Arbitrum Token Flow Report - August 2024

Arbitrum DAO Token Flow Report

August 2024

Prepared by r3gen Finance

DISCLAIMER This report is exclusively prepared for the confidential use of the Arbitrum Decentralized Autonomous Organization ("Arbitrum DAO"). In its preparation, the preparer (r3gen Finance) has relied upon unaudited information available for all entities related to Arbitrum DAO. The information contained herein has not been audited or formally reviewed, and therefore, r3gen Finance does not express an opinion or any form of assurance regarding its accuracy. No party shall be liable for any loss, damage, or expense incurred by relying on this report.

No Assurance

The preparation of this report relies on unaudited financial and non-financial information available for the entity. However, neither this report nor associated parties provide an opinion or any other form of assurance regarding the accuracy of the information presented.

Compilation

r3gen Finance has compiled the accompanying report for Arbitrum DAO based on information provided by individual members of the DAO. This compilation has been conducted in accordance with ethical requirements, including principles of integrity, objectivity, professional competence, and due care. Responsibility for the accuracy and completeness of the information used to compile this report rests with the Arbitrum DAO. As a compilation engagement does not entail assurance, r3gen Finance is not obliged to verify the accuracy or completeness of the information provided. Consequently, no audit opinion or review conclusion on this information has been provided.

Source of Data

To preserve the integrity of the data presented in this report, on-chain data sources were used where possible. Where data not on-chain was used, the source of such data has been outlined in the report. No verification over data that was not on-chain was performed.

Important Notice

Please be advised that the information presented in this report is intended solely for informational purposes as a Token Flow report and is not to be construed as a financial statement. It should not be relied upon for making financial decisions. r3gen Finance does not assume responsibility for the accuracy, completeness, or reliability of the information contained herein. Furthermore, r3gen Finance disclaims any liability for any misstatements or loss of funds resulting from actions taken based on the information provided in this report.

Arbitrum DAO - Key Facts and Figures (since inception)

161M ARB Total DAO Expenditure 1.7M USD Total Stablecoin spending

3.42B ARB DAO ARB Holdings

27,421 ETH Total Sequencer Fees 42,449 ETH Total Transaction Fees

15k ETH DAO ETH Holdings

Arbitrum TVL (DefiLlama)

1.5m

3.5b

3.2b

1.3m

2.9b 2.8b

1.2m

2.7b

1.3m

2.7b

2.6b

1.1m

2.4b

2.5b

1.1m

2.3b 2.3b

2.3b

2.2b

2.1b

959.6k

1.8b

853k

849.1k

1.7b 1.7b

806.8k 795.9k

778.1k

750k

1.5b

TVL (USD)

TVL (ETH)

Arbitrum Ecosystem Stats

40m

300

279

35.8m

37.6m

33.2m

32m

250

28.7m

215

201

22.3m

24m

200

19.8m

18m

158

17m

15.8m

146

145

14.8m

140

16m

150

13.9m

13m

129

129 131

12m

116

10.5m

112 112

111

9.4m

103

8.1m

98 100

100

6.1m

4.5m

2m 2.1m 1.9m 1.8m

955.5k 1.2m 896.7k 835.1k 712.5k 602.5k 553.6k 563.7k 772.8k 1.1m 929.4k 767k 1.2m 1.6m

ArbitrumOne Average Daily Tx

ArbitrumOne Unique Addresses

ArbitrumOne Average New Verified Contracts

DAO Monthly Token Flows August 2024

835 ETH Total Revenue Total Transaction Fee Inflows

Total Sequencer Fee Outflows 29 ETH

0.97

Net Fee Flow

806 ETH Net fee flow is the total collected fee less any fee owed to the sequencer to post transactions onto the Ethereum blockchain. This is the fee that flows into the DAO's treasury.

Users of DAO-governed chains are charged fees to process transactions - these are split between Layer 1 fees to post to the Ethereum network, and Layer 2 fees for processing transactions within Arbitrum.

Sequencer fees relate to direct costs owed to the sequencer to post transactions onto Ethereum's Layer 1 blockchain. These fees are collected from users and passed on to the sequencer via smart contracts.

Net Fee / Total Fee Ratio

Transaction fee figures were obtained from Dune Analytics.

DAO Fee Inflow and Expenditure - 2024 (ARB)

60m

47.6m

1528%

45m

1006%

26.5m

30m

22.6m

21.6m

667%

571%

12.9m

15m

179%

5.4m

5.3m

4.7m

1.7m

1.4m

819.7k

-15m

-5

Jan 24

Feb 24

Mar 24

Apr 24

May 24

Jun 24

Jul 24

Aug 24

Total Transaction Fees (ARB)

Total DAO Expenditure (ARB)

% of Monthly Revenue Spent

Transaction fees in ETH were converted to ARB using historical price data obtained from CoinMarketCap. This conversion from ETH to ARB is used to illustrate the overarching "value flow" within the DAO and to establish a standardized nominal currency for comparing inflows and outflows to the DAO Treasury.

DAO Value Flow - Overview (all converted to ARB) - August 2024

Current Month Genesis to Date

Fees charged to process transactions

Transaction Fee Inflows

3,977,433

76,520,147

Sequencer costs to post on Ethereum

Sequencer Fee

(139,713)

(45,680,387)

Net Fee Flow

3,837,720

30,839,760

Net fee earned by the DAO

DAO Expenditure

(26,520,566)

(152,799,910)

Total DAO spending

Net Token Flows During the Period

(22,682,846)

(121,960,150)

Net inflows / (outflows) for the period

Fee Inflows

DAO Fee Inflows - August 2024 (ETH)

Arbitrum DAO-governed chains (Arbitrum One and Nova) programmatically generate ETH inflows through transaction fees paid by users within the Arbitrum ecosystem.

