not
necessarily going to be, you know, blatantly better or worse than the other.
I mean, one other approach could be that we say that if your primary objective is like protecting
and capital preservation, like these would be the allocations, if our objective is building the RWA
ecosystem, these might be the allocations, but that would obviously add more work and would be
a little more complicated to do. Yeah, go ahead, Chris.
So just one suggestion, because the risks of individual service providers are one thing,
but the risk of an overall composition is another. For example, I can, you know, from the top of my
head, if we have all the service provider from one legislation, then there is a legislative risk
involved. So maybe we would like to have like some kind of a diversification here as well.
So I don't know what would be the kind of risks in the composition that could be involved, but I
absolutely am certain that there will be some risks coming from the composition itself. And I
would like those risks to also be addressed, especially that I'm not an expert in that domain,
so I need some guidance from more competent people than me.
Go ahead, Santi. I see that you're speaking. Yeah. Hi, everyone. Santi from Karpati here.
I think this is a very interesting and relevant point. In my mind, the top priority for the
screening committee is making sure there's the right framework in place to evaluate service
providers comprehensively and also make sure that delegates can compare apples to apples,
as it was said before. You know, this is, I think, the top priority. We are going to do the heavy
lifting, trying to come up with a standardized approach towards evaluating service providers.
And the idea, I think, in my mind at least, is to give this information to delegates.
This is on the one hand. On the other hand, I understand the concern that, I don't know,
delegates will need to vote for service providers. And I think delegates will be guided
with the reports we can provide to the community. But I'm not 100% sure if we are supposed to
provide a recommendation. This needs further discussion, in my opinion. But I think our job
as a screening committee is providing these objective, comprehensive reports. And up to,
from that point onwards, I think it's up to the delegates to evaluate the work. But this is just
my thoughts, of course. Yeah, go ahead, Chris. Yeah, so I kind of understand the point of view.
So the reason why I'm asking those questions is basically to figure out whether we need some
other body than just the screening committee. Because I understand your point of view that
you are providing the assessment that is unbiased and the delegates should make up their own mind.
But you also have to keep in mind that delegates are not experts in this field.
So for example, myself, I am not an expert in this field. And I will be looking for some guidance
anyway in terms of composition and who to choose. Of course, I will be taking those risks into
account. But there needs to be some suggestion, or at least some different opinions on the
composition itself. Because we are not voting on any particular one service provider. We will be
voting on the composition of them. So this assessment needs to take into account this
composition, because this is the final vote that we are making. And we need some guidance on that
as well. Yeah, I think I'll just talk briefly about the reason we did this and then go to
Stakehouse to hear their thoughts. The reason I've seen like, you know, having like, as an outsider
entering this world of RWAs, I've seen that it's actually a very closely and slightly knit community.
And if we gave the power to any one person in this industry to make huge allocations to the others,
it's honestly, I think it's like a formula for corruption. Because if you give that one
body power to give $60 million business to some provider, then like, you know, it'll give them
favors, it'll give them like, they might move and change jobs later to another provider. So really
making the actual allocation process decentralized, I think that's really important if you want to do
it fairly, and cannot include too many biases in it. Yeah, go ahead, Chris. Yeah, but that makes it
possible so that whoever makes their way to my telegram and gets me on a call have a higher
influence than others. So I would like this process to be rather transparent than, you know,
done in those private communication tunnels. Would it be helpful if there was a requirement for
applicants to make all communications in some public designated space and doing otherwise would
be grounds for disqualification or a penalty? Would that be helpful? Yes, that would be perfect.
Yes, and also like regular Twitter spaces where we can have applicants come and,
and like, you know, pitch to delegates on a unified platform and have forum based communication and
others. So definitely, I think that's the way you know, we communicate in the open. Yeah. Yeah,
go ahead, Steakhouse. Yeah. Hi, everyone. This is A.B.C.B. from Steakhouse. We're a member of the
Selection Committee. I understand Chris's concerns, and I think it speaks to the overall,
let's say, process of allocation that's being contemplated. So our repertoire is starting
from a position of having to effectively issue a large number of tokens in order to fund any
endowment considerations. So it's not a case of, let's say, allocating funds that are already there,
but it's a case of how much dilution of ARB is desirable to achieve a DAO objective.
