Did the Arb Foundation (silently) work on @CamelotDEX proposal for 9M $ARB incentives?
I don’t agree on some points, which could backfire on Arb's growth objectives.
Laying down some thoughts & my suggestions👇🧵
🎯 Objective of Proposal
Camelot is requesting for the Arbitrum DAO to award, 9M ARB tokens for the next 6 months to fund liquidity on Camelot.
It’s also for Camelot to convince ecosystem users and voters that this is the best move for all ecosystem participants.
This post proposes granting 1.5M ARB per month to Camelot DAO for the next 6 months to fund liquidity incentives for Arbitrum-focused projects on Camelot, including the onboarding of new and multi-chain protocols entering the ecosystem.
🔑 What the proposal hopes to achieve
This proposal represents a strategic initiative to foster liquidity, collaboration, and adoption within the Arbitrum ecosystem. It seeks to fuel sustainable growth and solidify Arbitrum's position in the evolving blockchain landscape.
Liquidity Boost: The proposal suggests granting 1.5M ARB monthly to Camelot DAO to fund liquidity incentives for Arbitrum-focused projects. This initiative aims to enhance spot liquidity for builders within the ecosystem, attract new protocols, and promote multi-chain integration.
Sustainable Growth and Partnerships: Camelot displayed a track record of enabling sustainable growth and long-term liquidity for partnering protocols. They will want to continue supporting their partners with this incentive program.
Deeper adoption of ARB: Camelot aims to use ARB as a base asset within liquidity pools and partner integrations. This would solidify ARB as a foundational asset and drive increased usage within the ecosystem.
📆 Timeline
Jun 29 - Camelot started this proposal asking for 12m ARB tokens over 6 months.
It got a lot of criticism from the CT degens and also from myself, MTS
Jul 5 - Camelot revised their proposal with a summary of changes in this post, with a TLDR:
Grant size reduced from 2M ARB per month to 1.5M ARB per month, for a total of 9m ARB over 6 months.
A minimum of 33% (500k ARB) is allocated specifically for liquidity pools and integrations that adopt ARB as a base asset
Focus on ARB as base asset for determining liquidity incentives
To publish monthly transparency report on how the ARB is being used
Jul 8 - Arbitrum Foundation guided Camelot for a 9M incentive
Average Jo noticed that Camelot mentioned about Arbitrum Foundation
💡Feedbacks for Proposal
This proposal kicked-off a series of debates amongst the various parties involved in the voting, concerned for the protocol and the overall ARB ecosystem.
From the perspective of, several participants:
Camelot themselves will want Camelot’s proposal to be approved
GRAIL holders will want Camelot’s proposal to be approved
Camelot’s partners will want Camelot’s proposal to be approved
Other DEXes would NOT want Camelot’s proposal to be approved
Other DEXes would want want Camelot’s proposal to be approved so that in future they can request for incentives too (rather unlikely because competition would be so skewed that they may have just been priced out)
New ecosystem builders/projects may/NOT want Camelot’s proposal to be approved (idea here is dependent on their ability to partner with Camelot)
Other CT degens may/NOT want Camelot’s proposal to be approved (more forward looking here because it depends on how Arbitrum DAO structures the incentives so that the CT degens generally see it as a sustainable/healthy/broader way forward to the ecosystem).
So let me break down some analysis here👇
➜ ARB as liquidity incentives
It’s a good move if Arbitrum uses its tokens as liquidity incentives. it’s reasonable and should be done, as Camelot has some strong metrics to be a recipient of these incentives.
However, it will affect the ecosystem on a wider scale if such a huge amount of incentives goes to one single protocol. Other DEXes will follow suit with such a request, and when the time comes, how will the Arbitrum DAO handle this situation?
Also, it handicaps other protocols that have great fundamentals, teams, and metrics but do not get the same kind of incentives. This inevitably shapes Camelot into a enormous protocol that attracts loads of TVL and kills off competition. i.e. SpartaDEX is yet to launch but would be crippled as people flock towards the juicy incentives on Camelot
➜ Binary Nature of Proposal
A fundamental problem lies with a binary decision proposal. It’s an all or nothing outcome. We do not see another avenue to explore alternatives. So how do we tell that it’s an efficient use of capital for the DAO? Can there be other ways that these objectives outlined by Camelot be met?
Other mature ecosystems, such as Polygon have used batch proposal evaluation to ensure a fair distribution across protocols in the ecosystem. There should be a formal liquidity program where a committee sits down and decides based on criteria that are laid out.
Case study:
For instance, Polygon had an application for protocols that met certain requirements. Here is an example: $15M gets awarded to Polygon Native DApps. And then afterwards, have a structure that evaluates the success of this program.
Because of the lack of formal evaluation system in place, Camelot went ahead to suggest their own, which I commend for their initiative, but at the same time it creates bias around the incentives that they are asking for. It would be inevitable that people get concerned about what may seem like a huge ask.
Suggestion:
Instead, I would propose that Arbitrum consider this in phases, given that no formal evaluation structure is yet in place, and relook at liquidity periodically. i.e. starting with 500k ARB for a month first and then adjusting incentives if required.
➜ Ineffective DAO Forum
DAOs have so far not been effective in analysis and discussion. A few key leaders would have to step up to assume control of the situation and guide the discussion.
We will always come to a point of “Tragedy of the Commons”, an economic problem where the individual consumes a resource at the expense of society. If there is no leader appointed, I am not confident that we will see much effective discussion/objective progress with the proposal.