These fees are split into:

Layer 1 Sequencer Fee Inflow

Transaction fee component paid by a user and distributed to a chain's Sequencer to refund the Sequencer for its batch-posting fees.

Layer 1 Surplus Fee Inflow

Transaction fee component charged as proportion of Layer 1 base fee, in excess of the actual cost required to be paid to the sequencer.

Layer 2 Base Fee Inflow

Transaction fee component that covers the minimum cost of Arbitrum transaction execution.

Layer 2 Surplus Fee Inflow

L1 Base Fee 29 (3.5%) L2 Base Fee 118 (14.2%) L2 Surplus Fee 688 (82.3%)

Transaction fee component that covers the cost beyond that covered by the Layer 2 Base Fee during chain congestion.

Arbitrum DAO Transaction Fee Flows (ETH)

50k

189

42.4k

41.3k 41.6k

39.8k 40.1k

143

575

39.1k

40k

538

36.5k

265

561

292

32.7k

29.6k

761

30k

538

338

168

224

21.6k

490

639

20.2k

153 318 221

19k

20k

226

4.4k

277

484

886

530

113

238

12.5k

450

258

2.9k

167 367

202

10k

409

2.2k

7.1k

400

186

1.6k

1.4k

173

1.2k

1.1k

688

481

814

577

162

119

118

L1 Base Fee

L1 Surplus Fee

L2 Base Fee

L2 Surplus Fee

Cumulative Revenue

Fee Outflows

The L1 Base Fee component of Arbitrum transaction fees are refunded to the sequencer - they accrue in the L1 Base Fee wallet and are claimed by the sequencer periodically. Since the start of the Arbitrum DAO, 27.4k ETH has been charged in L1 Base Fees. The sequencer has periodically claimed that amount and as at 31 August 2024, was owed 1.9 ETH which it can claim at any point. The sequencer has recently started claiming multiple times per month.

Sequencer Fee Flow (ETH)

+27.4k

(6.1k)

(14.2k)

(7.1k)

(32)

(31)

L1 Base Fee

Sequencer Refunds - 1H 2023

Sequencer Refunds - 2H 2023

Sequencer Refunds - 1H 2024

Sequencer Refunds - 2H 2024 (excl. Current Month)

Sequencer Refunds - Current Month

Unclaimed Sequencer Fees

Net Fee Flow

Net fee flow is the total collected fee less any fee owed to the sequencer to post transactions onto the Ethereum blockchain. As at 31st August 2024 the total net flows amounted to 15,027 ETH, currently held mainly in the L2 Treasury Timelock Wallet (with 55 ETH held in Fee Inflow Wallets). Net transaction fees collected in August 2024 amounted to 806 ETH - compared to the 3 months before the "Atlas" upgrade (December 2023 - February 2024), total transaction fees have fallen 83% while net transaction fees have fallen 36% (for the months of April to August 2024). The Cumulative Net Fee Flow graph below also represents the DAO's ETH holdings over time as the DAO has not approved any transactions involving the ETH in the wallet - the balance has therefore increased in-line with the net fee flow earned by the DAO. It is worth noting that there is currently a Tally proposal to send 5,134 ETH to the Arbitrum Foundation for Assertion and Challenge Bonds, which would allow the Foundation to run a BoLD validator and fulfill the role of being the first honest and active proposer.

This would represent 34% of the DAO's ETH holdings .

Arbitrum DAO Net Transaction Fee Flows (ETH)

20k

15k

14.2k

13.9k

15k

12.8k

12.6k

12k

11.3k

10.5k

9.4k

10k

8.4k

7.7k

7.1k

6.5k

5.7k

4.1k

3.1k

1.4k 1.4k

1.7k

881

728

765

577

650

732

973

1.1k

783

692

600

233

1.1k

280

806

Net Fee Flow

Cumulative Net Fee Flow

Treasury

The Arbitrum DAO's treasury holds mainly cryptocurrency, with the majority being its native ARB token. It's important to note that the composition of the treasury holdings is subject to change due to various factors, including fee inflows, outflows, and spending approved by the DAO.

Balance in native ARB token within the DAO's treasury wallet. See below for additional holdings across DAO controlled wallets.

ARB Holdings 3.16B

DAO Assets - Converted into USD

The 15k Ethereum in transaction fees in excess of the L1 fee owed to the sequencer. This was valued at USD 38M as of August 31st, 2024 (price source: CoinGecko). DAO collected At this stage, no proposals have been approved to utilize this balance, although there is a live Tally vote to send 5,134 ETH to the Arbitrum Foundation.

ETH Holdings 15,027

ARB Holdings 1.8b (96.1%) ETH Holdings 37.6m (2.1%) USD Holdings 33.4m (1.8%)

The majority of the DAO's treasury is therefore held in its native token, ARB. It also holds ETH from transaction fees, as well as US Dollar-linked investment mainly via the STEP program.

It is worth drawing attention to the fact that the ARB tokens sitting in "treasury" are represented in native ARB token and not a fiat or other cryptocurrency equivalent - much discussion has been had around this point but it is clear that the value of treasury ARB cannot be priced at current ARB market prices. These tokens are effectively out of circulating supply and are similar to a traditional company holding its own stock as treasury shares. If the DAO were to decide to deploy its entire ARB balance, the market would be flooded with liquidity and the price of ARB would be materially impacted. Any proposal moving ARB out of treasury holdings and into the market will have an inflationary impact on the price of ARB (i.e. cet. par . proposals moving ARB out of treasury will cause the price of ARB to fall relative to e.g. the USD).

Treasury Holding - Overview

USD Stablecoin Holdings

ARB Holdings

DAO Treasury

3,160,019,094 224,650,000

Catalyze Gaming Ecosystem Growth

LTIP - Multisig

24,834,122 3,500,000 1,360,252

ADPC Subsidy Fund

Plurality Labs - Thrive Impact Foundation Multisig

Delegate Incentive System

944,525 600,000 518,216 163,324

Arbitrum MSS

Plurality Labs - Grants Safety Multisig

Arbitrum Research & Development Collective (ADPC) - ArbitrumDAO Procurement Committee

Questbook Wallets GovHack at ETH CC

3,556

2,881,079

53,028

STEP

30,450,000 33,384,107

TOTAL

3,416,593,091

DAO Spend Analysis

Monthly ARB Expenditure

Jan24

Feb24

Mar 24 *Apr 24 May 24

Jun24

Jul 24

Aug24

DAO Expenditure in ARB

(22,622,875) (12,801,863)

(5,736,197)

263,387 (1,394,875) (47,405,495) (21,188,075) (25,711,018)

(20,377)

(75,846)

(94,754)

(67,365)

(71,384)

(190,394)

(381,968)

(809,548)

DAO Expenditure in USD - converted to ARB

Total DAO Monthly (Expenditure) / Income (22,643,252) (12,877,709) (5,830,951)

196,022 (1,466,259) (47,595,889) (21,570,043) (26,520,566)

*STIP refunds made this a net inflow

monthly expenditure ARB 17M using 8-month average

ARB 48M monthly expenditure using highest 1 month

ARB 32M monthly expenditure using 3-month average

The Arbitrum DAO's sustainability represents its ability to fund operations based on its current Treasury holdings. It evaluates the holdings of the DAO, taking into account the average monthly ARB outflows within the organization. Using these averages, it calculates the number of months of funding that the current asset holdings would be able to sustain. Note that the analysis only looks at ARB held in the DAO's treasury wallet and not across all wallets. It is also worth noting that the ARB held in treasury cannot be valued at the same price as circulating ARB - it is effectively locked supply that when introduced into the market will likely cause material changes in prices. To factor this in, we include an analysis on runway based on the price of ARB falling by different amounts.

Number of months the DAO can maintain expenditure levels before fully depleting the DAO ARB Treasury based on ARB expenditure within the DAO.

8 Month Average Spend (in ARB)

3 Month Average ARB Spend, ARB Price Decreased by 25%

183

3 Month Average Spend (in ARB)

3 Month Average ARB Spend, ARB Price Decreased by 50%

Highest Month Spend (in ARB)

3 Month Average ARB Spend, ARB Price Decreased by 75%

ARB Introduced into Circulation

Treasury Allocated to Proposals 12.3% Treasury Spent

Every proposal that allocates the DAO's treasury holdings of ARB is introducing more tokens into supply - ARB out of circulation held in treasury is brought into the market. Over the period from June 2023, when the first Tally proposal was approved, to August 2024, the DAO approved 443M ARB worth of spending outlined in various proposals. This represents 12.3% of the DAO's initial treasury balance of 3.6B ARB. Spending began in August 2023, with a total of 163M ARB spent to August 2024. This represents 4.5% of the DAO's treasury balance - the balance is still held in DAO-controlled wallets.

to Date 4.5%

Arbitrum DAO Expenditure

The Arbitrum DAO has committed (and plans to continue to commit) a material portion of its treasury towards funding growth within the Arbitrum ecosystem. This report divided spending across 6 major categories:

Long term programs, committees or groups funded by and supporting the effective functioning of the Arbitrum DAO. Provide services to and are approved and funded directly by the DAO (not via a Grants Program). Funds in multisig wallets are treated as DAO funds until they are distributed to third parties.

DAO Core

Ecosystem Incentives

Funds for users in the Arbitrum ecosystem distributed to them via protocols built on Arbitrum. Used to directly incentivise network and user growth on Arbitrum. Funds in multisig wallets are treated as DAO funds until they are sent to protocols for subsequent distribution to users.

Funds earmarked for major initiatives and ventures within the DAO ecosystem, aimed at addressing a certain identified area for development within the DAO. Generally facilitated via working groups and/or DAO-elected councils. Funds in multisig wallets are treated as DAO funds until distributed to third parties.

Ventures

Treasury Diversification

Funds moved out of the DAO's treasury holdings and deployed into investments aiming to generate returns for the DAO that aren't in its native ARB token. Funds sent out of the multisig to service treasury diversification providers are treated as DAO funds. Funds spent on operational costs are considered spent.

Grants Programs

Grants Program fund many different contributors, initiatives and builders within Arbitrum DAO. Each Grant Program will fund many grant initiatives. Funds in multisig wallets are treated as DAO funds until they are sent to grant program managers or grantee.

One off funding/grants for external service providers or protocols to deliver specific work within a stated remit. Proposal must have been approved directly through on-chain governance. Funds in multisig wallets are treated as spent funds when sent to the service provider or protocol.

Direct Grants

Allocated Treasury Spend - March 2023 to August 2024 (ARB)

Actual Spend - March 2023 to August 2024 (ARB)

DAO Core 10.1m (2.3%) Ecosystem Incentives 154.9m (34.9%) Ventures 228.7m (51.6%) Treasury Diversification 35.3m (8.0%) Grant Programs 10.3m (2.3%) Direct Grants 3.9m (0.9%)

DAO Core 8.4m (5.2%) Ecosystem Incentives 108m (66.2%) Ventures 564.7k (0.3%) Treasury Diversification 35.3m (21.6%) Grant Programs 7.1m (4.3%) Direct Grants 3.8m (2.3%)

Note differences between allocated and actual spend relates to either proposals not spending its allocated funding, or to proposals that are still live and in the process of deploying their funding. 9

7.5% of ARB tokens (ARB750M) were transferred to the foundation in the initial token airdrop. A portion of these tokens were spent before AIP1.1 required the Foundation to place its holdings into a vesting wallet with a four-year lock-up period, thus the remaining ARB balance was transferred to that wallet. The Foundation can call funds over time from the vesting wallet. These unlocked funds are then transferred from the vesting wallet to a wallet controlled by the foundation. Arbitrum DAO - The Arbitrum Foundation

Foundation Vesting Wallet ARB Transactions

+750m

(50.5m)

699.5m

(97.7m)

(127.8m)

(14.4m)

459.6m

ARB Airdropped to Foundation

ARB Spent pre AIP1.1

ARB Initially Locked in Vesting Contract

ARB Unlocked and Sent - 2023

ARB Unlocked and Sent - 2024 excl. Current Month

ARB Unlocked and Sent - Current Month

ARB Balance in Vesting Contract

Funds streamed from the vesting wallet to the Foundation's wallet were then partially sent to another wallet, whereafter our analysis ends. We have deemed funds sent to the external wallet as spent and beyond the scope of this report - please refer to the Foundation's transparency report for more context regarding their use of funds.

Foundation Wallet ARB Flows

+239.9m

+500k

(200m)

40.4m

ARB Received from Vesting Wallet

ARB Received from External Wallet

ARB Sent to External Wallet

ARB Remaining in Wallet

Summary of Foundation ARB Flows

ARB

ARB Received - Total

750,000,000

ARB Spent - Pre AIP1.1

50,500,008

ARB Spent - Post AIP1.1

199,500,001

Total ARB Spent

250,000,009

Total ARB Unspent

499,999,991

ARB Unspent in Vesting Wallet

459,639,678

ARB Unspent in Foundation Wallet

40,360,313

Total ARB In Wallets

499,999,991

Arbitrum DAO - DAO Core

This represents the long-term programs, committees or groups funded by and supporting the effective functioning of the Arbitrum DAO - these are funded directly by the DAO and not via a Grants Program. The pledged outflows amount indicates the amount allocated to each group via an on-chain governance vote, while actual outflows are funds which are then distributed from the wallet at which point they are "spent".

DAO Development Budget (ARB)

+6m

10.1m

+600k

+1.6m

+200k

+1.8m

Arbitrum Research & Development Collective

ArbitrumDAO Procurement Committee

Delegates Incentive System

Multisig Support Service

Entropy Advisors

Total

DAO Development Spend - March 2023 to August 2024 (ARB)

+6m

8.4m

+635.5k

+200k

+1.6m

Arbitrum Research & Development Collective

ArbitrumDAO Procurement Committee

Delegates Incentive System

Multisig Support Service

Entropy Advisors

Total

Arbitrum Research & Development Collective

ARDC Spend - March 2023 to August 2024 (ARB)

665k

546.9k

377.6k

335k

332.5k

233.9k

118.1k

101.1k

50k

33.3k

30k

16.7k

20k

16k

10k

8.5k

7.5k

(45.1k)

Security - OpenZeppelin

Research - Blockworks

Research - Delphi Digital

Risk - Chaos Labs

DAOAdvocate - L2Beat/Ant Federation

Multisig Signers

Immutable Lawyer

ARB Budget 1.8m

ARB Sent to Date 1.6m

ARB to be Sent 163.3k

USD Required to Pay Service Providers $575k

ARB Required to Cover USD Owing ARB1.12M

ARB In ARDC Multisig Wallet ARB163k

ARB (Shortfall) / Surplus (ARB957k)

Therefore at an exchange rate of $0.5133 per ARB, the Collective has a shortfall of 957k ARB to cover service provider fees. This was driven by the proposal anchoring collective members' fees in USD, while contracts were defined in ARB. Based on the proposed USD amounts, all members are owed fees whereas based on the ARB contractual amount, some providers have been overpaid while others underpaid - in summary, the price of ARB fell too low and the contractual ARB amounts weren't enough to cover the agreed-upon USD fees.

Arbitrum DAO - DAO Core contd.

ArbitrumDAO Procurement Committee

The ArbitrumDAO Procurement Committee (ADPC) is tasked with facilitating & administering various procurement frameworks within the Arbitrum Ecosystem, creating new procurement frameworks for DAO Ratification and creating a proposal for security-service subsidies. The committee will serve a 6-month term.

The 3 committee members were to receive $8k per month each, payable in ARB at the spot rate.

ADPC Spend - March 2023 to August 2024 (ARB)

75k

52.7k

48k

50k

30k

26k

25k

12k

(4.7k)

(12k)

-25k

Joseph (immutablelawyer) Stipend

Bernard Schmid Stipend

Paul Imseih (pablo) Stipend

Multisig Signers

ARB Price Buffer

DeDaub Security Advisory Services

ARB Budget 200k

ARB Sent to Date 200k

ARB to be Sent 2

ARDC Spend - March 2023 to August 2024 (ARB converted to USD)

60k

48k

47.7k

40k

20k

263

Joseph (immutablelawyer) Stipend

Bernard Schmid Stipend

Paul Imseih (pablo) Stipend

USD Budget 144k

USD Sent to Date 143.2k

USD to be Sent 789

The ADPC therefore has finished its 6-month period and has exhausted its funding, with all committee members receiving very close to the initial USD budget. It is also worth noting that 12k ARB was sent to DeDaub for Security Advisory services that was not initially budgeted for - this was approved via a Snapshot proposal and the funding used was taken out of the initial ARB price buffer the Committee requested. Subsidy Fund

The full funding relating to the subsidy fund remains unspent with no transactions in August 2024.

Arbitrum DAO - DAO Core contd.

Delegates Incentive System (DIS)

The Delegates Incentive System is a 6-month program aiming to assess the impact of ARB incentives on delegates’ active participation and involvement in the DAO’s governance. The top 50 eligible delegates receive an ARB incentive based on outlined criteria linked to voting power, historical participation in DAO governance and other criteria.

DIS Spend - March 2023 to August 2024 (ARB)

1.5m

936.2k

563.8k

500k

30k

25k

20k

16.7k

3.3k

Delegate Incentives

Karma Development

Admin Costs - SEED Latam

Multisig Signers

ARB Budget 1.6m

ARB Sent to Date 635.5k

ARB to be Sent 944.5k

Total Delegates Incentivised 37

Average Total ARB Incentive per Delegate ARB15.2k

ARB Remaining in DIS Multisig Wallet ARB945k

Average monthly ARB incentives ARB113k

ARB Delegate Incentives - March 2023 to August 2024 (ARB)

400k

301.6k

300k

200k

100k

23.5k

23.4k

23.1k

23k

22.2k

22k

21.5k

21.4k

20.9k

20.6k

20.4k

20.2k

Arbitrum DAO - DAO Core contd.

Multisig Support Service (MSS)

The Arbitrum MSS was created as a structured multi-sig framework to facilitate funded programs within Arbitrum DAO to reduce operational spend and increase proposal efficiency. The proposal aims to unlock significant cost-saving opportunities, lessen committee fragmentation, ensure signers are competent with multisigs, and reduce friction for contributors creating proposals. The MSS will comprise 12 elected individuals to all DAO-funded multisigs. They will be compensated a base USD amount, paid in ARB, for performing these services across the DAO. The proposal requested 600k ARB (~$314k) to cover 1 year of operations, and included a fee allocated to r3gen Finance to prepare a monthly token flow report.

Balance in Wallet ARB600k USD308k Surplus / (Shortfall) to pay Roles (USD24k)

MSS USD Budget

Total Annual Budget

Roles Monthly Fee

MSSChairs

2,500

90,000

MSS Signers

1,500

162,000

r3gen Token Flow Report

6,650

79,800

TOTAL

10,650

331,800

The MSS has not sent any funds yet, with the first transaction occurring in September 2024. It is worth noting that at a 31 August 2024 exchange rate of $0.5133 / ARB, the 600k ARB held was worth $308k vs. the total budgeted spend of $332k, representing a shortfall of $24k.

Entropy Advisors: Exclusively Working With Arbitrum DAO

The DAO voted in favor of funding Entropy Advisors with 4.5M ARB (~$2.47M) to work exclusively with the Arbitrum DAO for one year. During this period, Entropy aims to deliver strategic proposals, guide key partners through the DAO processes, and align the priorities of essential stakeholders for the betterment of Arbitrum.

USDBudget

ARBBudget

Salaries

1,960,000

3,570,850

Legal, Insurance & Accounting

90,000 105,000 21,000 70,000

163,968 191,296 38,259 127,530

Conference Travel, Offsites, & Small Events

Software

Other / Miscellaneous Operating Budget Margin / Contingency

2,246,000

4,091,903

224,000

408,097

TOTAL BUDGET

2,470,000

4,500,000

Bonus

823,333

1,500,000 6,000,000

TOTAL BUDGET INCLUDING BONUS

3,293,333

The proposal included a potential 1.5M ARB bonus to be decided on by a Snapshot vote, as well as outlined a reduced initial claim while they scale-up their team. To date, the multisig address in the proposal has received 6M ARB but has not processed any transactions. While the DAO has the ability to clawback funding, we have deemed the full amount to have been spent as it has been sent to an externally-controlled wallet. Any funds returned will be highlighted in future reports.

Arbitrum DAO - Ecosystem Incentives

This relates to funds allocated towards users in the Arbitrum ecosystem, distributed to them via protocols built on Arbitrum. The funding is used to directly incentivise network and user growth on Arbitrum.

Ecosystem Incentives Budgets (ARB)

200m

+45.7m

154.9m

+37.6m

100m

+21.5m

+50.1m

Short Term Incentives Program

Short Term Incentives Program Backfund

Short Term Incentives Program Bridge

Long Term Incentives Program

Total

Short Term Incentives Program (STIP)

STIP

Backfund

Bridge

Incentive Budget (ARB) Operations Budget (ARB) Incentives Actually Allocated (ARB)

50,000,000

21,400,000

37,500,000

94,000

120,000

100,000

50,038,044

21,312,500

37,025,522

Number of Protocols Allocated Funding

Protocols approved for funding under the STIP program that weren't funded

Protocols funded in STIP or STIP backfund eligible to receive an additional incentive

DAO-funded incentives targeting active Arbitrum protocols

Rationale

Allocated Incentive Budget - STIP Programs

GMX MUX Gains Camelot Vertex RADIANT Jones Pendle Synapse Stargate Wormhole

18m

12m

6.8m

4.5m

2.3m

4.6m

3.1m 3m

1.5m

4.5m

1.5m

4.3m

2.9m

1.4m

3m 3m 3m 3m 2.7m

2m 2m

1m 1m 1m 1m

2m 2m 1.8m

900k

Trader Dopex Frax Abracadabra KyberSwap

2.3m 2.3m 2.3m 2.3m 2.3m

1.5m 1.5m 1.5m 1.5m 1.5m

755k 750k 750k 750k 750k

Magpie RAMSES Balancer Other 37 Protocols

1.9m 1.9m

1.3m 1.2m

625k 624k

1.8m

1.2m

29.7m

10.4m

8.5m

10.8m

STIP 50m STIP Backfund 21.3m

STIP Bridge 37m

Arbitrum DAO - Ecosystem Incentives contd.

Protocols Allocated STIP Backfund 26

Protocols Allocated STIP 30

Protocols Allocated STIP Bridge 56

Average ARB Allocation: STIP 1.67M ARB

Average ARB Allocation: STIP Backfund 0.82M ARB

Average ARB Allocation: STIP Bridge 0.66M ARB

Funding Used 47.9m (95.7%) Funding Returned 1m (2.1%) Funding Unspent 1.1m (2.2%)

Funding Used 15.9m (74.2%) Funding Returned 1.7m (7.8%) Funding Unspent 3.9m (18.1%)

Funding Used 24.1m (64.2%) Funding Unspent 13.4m (35.8%)

Total STIP Allocation and Spend - March 2023 to August 2024 (ARB)

125m

+37.5m

108.9m (48.9m)

100m

+21.4m

75m

+1m

(17.5m)

+50m

50m

+1.7m

(24.1m)

21.1m

25m

Upon closing the STIP and STIP backfund programs, the Multisig wallet returned unused funds to the DAO treasury. The total value returned was 5,897,947 ARB and was returned on 7 August 2024 (with a 1 ARB test transaction on 2 August 2024).

Arbitrum DAO - Ecosystem Incentives contd.

STIP Multisig - ARB Flows

+21.5m

71.6m

(68.6m)

+50.1m

+5.9m

+2m

+1.1m

(75k)

(74.8k)

Funding Received - STIP

Funding Received - STIP Bridge

Total Funding Received

ARB Sent to Hedgey Contracts

ARB Sent to MS Signers & tnorm

ARB Sent to Open Block Labs

ARB Returned by Hedgey

ARB Returned by Protocols

Balance Returned to DAO Treasury

Note the difference in ARB returned by protocols in the above chart vs. the chart on page 16 relates mainly to Synapse, who returned their funds directly to the DAO treasury wallet.

STIP Bridge

The STIP Bridge started distributing incentives in June 2024 and planned to run for 12 weeks. The Tally proposal that was voted on by the DAO approved funding of 37.5M ARB to all protocols approved under STIP or STIP bridge - 56 protocols in total. However, after the Snapshot challenge process was concluded, 39 protocols were allocated 28.8M ARB. To date, 24.1M ARB has been distributed, with 11M distributed in August 2024. The protocols are therefore owed a total of 4.7M ARB, with an excess of 8.7M ARB expected (initial ask of 37.5M ARB less revised ask of 28.8M ARB).

ARB Incentives - August 2024 ARB11M

Bridge Program Funding Requested and Received - March 2023 to August 2024 (ARB)

15m

14.1m

10m

7.4m

4.5m

2.3m

1.9m

1.5m

1.4m

1.3m

1.2m

900k

833.3k

755k

750k

ARB Requested 37m

ARB Received 24.1m

Arbitrum DAO - Ecosystem Incentives contd.

When the STIP Bridge program was announced, an operational budget of 100k ARB was specified but provided no breakdown. At the end of August 2024, a Snapshot was submitted outlining the budget - it was approved by the DAO on 5 September 2024. The roles are:

STIP Bridge Operational Budget (ARB)

Advisors (19.4k ARB each) - JoJo - SEEDGov - Castle Capital

Program Manager - Stable Labs

Proposal Author - Alex Lumley

Multisig Signers (500 ARB each) - Lindey - Limes - Joseph - Bobbay - Alex Lumley

Advisors 58.2k (58.2%) Stable Labs PM 34.3k (34.3%) Alex Lumley Proposal Author 5k (5%) Multisig Singers 2.5k (2.5%)

Long Term Incentives Program

The LTIP distributed 5.8M ARB in August 2024 across 52 protocols, taking total distributed funding to 19.8M ARB. The program intends to distribute 30.7M ARB vs. the 45M ARB outlined in the Tally proposal.

LTIP Funding Requested and Received - March 2023 to August 2024 (ARB)

25m

19.5m

20m

15m

12.7m

10m

6.7m

1.8m

900k

750k

500k

ARB Requested 30.7m

ARB Received 19.7m

ARB Funding Outstanding 11m

Arbitrum DAO - Ecosystem Incentives contd.

In August 2024, 2 protocols returned funding to the LTIP Multisig wallet: - Integral returned 100k ARB - Verified USD returned of 64k ARB

More protocols are expected to return funding in September 2024 as the LTIP has closed and unused funds are required to be returned.

60m

+45m

(19.7m)

40m

(11m)

20m

14.3m

Total ARB Allocated via AIP

ARB Sent to Qualifying Protocols

ARB Allocated but not Sent to Qualifying Protocols

Unallocated ARB to be Returned to the DAO

OpenZeppelin Average ARB Allocation 356k ARB

OpenZeppelin Protocols Allocated Funding 86

Funding Spent / Allocated 30.7m (68.1%) Funding Unused 14.3m (31.9%)

During August 2024, 2 parties received payment relating to Research Bounties:

- Lampros DAO: 13.9k ARB - Pyor Edge: 50k ARB

Both of these represent half of the total payment each party will receive. There is therefore an amount of 72k ARB unallocated from the original 200k ARB allocated to research bounties.

The current budget unallocated is therefore: - 25k ARB for Wintermute (council member) who do not want to receive payment - 72.3k ARB for Research Bounties

LTIP Operational Budget and Spend to August 2024 (ARB)

+735k

(373.9k)

(263.9k)

97.3k

Operational Budget

Spend to Date

Allocated but Unspent

Unallocated

Arbitrum DAO - Ventures

Gaming Catalyst Program (GCP)

Program Budget The GCP multisig did not make any transactions in August 2024 - the balance is therefore still 224.65M ARB. The initial work has focused on council onboarding, understanding compensation structures (with the assistance of external compensation analysts) as well as starting to get operational processes in place.

Arbitrum Ventures Initiative (AVI)

USD Budget

The AVI has processed the below transactions - swapping 163k ARB to USD87k with Wintermute's OTC desk - returning excess funding of 29k ARB to the DAO treasury The budget is outlined alongside - it is worth noting that the ARB was swapped for USD via a CEX and therefore cannot be tracked on-chain therefore we are unable to provide data around actual spend to date. Note that the initial budget asked for a 49.7k ARB buffer to ensure sufficient USD was obtained - that drove the return of 29k ARB mentioned above.

Market Consultation 12.9k (14.8%) Thesis Development 33.4k (38.4%)

Strategic Recommendations 22.9k (26.3%) Community Engagement 12.1k (14.0%) Project Management 5.8k (6.6%)

M&A for Arbitrum DAO

The M&A Pilot Phase concluded at the end of July 2024. The outcomes of the Pilot Phase was, among other things, a comprehensive summary report outlining the steps taken and workflows concluded over the period. The Pilot Phase concluded with the view that, while M&A is a strategic lever for the Arbitrum DAO for growth and stabilizing its operations while addressing the challenges of current capital allocation initiatives, now is not the right time for a large M&A fund. This is mainly due to several fundamental building blocks needing to be in place before large capital outlays should be approved.

The wallet has received: - 52k ARB from the DAO treasury wallet - 52.7k ARB from the ADPC wallet

It therefore holds 104.7k ARB. These funds were paid to the wallet as compensation for its holder's role in the ADPC and M&A programs and therefore has not been included in the DAO ARB holdings.

Arbitrum DAO - Treasury

Arbitrum Stable Treasury Endowment Program (STEP)

Following the successful deployment of 35M ARB into USD30.45M of stable, liquid real-world assets to generate yield for the DAO. Emphasis was placed on attracting service providers to the Arbitrum ecosystem, therefore achieving both treasury diversification as well as incentivising users within Arbitrum. STEP Allocations

15m

11m

9.6m

10m

5.2m

3.5m

Securitize BUIDL

Ondo USDY

Superstate USTB

Mountain USDM OpenEden TBill

Backed Finance blB01

ARB Allocation

USD Allocation

The next step for the STEP is to establish a Steering Committee. The goal of this committee will be to: - Identify Topics to Research for STEP II & Definition of Broader Arbitrum RWA Strategy - Selection of the STEP Committee

The Steering Committee will not initial request funding - it will rather perform the initial workflow and likely put forward a future proposal to fund the completion of the identified scope of work. Conversations around overall Arbitrum DAO treasury management continue to evolve - various service providers and delegates are exploring ways to put in place a more robust Treasury Management function within the DAO to support long term sustainability and address several of the financial challenges observed in this report. Some areas of concern identified are:

Operational Spend Hedging

DAO-funded initiatives often involve service providers - these providers traditionally quote a USD-equivalent fee. Proposals to date have not been able to hedge this ARB / USD price risk - the only mitigating actions used have been to increase the ARB budget with a margin of safety to cover price movement. In environments where ARB prices are falling, this buffer can prove to be insufficient and the ARB budget is inadequate to cover service providers' fees (e.g. ARDC, MSS).

Unproductive ETH Holdings

The DAO holds material ETH that has not been deployed since the DAO's inception (although there is a plan to allocate some ETH to running a BoLD validator). This ETH could be utilized to generate yield for Arbitrum and reduce the attractiveness of an attack on the DAO to access this ETH.

ARB Price Sensitivity

98% of the DAO's treasury is held in ARB tokens - however, as outlined previously, this balance cannot be valued at market prices as deploying it into the market would cause a material price impact. Irrespective of the previous point, the DAO is highly sensitive to ARB prices as the majority of its funds are held in that token.

ARB Inflation

There is no clear plan around introducing ARB into the market (via AIPs) and the inflationary impact that will have. Additional ARB is being unlocked and brought into the market that is beyond the control of the DAO (e.g. for the OCL team, early investors) - AIPs should be linked to those unlocks with a bigger-picture view on how much ARB is brought into circulation. A potential method of managing this would be introducing a DAO-wide budget where all AIP spending is framed with reference to a targeted ARB 'inflation rate'. 21

Arbitrum DAO - Grants Programs

The Arbitrum DAO has implemented various grants programs to foster growth and facilitate development within the Arbitrum ecosystem. Grants are either awarded directly from the DAO's treasury wallet to grantees, or are awarded to grant manager(s) - the grant manager(s) approved by the ArbitrumDAO have sole discretion on how to allocate the grant program’s ARB treasury based on their own criteria. The Arbitrum Foundation focuses on the legal backend for supporting the grant programs while the DAO representatives are free to execute on their proposal and allocate funds according to criteria agreed with the community. The Arbitrum DAO has implemented 2 grant programs, as well as issued several direct grants (i.e. funding allocated directly to a grantee without being facilitated by a grant manager via a program). For the purposes of the below analysis, funding requests by a single party funded directly out of the DAO's treasury wallet are included under direct grants. The Arbitrum Foundation also has its own grant program, solely under its control - figures for their program have therefore not been included in the analysis below.

Grant Criteria

Grant programs overseen and facilitated by third parties, with grantees receiving funding via these third parties and not directly from the DAO. Examples include Plurality Labs and Questbook.

Arbitrum DAO Grant Programs

Funding sent directly from the DAO's treasury wallet to the ultimate recipient. This could either be as a proposed grant or any other proposal where the end beneficiary is funded directly and not via a third-party grant manager/facilitator.

Arbitrum DAO Direct Grants

Supports builders with milestones-based funding for growth. All grants issued through this program will serve to improve the adoption of Arbitrum chains, create stronger technical structures, and build sustainable communities in the Arbitrum ecosystem.

The Arbitrum Foundation Grant Program

ARB Allocated

15m

+3.9m

14.2m

12.5m

+3.3m

10.3m

10m

7.5m

+2.8m

+3.4m

2.5m

+800k

Questbook Grant Program

Plurality Labs Grant Program Milestone 1

Plurality Labs/Thank ARB Grant Program Milestone 1B

Questbook Grant Program Extension

Total Grant Programs

Direct Grants

Total Grant Programs and Direct Grants

Arbitrum DAO Grant Programs

The Questbook Arbitrum Grants program focuses on anyone developing domain-specific projects on top of Arbitrum, ranging from education, gaming, and dev tooling to innovative ideas. Through the program, grantees receive milestone-based funding based on domain-specific needs outlined by the domain allocators elected by the community.

Questbook - Flow of Grant Funding

ARB

USDC/T

Grant 1 Budget

800,000

ARB Sent to Program Wallets

(800,000)

ARB Returned from Program Wallets

120,000

ARB Received from Program Wallets to Swap to Stablecoins

380,578

ARB Swapped into USDC for Programs

(424,398)

728,143

Stablecoins sent to Program Wallets

(675,000)

Stablecoins Returned from Program Wallets

61,000

Grant 2 Budget

3,300,000

Grant 2 Budget Swapped to Stablecoins

(3,300,000)

3,393,024

Stablecoins sent to Program Wallets

(3,081,000)

Funding Available for Operational Costs

76,180

426,167

ARB Swapped for Operational Spend

(2,797)

4,003

Funding Spent on Operational Costs

(73,383)

(219,080)

Remaining Funding

211,090

During August 2024, the Questbook program spent 32k USDC on operational costs - all relating to program managers. The wallet therefore has 211k USDC in it. There have been no additional ARB grants relating to the first round of Questbook - there have, however, been a few USDC grants. The updated total stablecoin grant spend is outlined below.

Questbook Grant Program Stablecoin Funding - 1st Round

263.5k

189k

183.1k

163.7k

164.9k

Remaining USDC Funding 264k

130k

118.9k

99.8k

75.5k

70.1k

54.5k

18.2k

Gaming

Developer Tooling on NOVA

New Protocol Ideas

Education, Community growth and events

Stablecoin Funding Received via Swaps 765.6k Stablecoin Grants Spent 502k Stablecoins Remaining in Wallets 263.6k

Grant Spend - Second Round

Questbook Grant Program Stablecoin Funding - 2nd Round

770.3k

618.2k

618.8k

592.1k

577.3k

Remaining USDC Funding 2.4M

193k

178.2k

152k

151.5k

Gaming

Developer Tooling on NOVA

New Protocol Ideas

Education, Community growth and events

Stablecoin Funding Received 3.1m Stablecoin Grants Spent 674.7k Stablecoins Remaining in Wallets 2.4m

During August 2024, 366k of USDC funding was deployed across the 4 grant program categories, taking total grant spending to date to 675k USDC across 69 different grantees. Each sub-category has USDC remaining in their wallets totalling 2.4M ARB.

Questbook - Round 2 Grants

ARBGrants

152,045 21,000 18,000 17,500 95,545 197,950 25,000 24,000 18,700 130,250 151,500 20,000 20,000 20,000 91,500 178,163 20,000 18,950 17,500 121,713

Gaming

BharatGG P2ECrew

UGC Campaign Bot

Other Grantees

Developer Tooling on NOVA

StylusSecure Espacio Cripto

Sapiens Node: Building on Arbitrum Orbit

Other Grantees

New Protocol Ideas

NFTs on Degenz

SONGS

FairAI

Other Grantees

Education, Community growth and events

Merge Madrid

web3Warri

Namaste Arbitrum!

Other Grantees

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