And I think to, well, I think Paper and Santi, I think, explained, well, the
the difficulty that the service providers have in this position, which is all of these,
sorry, the Selection Committee people have in this position, which is that all of these service
providers presumably have some level of minimum legal qualification and technical characteristics
of the product and so forth. So the best that this Selection Committee can hope for is to
potentially explain the trade-offs in the most clear possible way. And what the delegates
should perhaps aim to do is keep in mind what their ultimate goal is, as Paper was
describing very well, and then solve for the number of trade-offs that achieve that goal
the quickest. So this whole process is sort of being done in a decentralized way, probably for
the reason. And it goes from the sort of size of the allocation and the dilution that's necessary
all the way through determining what the final allocation of actual investments is.
So it sounds, and, you know, whether the considerations are, you know, delegates
want to incentivize the broadest possible range of service provider on Arbitrum or whether they
just want to focus on whatever permission is something product or regulated product or whatever
products. This is something that delegates will have to decide by themselves. And by the nature
of the process, you will likely see a combination of different goals being optimized for.
So I know this is not really particularly helpful, but we'll do our best in trying to explain as
clearly as possible these trade-offs. I mean, you know, it's funny, we're actually familiar
and have worked with all of the members on this committee. You know, DeFi is quite a small space.
And, you know, in particular with North Lakes, we've worked very closely at MakerDAO.
But then we, you know, collaborated with Netherminds on LIDO, and we have, like,
LGFX, of course, and Maker as well, and Carpacki on ENS. So, like, we have a decent amount of
types of trade-off analyses and due diligence reports for token holders that can hopefully
make it easier for delegates to make up their minds in what's admittedly a very difficult
optimization problem that they're presented with. So I don't envy the position of the
delegates at all here, actually. So I sympathize with Chris Foley. But, yeah,
I suppose our role here is to make the delegates job as easy as possible.
Yeah, so I think if there's no more questions on the step proposal, I'll just quickly summarize
what, like, based on this, it seems like some committee members would be comfortable with
providing specific numbers on how much each provider should get, while other committee
members are not comfortable with that. So it seems like it'll be up to each member whether
they want to provide that or not. But what each member will provide and will have to do is
give a yes or no vote on should they even be eligible for voting in the first place.
And that could be rather contentious and hard to decide because we want to restrict it to
eight to 12 spots, which delegates actually need to look at. And if we get, like, even 20 high
quality applications, we will still have to turn down eight of those just to stick to this limit
of 12 that we ideally want. Beyond that, some committee members may even give a specific
allocation, some may not. That's really up to them and how comfortable they are with doing that.
So that's kind of the summary of what I've got from it.
Cool. So in the last five to eight minutes that we have, I want to go to this exciting research
which has released from our working group of how RWAs could be leveraged and could be used
for creating a Shao-owned CDP. It's again, it's very, like, kind of blue sky thinking. There's
no proposal in the works or anything of that sort. It's something really interesting that
Siddiq or Hodler has worked on. So Siddiq, maybe you can just share
in a quick overview of what it is and how it ties into the step proposal.
Right. Thank you, Devansh. So essentially, we're looking at combining Dao-owned liquidations with
collateralized debt positions. Essentially, whenever the Dao is funding ecosystem growth
programs, it can essentially issue stable goings against ARP collateral and provide those in
lieu of ARP payments, which is currently the convention. This essentially allows us to gain
a huge time alpha in how we manage our liquidations and our strategic implementation of spending
programs. And it gives the Dao the flexibility to manage its financial obligations and meet
the expectations that it needs to continue growing in a competitive landscape.
The CDPs tie into the step proposal by essentially leveraging the exposure to RWAs that the Treasury
makes through the step proposal as a diversification to the CDPs collateral base,
essentially providing absolute solvency to stable coins that are issued even in, like, a worst case
scenario, where ARP's liquidity has dried up. So we've just put out this report today and, like,
we'd love to know if you have any questions or if anyone's read it, and I'd be open to take any
questions as well. Yeah, thanks for that quick overview. I think it was a very unique approach
to a CDP that when the collateral, like, if we're using ARP and we're not using ARP,
it's a very volatile asset, so the price drops. Don't do a forced liquidation, like you might see
at Maker, but just infuse more ARP from the Treasury to keep the collateral at the same level.
And once you actually include things like STEP, like the real world assets, you actually require
less ARP in the emergency liquidity fund, which prevents liquidations. And I think that there's
a huge range of reasons to do something like that. And I think that there's a huge range of reasons
to do something like this. One is that if you give, like, a grant program, like, say, like, STEP,
the ARP is going to mostly hit the market roughly together, whereas, like, the SHIME alpha that
Sadiq spoke about actually lets you start liquidating over a period of 200 days, so it averages
it out and it prevents any shock to the market. And the other is even, like, grantees, like, we've
seen that, you know, when you negotiate grants in ARP, like, if the price increases, they earn a
premium. And if the price decreases, they can't do the project. So, like, really, like, paying
grantees in ARP is like a lose-lose in either case. You either pay more or the project doesn't
get done because there are budgetary issues. So we really think that there's a need to kind of move
forward. And CDPs is one way of doing down executions. The other is obviously ARR walls
or balancer pools. So that's something which we, like, you know, hopefully we'll have a framework
of this. But, like, it's something which we just want to start discussion on in the DAW of how do
we actually move to a situation where we are not paying in ARP anymore because there are huge
disadvantages to that. But we start paying in other assets in stablecoins, ideally.
Right. And I'd also like to add, it also creates opportunities for the DAW to start giving
investments and loans rather than just grants to fund its ecosystem growth. And CDPs can create a
more structured approach to incorporating that in the longer term as well. Yep, definitely. And I
think, before we go, I want to hear Karpaki's thoughts because I know that they help manage
the ENS DAW. And ENS actually gives grants not just in their native ENS token, but they also
give it in other, in ETH and in stablecoins. So how have they managed to kind of move away from
just giving their governance token and how has that actually worked out in practice?
Yeah. So, yeah, you're right, Devansh. The ENS DAW is founding grants or different programs,
not only through ENS, but also the token, the native token I mean, but also through
USDC and ETH. There has been a recent proposal for service providers streams
that is distributing 3.6 million USDC to service providers. And yeah, we think this is the right
way to do it. In the case of the ENS token, they don't see it as a financial asset, but
as a governance asset. So the DAW is working on getting more sustainable and increasing their
holdings of stablecoins and ETH so that they can become self-sufficient in the long term.
So yeah, this is the approach they are taking. Maybe they are at a different stage compared to
the arbitrum DAW. I think arbitrum is now at a clear growth stage. So I agree with you,
Devansh, when you said that the treasury needs diversification, but also we need to strike the
right balance between our holdings and other assets that can make it sustainable in the
long term, but also make sure that the DAW is fully aligned with the native token. So I think
this is a lot to work on, but I think we are on the right path. Thanks. I think that's a great
conclusion. So unless any of the speakers have any other questions, we are also at the hour and
it's been a really lovely space. So Anna, I think you just kind of jumped into this today. Like what
did you feel about the space and how it went? Yeah, I really appreciate you for organizing
the same. Thank you very much. I think it was great. Like we heard all the questions from the
contributors and you were answering all of them. It was great getting to know all the contributors
that are working on this one and also where the plans and how you are going to work on it. It was
awesome to hear. So yeah, I'm really looking forward for the next step of the proposal,
the on-chain step. And yeah, I think you also mentioned that you are going to share
more information related to the frameworks and how are the deliverables going to be shared before
the on-chain proposal goes live. So yeah, looking forward to see that too. And yeah, thank you very
much everyone for joining us today. It was very cool. And yeah, everyone who is interested on
joining the Arbitrum DAO, you can reach out to me, to Anna, or Devanch too, or Clifton, who is our
DAO relationships lead, and Ram too. So yeah, we can help you out if you want to bring your ideas
or if you have anything in your mind that could make an impact in the Arbitrum ecosystem.
Yeah, please make sure to say it loud. We need to hear. And yeah, thank you very much Devanch
for organizing this one. And thank you everyone, like ADC, Jocep, Paper, Santigami,
Christoph for joining me, Drew, Ains, and Hotler.
Yes, thanks for providing the space for all of us and see you all on the forums and on the next one.
Yeah. Amazing. Happy Tuesday. Have a great week everyone.