➜ Activities to Incentivize
This concerns Arbitrum DAO and its objectives for liquidity incentivization. I believe that they would want to develop the ecosystem in the long term, and here are some questions that they might need to think about:
What activities should we incentivize to achieve the stated objectives?
Who or what kind of protocols will help Arbitrum DAO reach it?
How can these activities be measured?
How many tokens are to be allocated for each of these activities, and for what kind of protocols?
And depending on what stage of the product life cycle Arbitrum is at, these stated objectives would change. i.e. I see Arbitrum now at the young growth stage.
So we might want to look at incentivization around:
Innovation and experiments - Novel development that pushes the DeFi space forward, i.e. hackathons, an ecosystem investment fund, bounties, protocols building around new narratives. i.e. Gamefi DEX, RWA, NFTfi
Reducing user and developer friction - Usually, it is surrounding liquidity depth issues caused by unattractive APYs. In this case, yield boost would help a with the influx of liquidity and indirectly reduces such friction.
Stickier user base - Incentivization for APY boost may sound good, but it is not sustainable in the long run and more efforts would be needed to create a stickier user base so that we don’t have mercenary capital. Unfortunately, this is a case that is hard to prevent.
Directing incentives towards blue-chip protocols, forming stronger partnerships, and exploring ways that Arbitrum can acquire different user profiles can help a lot with the longevity of the protocol. I personally think that Polygon has done well in terms of partnerships with strong web2 establishments, and we still have a long way to go.
➜ Protocols to Incentivize
There needs to be careful consideration based on the Arbitrum DAO’s strategy of incentivization and also for a fair reward. Which protocols to award to is a balance among these factors:
If the Arbitrum DAO wants healthier competition, it should aim for a more diverse distribution strategy and, hence, tailor the amount of tokens for these incentivization so that it has a longer runway.
Incentives should not be excessive but just right enough to reward the protocol/communities that have the potential to deliver more in the future. (pricing in some future vision and built here.
Competent teams are the ones that Arbitrum DAO should be investing more in, and the DAO might want to have certain metrics to look at when decide on the incentive structure. How to measure the team's competence?
⚠️Thoughts on Camelot’s Token Plan
Camelot stated in their proposal that the 9M ARB tokens will bring benefits to participants for Camelot and the overall Arbitrum ecosystem, which includes:
➜ Integration Partners
If the incentives are used to drive the growth of developer activities, then it would be extremely valuable. Camelot will be the powerhouse that channels the growth effect downwards to anyone using their infrastructure, and such incentives will be helpful towards building a blue-chip ecosystem.
➜ Core Pairs
In terms of core pairs, a more objective assessment would have to be used. We have to assess these pairs based on their liquidity and trading volume.
In the proposal, it states that ARB will be the base asset. But I do question how viable these pairs will be. Usually, base pairs are denominated in terms of stables.
Will these pools see decent trade volume?
What measurable value will be channeled back to Arbitrum eco?
Will the pair be too volatile for users liking?
How many of those holding ARB/core assets will want to swap that to core assets/ARB rather than to stables?
It is still relatively experimental here so I would propose for a more sequential approach of ARB incentivization rather than awarding Camelot all at once. This can be housed under the category of innovation rewards, for instance.
➜ LSDs
LSDs will be a core building block going forward, and funneling focus towards LSDs will help the ecosystem to leverage on the massive potential that LSDs are already displaying on ETH mainnet. A lot of LSDs protocols, including base layer LSDs and L2 LSDs are migrating over and building on Arbitrum. unshETH has already migrated, and Swell is making plans to migrate to Arbitrum.
Camelot being the strongest DEX on Arbitrum, it will play a crucial role in facilitating the migration of LSD liquidity from Ethereum. With that influx of migrants, Arbitrum would inevitably experience an LSD summer.
➜ Other Asset Classes
Newer projects would tend to launch on a DEX with a deeper liquidity and added incentives. Being a launchpad also helps new projects gain visibility and liquidity. Not to mention that established DEXes like Uniswap and Sushiswap have better liquidity.
Camelot itself is probably the strongest native Arbitrum DEX. And at where we currently stand, Camelot is the best bet we have and has helped the ecosystem with “good” project launches. Though we might want to look past its “good/bad” launch record, since it could cloud the analysis here.
Camelot might still come up as one of the top few choices where projects can house their trading pairs. Its next best competitor would be SpartaDex.
✍🏻 Conclusion
Overall, this is a very well-thought-out proposal. Don’t get me wrong. I think this proposal is awesome for moving the ecosystem forward, but we will need to tune certain aspects. Other projects will want some incentives as well, for Camelot’s one will be the first proposal that set a good precedent for the others to follow.
There are some points on which I do not see eye to eye with TDLR and suggestions:
A proposal for 9M incentives (revised downward from 12M) of ARB is too big of an ask at one go. I would propose breaking down the incentives into several key milestones and awarding it based on these smaller milestones instead. Or even start out by the proposal for the coming month. We can see into what will happen in 6months which may seem like years in crypto.
Incentives to be awarded based on activities or milestones, i.e. developer activities; class of incentives, i.e. experimental, hackaton….etc
Arb as a base asset might not make sense here given that I think much activity is swapped with stables (hypothesis only, so prove me wrong). The value here is questionable. I would propose a step-by-step approach, i.e. launch 1 core pair, monitor key stats, if viable, move on to next pair and so on…etc
The current DAO forum structure is not optimal for hastening proposal progress and discussion. We might need a few key leaders to lead the discussion and forum going forward.
The nature of the proposal, being binary, raises the question of its efficacy. Modelling after the success of its counterparts i.e. Polygon might be more effective.
Twitter: