Arbitrum Token Flow Report - July 2024

This report covers the Arbitrum DAO's genesis (March 2023) to July 2024 token flows.

Arbitrum DAO Token Flow Report

July 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 rest 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 - Genesis (March 2023) to 31 July 2024

125M ARB Total DAO Expenditure 1.3M USD Total Stablecoin spending

14,223 ETH DAO ETH Holdings 3.43B ARB DAO ARB Holdings

27,392 ETH Total Sequencer Fees 41,613 ETH Total Transaction Fees

Arbitrum TVL (DefiLlama)

1.5m

3.5b

3.2b

1.3m

2.9b 2.8b

1.2m

1.3m

2.7b

2.6b

1.1m

2.4b

2.5b

2.4b

1.1m

2.3b 2.3b

2.3b

2.2b

978.6k

2.1b

1.8b

853.8k

850.9k

1.7b 1.7b

807.4k

778.8k

780.3k

750k

1.5b

TVL (USD)

TVL (ETH)

Arbitrum Ecosystem Stats

40m

300

279

35.8m

33.2m

32m

250

28.7m

215

201

22.3m

24m

200

19.8m

18m

158

17m

15.8m

146

14.8m

140

16m

150

13.9m

13m

129

129 131

12m

116

10.5m

112 112

111

9.4m

103

8.1m

100

6.1m

4.5m

2m 2.1m 1.9m

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 Token Flows 1 Mar 2023 - 31 July 2024 (Genesis to Date)

41,613 ETH Total Revenue Total Transaction Fee Inflows 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.

Total Sequencer Fee Outflows

0.34

Net Fee Flow

27,392 ETH 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.

14,221 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.

Net Fee / Total Fee Ratio

Transaction fee figures were obtained from Dune Analytics.

DAO Fee Inflow and Expenditure - 2024 (ARB)

50m

47.6m

40m

30m

22.6m

21.6m

20m

12.9m

10m

5.4m

5.3m

4.7m

1.7m

1.4m

819.7k

-10m

Jan 24

Feb 24

Mar 24

Apr 24

May 24

Jun 24

Jul 24

Total Transaction Fees (ARB)

Total DAO Expenditure (ARB)

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) - 1 March 2023 - 31 July 2024

ARB

Fees charged to process transactions

Transaction Fee Inflows

72,542,714

Sequencer Fee

(45,540,674)

Sequencer costs to post on Ethereum

Net Fee Flow

27,002,040

Net fee earned by the DAO

DAO Expenditure

(126,279,344)

Total DAO spending

Net Token Flows During the Period

(99,277,304)

Net inflows / (outflows) for the period

Fee Inflows

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

DAO Fee Inflows - March 2023 to July 2024 (ETH)

These fees are split into:

4.3k

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.

27.4k

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 27.4k (65.8%) L1 Surplus Fee 3k (7.2%) L2 Base Fee 7k (16.7%) L2 Surplus Fee 4.3k (10.2%)

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

265 575 189

41.3k 41.6k

39.1k 39.8k 40.1k

40k

36.5k

292 538

4.5k

561

32.7k

761

30k

224 538

24.6k

338

277 639 168

21.6k

490

19k 20.2k

20k

318

4.4k

484

886

258 530

450

2.9k

1.5k

367

409

10k

2.2k

400

1.4k 1.6k

1.2k

1.1k

814

481

577

162

119

L1 Base Fee

L1 Surplus Fee

L2 Base Fee

L2 Surplus Fee

Cumulative Revenue

The DAO implemented changes to transaction fees in the ArbOS v20 "Atlas" upgrade - when the Atlas upgrade was initially completed, there was an oversight on the fee. A subsequent Snapshot was passed, decreasing the below fee components:

DAO Fee Inflows - April 2024 to July 2024

- L1 Surplus Fee: decreased from 32 gwei to 0 gwei; and - L2 Base Fee: decreased from 0.1 gwei to 0.01 gwei

This was passed in March 2024 - the impact on transaction fee inflow is thus clearly seen by the drop in ETH flowing into DAO wallets post this upgrade. It also changed the make-up of transaction fees - the L2 Surplus Fee became the most material component of fees vs. the L1 Base Fee being the largest component before the upgrade. Average total monthly fee inflows in the 3 months post the upgrade fell by 77% relative to the 3 months before the upgrade - from 3,170 ETH to 725 ETH per month.

L1 Base Fee 243 (9.8%) L2 Base Fee 467 (18.8%) L2 Surplus Fee 1.8k (71.5%)

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 July 2024, was owed 2 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)

(8k)

(2.3k)

(4.5k)

(204)

(21)

(113)

(32)

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 July 2024 the total net flows amounted to 14,223 ETH, currently held mainly in the L2 Treasury Timelock Wallet (with 13 ETH held in Fee Inflow Wallets).

Post the Atlas upgrade, average monthly net fees decreased by 23% from 853 to 655 ETH per month.

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 36% of the DAO's ETH holdings .

Arbitrum DAO Net Transaction Fee Flows (ETH)

15k

12.6k 12.8k

13.9k 14.2k

12k

11.3k

10.5k

9.4k

10k

8.4k

7.7k

7.1k

6.5k

5.7k

4.1k

3.1k

1.4k

1.7k

1.4k

881

728

577

732

692

233

765

650

973

1.1k

783

600

1.1k

280

Net Fee Flow Cumulative Net Fee Flow Mar 23 Apr 23 May 23 Jun 23 Jul 23 Aug 23 Sep 23 Oct 23 Nov 23 Dec 23 Jan 24 Feb 24 Mar 24 Apr 24 May 24 Jun 24 Jul 24 0

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 DAO collected 14.2k Ethereum in transaction fees in excess of the L1 fee owed to the sequencer. This was valued at USD 46M as of July 31st, 2024 (price source: CoinGecko). 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 14,223

ARB Holdings 2.3b (96.6%) ETH Holdings 45.9m (2.0%) USDC Holdings 33.6m (1.4%)

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 (Equivalent) Holdings

ARB Holdings

DAO Treasury

3,160,488,568 224,650,000

Catalyze Gaming Ecosystem Growth

LTIP - Multisig STIP - Multisig

26,634,590 5,897,947 3,500,000 1,868,195 1,081,825 1,032,217

ADPC Subsidy Fund

Plurality Labs - Thrive Impact Foundation Multisig

Delegate Incentive System

Plurality Labs - Grants Safety Multisig

Arbitrum Ventures Initiative

191,700 163,324 100,932 91,478 56,566

Arbitrum Research & Development Collective

GovHack at ETH CC

51,932

Pilot Phase: M&A for Arbitrum DAO

(ADPC) - ArbitrumDAO Procurement Committee

STEP

30,450,000 3,297,746 33,799,678

Questbook Wallets

3,556

TOTAL

3,425,760,898

DAO Spend Analysis

Monthly ARB Expenditure

Jan24

Feb24

Mar24

*Apr 24

May24

Jun24

Jul 24

DAO Expenditure in ARB

(22,622,875)

(12,801,863)

(5,736,197)

263,387 (1,394,875)

(47,405,495)

(21,188,075)

DAO Expenditure in USD - converted to ARB

(20,377)

(75,846)

(94,754)

(67,365)

(71,384)

(190,394)

(381,968)

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)

*STIP refunds made this a net inflow

monthly expenditure ARB 16M using 7 month average

ARB 48M monthly expenditure using highest 1 month

ARB 24M 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.

7 Month Average Spend (in ARB)

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

198

101

3 Month Average Spend (in ARB)

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

134

Highest Month Spend (in ARB)

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

ARB Introduced into Circulation

Treasury Allocated to Proposals 12% 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 2024, when the first Tally proposal was approved, to July 2024, the DAO approved 437M ARB worth of spending outlined in various proposals. This represents 12% of the DAO's initial treasury balance of 3.6B ARB. Spending began in August 2023, with a total of 125M ARB spent in the 12 months to July 2024. This represents 3.5% of the DAO's treasury balance - the balance (312M ARB) is still held in DAO-controlled wallets.

to Date 3.5%

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 July 2024 (ARB)

Actual Spend - March 2023 to July 2024 (ARB)

DAO Core 3.5m (0.8%) Ecosystem Incentives 154.9m (35.5%) Ventures 228.7m (52.4%) Treasury Diversification 35.3m (8.1%) Grant Programs 10.3m (2.4%) Direct Grants 3.9m (0.9%)

DAO Core 2.2m (1.6%) Ecosystem Incentives 92.5m (66.4%) Ventures 350k (0.3%) Treasury Diversification 35.3m (25.3%) Grant Programs 5.1m (3.6%) Direct Grants 3.8m (2.7%)

Arbitrum DAO Expenditure Operational Costs

Across the various funding programs the DAO has run, part of the funding has been allocated towards operational costs. Some proposals are themselves operational in nature (such as the ARDC and ADPC) but still include an operational cost element in the form of multisig signing fees, while others are operational but have no fee other than compensating the members of that proposal (e.g. AVI). For the purposes of the below analysis, operational proposals' operational costs will only include multisig signing fees. Direct grants have also not been allocated an operational cost below. Operational Spend Analysis - March 2023 to July 2024

Total Budget (ARB)

Operational Budget (ARB) Operational Cost Burden

Operational Costs

DAOCore

3,541,000 1,761,000 200,000 1,580,000

110,000 30,000 30,000 50,000

3.1% 1.7%

ARDC ADPC

MS signers MS signers

15.0%

DIS

3.2% MS signers, Admin Costs

Ecosystem Incentives

154,949,000

1,049,000

0.7%

STIP

50,094,000

94,000

0.2% Manager, Contributors, MS Signers 0.6% Manager, Contributors, MS Signers, Data Monitoring

STIP Backfund

21,520,000

120,000

Not specified - potentially Advisors, Managers, MS signers, Audits Council, Advisors, Bounties, Data Analytics, Manager, Authors, Community Funding, MS signers

STIP Bridge

37,600,000

100,000

0.3%

LTIP

45,735,000

735,000

1.6%

Ventures

228,743,700

25,000,000

10.9%

Council, MS signers, Salaries, Marketing, Legal, Authors, Contributors

GCP

225,000,000

25,000,000

11.1%

AVI

191,700 52,000 3,500,000 35,300,000 35,300,000

- - -

No Operational Costs No Operational Costs No Operational Costs

M&A

ADPC Subsidy Fund

Treasury Diversification

300,000 300,000

0.8%

STEP

0.8% Committee, Legal Counsel, Due Diligence

Grant Programs

10,306,000

1,537,730 160,000

14.9%

Questbook 1

800,000

20.0% Manager, Allocators, Other 16.7% Service Fee, Managers 7.8% Manager, Allocators, Other 19.7% Service Fee, Managers

Plurality Labs 1A

3,360,000 3,300,000 2,846,000 3,921,203

560,000 257,730 560,000

Questbook 2

Plurality Labs 1B

Direct Grants

TOTAL

436,760,903

27,996,730

6.4%

Average Operational Cost Burden per Category

14.9%

10.9%

6.4%

3.1%

0.8%

0.7%

Operational Cost Burden

DAO Core

Ecosystem Incentives

Ventures

Treasury

Grant Programs

TOTAL

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)

(112m)

(15.8m)

474m

ARB Airdropped to Foundation

ARB Spent pre AIP1.1

ARB Initially Locked in Vesting Contract

ARB Unlocked and Sent - 2023

ARB Unlocked and Sent - 1H 2024

ARB Unlocked and Sent - July 2024

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

+500k

(175m)

+225.5m

51m

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

174,500,001

Total ARB Spent

225,000,009

Total ARB Unspent

524,999,991

ARB Unspent in Vesting Wallet

474,022,545

ARB Unspent in Foundation Wallet

50,977,446

Total ARB Unspent

524,999,991

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)

+1.6m

3.5m

+200k

2.5m

+1.8m

Arbitrum Research & Development Collective

ArbitrumDAO Procurement Committee

Delegates Incentive System

Total

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

+498.2k

2.2m

+143.4k

+1.6m

Arbitrum Research & Development Collective

ArbitrumDAO Procurement Committee

Delegates Incentive System

Total

Arbitrum Research & Development Collective

The ARDC initially proposed maximum budgets for the 4 main categories within the collective (as outlined in the Tally proposal and covered in our first Token Flow Report). These budgets were specified in ARB - however, proposals for each role were ultimately specified in USD. Therefore, the DAO allocated ARB to fund this initiative that was denominated in USD. Over the course of the ARDC's deployment, ARB prices fell materially - the multisig was funded at a price of USD1.74 / ARB vs. current prices of USD0.64 / ARB. This resulted in the collective running out of funding - ARB was never converted into stablecoins but rather left to fluctuate with ARB/USD prices which has led to a funding shortfall.

ARDC Spend - March 2023 to July 2024 (ARB)

750k

665k

546.9k

500k

377.6k

335k

332.5k

233.9k

250k

118.1k

101.1k

50k

33.3k

30k

20k

16.7k

16k

10k

8.5k

7.5k

(45.1k)

-250k

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

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

750k

507.3k

480k

500k

365.2k

320k

242.7k

217k

250k

114.8k

103k

Security - OpenZeppelin

Research - Blockworks

Research - Delphi Digital

Risk - Chaos Labs

USD Budget 2m USD Sent to Date 1.5m

USD to be Sent 575.3k

USD Required to Pay Service Providers $575k

ARB Required to Cover USD Owing ARB875k

ARB In ARDC Multisig Wallet ARB163k

ARB (Shortfall) / Surplus (ARB711k)

The ARDC therefore has a shortfall of 711k ARB (at 31 July 2024 prices of $0.658). However, this excludes remaining ARB allocated to multisig signers, Immutable Lawyer and DAO Advocate fees - if those are included, the ARDC has a shortfall of 746k ARB . Note in the above graph, the total budget differs to USD sent + to be sent due to rounding differences. This shortfall has been driven by the price of ARB decreasing while the collective held all funding in ARB. Service providers were paid on a regular schedule in ARB, but the service fee was defined in USD. As the price of ARB fell, the collective had to send service providers more ARB in order to cover the required USD fee. The collective has already allocated more ARB to 2 service providers than had been budgeted for - Blockworks Research and Delphi Digital. Both service providers are still owed USD fees, evidencing the impact of the fall in ARB pricing on service provider payments. Consideration should be given around the fairest way to distribute the remaining ARB and to pay service providers.

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 July 2024 (ARB)

100k

48k

39.5k

50k

30k

26k

25k

8.5k

Joseph (immutablelawyer) Stipend

Bernard Schmid Stipend

Paul Imseih (pablo) Stipend

Multisig Signers

ARB Price Buffer

ARB Budget 200k

ARB Sent to Date 143.4k

ARB to be Sent 56.6k

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

100k

48k

40.7k

50k

7.3k

Joseph (immutablelawyer) Stipend

Bernard Schmid Stipend

Paul Imseih (pablo) Stipend

USD Budget 144k

USD Sent to Date 122k

USD to be Sent 22k

USD Required to Pay Service Providers $22.0k

ARB Required to Cover USD Owing ARB33.5k

ARB In ARDC Multisig Wallet ARB56.6k

ARB (Shortfall) / Surplus ARB23.1k

The ADPC therefore has a surplus of 23.1k ARB (at 31 July 2024 prices of $0.658). However, this excludes remaining ARB allocated to multisig signers - if those are included, the ARDC has a surplus of 18.1k ARB . The current ADPC term ends on August 20, 2024. Subsidy Fund The ADPC successfully passed an AIP to create a Subsidy Fund - 3.5M ARB (2.5M USD at time of proposal) to provide financial assistance to new and existing projects within Arbitrum. The financial assistance will be exclusive to pre-approved, whitelisted security audit providers who have been selected by the ADPC. The funding will cover 1 cohort of 8 weeks.

The ADPC will oversee this fund should their current 6-month mandate be extended.

To date, the multisig has received funding but has sent nothing yet - the ARB has therefore materially fallen in value: - at a 31 July 2024 closing price of $0.658, the ARB was worth $2.3M - the initial ask included a buffer to ensure $2.5M could be obtained to allocate to this fund

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 July 2024 (ARB)

1.5m

1.1m

434.8k

500k

30k

20k

13.3k

20k

6.7k

10k

Delegate Incentives

Karma Development

Admin Costs - SEED Latam

Multisig Signers

ARB Budget 1.6m

ARB Sent to Date 498.2k

ARB to be Sent 1.1m

Total Delegates Incentivised 34

Average ARB Incentive ARB12.8k

ARB Remaining in DIS Multisig Wallet ARB1.1M

Average monthly ARB incentives ARB108.7k

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

300k

242.6k

200k

100k

18.7k

18.5k

18.3k

17.5k

17.4k

17.3k

17k

16.4k

16.2k

Arbitrum DAO - Ecosystem Incentives

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)

Through the STIP original, backfund and bridge programs, the DAO has allocated a total of 108.9M ARB towards incentivising different protocols operating within the Arbitrum ecosystem. Within these programs, 314k ARB has been allocated to project management, advisors, multisig fees and other miscellaneous expenses.

The flow of incentives has been: - 50M ARB allocated across 30 protocols via the STIP program;

- 21.4M ARB allocated across 26 protocols via the STIP backfund program. This funding went to protocols that were approved for funding under the STIP program (i.e. they met all the requirements) but were unable to receive funding as the STIP was oversubscribed - more funding was approved than was available to distribute. A backfund was therefore created to allocate funding to protocols previously approved under the STIP; and - 37.5M ARB allocated across 56 protocols via the STIP bridge program. These were the protocols funded in STIP or STIP backfund - they were eligible to receive an additional incentive, generally at 50% of their funding request under the STIP or backfund program.

Note that allocated incentives won't perfectly match the incentive budget.

Each component of the extended STIP program included an operational budget to facilitate the successful execution of the programs. While the STIP and STIP backfund specified how the operational funding was to be allocated, the Bridge program did not - it outlined a general budget with the caveat that a separate Snapshot would be created to allow the DAO to decide on how the funds should be allocated. Operational Budgets (ARB)

STIP

Backfund

Bridge

Incentive Budget (ARB)

54k

50,000,000

21,400,000

37,500,000

100k

Operations Budget (ARB) Incentives Actually Allocated (ARB) Number of Protocols Allocated Funding

94,000

120,000

100,000

20k

50,038,044

21,312,500

37,025,522

20k

10k

100k

Multisig Signers - STIP 54k (17.2%) Multisig Signers - Backfund 9k (2.9%) tnorm - STIP 20k (6.4%)

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

tnorm - Backfund 1k (0.3%) StableLab - STIP 20k (6.4%) StableLab - Backfund 10k (3.2%) Data Monitoring - Backfund 100k (31.8%) Bridge - Total Operational Budget 100k (31.8%)

Rationale

Arbitrum protocols

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 Unused 2.1m (4.3%)

Funding Used 16.7m (78.3%) Funding Unused 4.6m (21.7%)

Funding Used 13.5m (36.5%) Funding Unused 23.5m (63.5%)

Allocated Incentives - All STIP Programs (ARB)

35m

29.7m

30m

25m

10.8m

20m

18m

15m

8.5m

10m

6.8m

12m

4.6m 4.5m 4.3m

2.3m

10.4m

3m 3m 3m 3m 2.7m

1.5m 1.5m 1.4m

2.3m 2.3m 2.3m 2.3m 2.3m 1.9m 1.9m

1.8m

1m 1m 1m 1m

4.5m

3.1m 3m 2.9m

2m 2m

1.8m

1.5m 1.5m 1.5m 1.5m 1.5m

1.3m 1.2m

1.2m

STIP 50m STIP Backfund 21.3m

STIP Bridge 37m

Arbitrum DAO - Ecosystem Incentives contd.

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

125m

+37m

108.4m

(48.9m)

100m

75m

+21.3m

(17.5m)

+50m

50m

(13.5m)

+2.7m

31.1m

25m

ARB Allocated - STIP

ARB Allocated - Backfund

ARB Allocated - Bridge

ARB Allocated - Total

ARB Spent - STIP

ARB Spent - Backfund

ARB Spent - Bridge

ARB Returned - STIP and Backfund

ARB Unspent

Of the 30 protocols allocated funding under STIP, 8 protocols either did not draw down on their entire budget or returned unused funds to the STIP multisig wallet. Protocols therefore either returned unused funds, or did not claim their requested ARB before the program closed. STIP - Returned and Unallocated Funds

Difference - Requested vs. Used

Reason for Difference

ARB Requested ARB Received ARB Returned Actual ARB Used

Security Incidents; Not Requiring Full Allocation

KyberSwap

1,500,000

428,572

358,701

69,871

1,430,129

Security Incidents

Socket Protocol

1,000,000

262,941

737,059

262,941

Radiant

2,852,044

150,360

2,701,684

150,360 Not Requiring Full Allocation 100,000 Not Requiring Full Allocation 65,450 Not Requiring Full Allocation 60,610 Not Requiring Full Allocation

Tally

200,000

100,000

Camelot

3,090,000

65,450

3,024,550

GMX

12,000,000

60,610

11,939,390

NoUpdates Given

GoodEntry

200,000

142,860

57,140

WINR Protocol

500,000

483,672

16,328 Not Requiring Full Allocation 13,188 Not Requiring Full Allocation

Timeswap

200,000

13,188

186,812

Program Totals (i.e. all protocols)

50,038,044

48,893,148

1,011,250

47,881,898

2,156,146

Arbitrum DAO - Ecosystem Incentives contd.

STIP Backfund - Returned and Unallocated Funds The STIP Backfund allocated incentive funding to 26 protocols - of those, 7 protocols either returned unused funds or did not draw down on their entire funding. Protocols therefore either returned unused funds, or did not claim their requested ARB before the program closed.

Difference - Requested vs. Used

Actual ARB Used

Reason for Difference

ARB Requested ARB Received ARB Returned

Stargate

2,000,000

2,000,000 Not Passing KYC

Wormhole

1,800,000

771,429

690,433

80,996

1,719,004 Not Requiring Full Allocation

Synapse

2,000,000

753,316

1,246,684

753,316 Misuse of Funds -See Below

Funding Deferred to STIP Bridge

Shell

750,000

WOOFi

1,000,000

152,529

847,471

152,529 Not Requiring Full Allocation 15,200 Not Requiring Full Allocation 3,000 Not Requiring Full Allocation 2,039 Not Requiring Full Allocation

Tide

80,000

15,200

64,800

unshETH

375,000

3,000

372,000

Magpie

1,250,000

2,039

1,247,961

Furucombo

59,500

47,870

11,631

47,870 Misuse of Funds -See Below

Program Totals (i.e. all protocols)

21,312,500

17,533,929

1,664,387

15,869,543

5,442,958

Misuse of Funds - Furucombo

Throughout the STIP and STIP Backfund programs, 56 protocols received funding. Various protocols were flagged by Blockworks as having either misused or retaining leftover funds. The Arbitrum Foundation contacted these protocols and asked them to return their unused funds - all of them complied without delay, apart from 1 protocol: Furucombo.

It appears that Furucombo violated the rules of the STIP by: - not publishing a final STIP report;

- sending their ARB funding to a Kraken account, making it unclear how the incentives were spent; and - freezing incentives towards traders, with users claiming they received significantly fewer rewards than expected

Post DAO-wide discussions and follow-ups from the Arbitrum Foundation, Furucombo subsequently returned their unspent funding of 47.9k ARB to the STIP multisig wallet (on 22 July 2024). The DAO voted on the next steps to take relating to this misuse of funds and decided to ban Furucombo from the Arbitrum DAO from 26 July 2024 onwards.

Misuse of Funds - Synapse

Post receiving their STIP Backfund allocation of 2M ARB, 750k ARB was transferred to 3 wallet addresses. These addresses delegated their ARB to a co-founder of Synapse Labs. Concerns were raised that STIP funding was being used by this protocol to influence governance processes as the delegated ARB could be used to vote on proposals etc. Synapse responded to these allegations and outlined the use of the ARB and that, although delegated to a co-founder, the delegated ARB had not been used for any governance voting processes. Post discussion on the forum, Synapse returned the 750k ARB, as well as 3.3k ARB that had not been allocated towards incentives. Note that: - the 3.3k ARB was returned from Synapse's distribution address to the STIP mulstisig wallet and not from the address that initially received funding - it has been included in the amounts returned above; and - the 750k ARB was returned directly to the DAO's treasury wallet and not to the STIP multisig wallet - it is included in the figures above but in the Token Flow Report (page 33), it comes through under 'Other Transactions' in the DAO Treasury Wallet. 19

Arbitrum DAO - Ecosystem Incentives contd.

STIP Bridge

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

15m

14.1m

12.5m

10m

7.5m

4.3m

2.7m

2.3m

2.5m

1.5m

1.4m

1.1m

950k

900k

772.5k

750k

755k

750k

713k

666.7k

503.3k

500k

333.3k

250k

ARB Requested 37m

ARB Received 13.5m

The STIP Bridge aims to sustain and enhance Arbitrum’s market leadership by extending support to key protocols amidst intense competition from other Layer 2 solutions. It serves as a strategic interim solution, maintaining incentive alignment and ensuring continuous engagement of vital projects within the Arbitrum ecosystem until the Perpetual Incentives Program is initiated. To date, 13.5M ARB has been sent to protocols under the STIP Bridge program - note that the participants in STIP bridge are the same protocols that were funded under STIP and STIP Backfund. It is worth noting that, post the queries raised around Synapse's use of their STIP Backfund funding, they subsequently withdrew from the STIP Bridge program. There will therefore be a 1M ARB difference between allocated funding and what was sent relating to Synapse (i.e. in addition to any other potential differences that will be covered in a future report).

Arbitrum DAO - Ecosystem Incentives contd.

Long Term Incentives Program

The Long Term Term Incentives Pilot Program was established for the DAO to test new incentive designs and answer the necessary questions to ensure it is ready to commit to a long-term incentives program. This Pilot Program will distribute a maximum of 45M ARB to protocols building on Arbitrum, that were not funded during STIP programs, over a period of 12 weeks. The program currently plans to allocate funding across 86 protocols.

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

20m

16.8m

15m

10m

9.3m

7.5m

1.8m

900k

750k

650k

600k

500k

300k

250k

150k

125k

100k

ARB Requested 30.7m

ARB Received 14.1m

ARB Funding Outstanding 16.6m

To date, the LTIP has distributed 14.1M ARB to 57 protocols, with 29 protocols yet to receive or draw down on their funding. The program currently only plans to distribute close to 31M ARB to these protocols - therefore, upon conclusion of the program, around 14M ARB is expected be returned to the DAO.

50m

+45m

(14.1m)

(16.6m)

25m

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 0.36M ARB

OpenZeppelin Protocols Allocated Funding 86

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

Arbitrum DAO - Ecosystem Incentives contd.

The LTIP outlined a budget of 735k ARB across various operational components. To date, 260k has been spent, with 475k ARB remaining from the initial budget. It is worth noting that the research bounties are currently allocated for a total spend of 128k ARB, therefore there is an expected surplus of 72k ARB from that component of the budget.

LTIP Operational Spend - March 2023 to July 2024 (ARB)

300k

200k

125k

105k

100k

75k

70k

50k

30k

Council Members

Advisors

Proposal Authors

Multisig Signers

Research Bounties

Program Manager - StableLabs

Data & Analytics Provider - OpenBlock Labs

Retroactive Community Funding

ARB Budget 735k

ARB Sent to Date 260k

ARB to be Sent 475k

Arbitrum DAO - Ventures

Gaming Catalyst Program (GCP)

The GCP was designed to immediately expand awareness and adoption of Arbitrum/Orbit/Stylus by builders and players in the Gaming community. It outlines a three-year, 200m ARB spending plan with the goal of powering the Arbitrum gaming ecosystem with the best studios and games in the web3 industry. The GCP aims to establish a dedicated team and fund to provide technical and strategic support to the game industry. This dedicated team is key to attracting and retaining the best established and independent developers.

Program Budget

ARB225M

GCP - ARB Budget

300m

+3.1m

+104.7k

225m

+2.1m

+18.8m

+40m

200m

+628.1k

+188.4k

200m

+160m

100m

The proposal outlined ARB incentives and USD operational expenditure - for the purposes of the above graph, USD expenditure was converted to ARB at the rate that made the total budget equal 225M ARB (i.e. an ARB to USD rate of 0.9552). To date, 350k ARB has been transferred to a Coinbase Prime wallet to be used as outlined below: - 100k ARB to pay contributors; and - 250k ARB to kickstart operations for the GCP

ARB Remaining in Multisig 224.65M

GCP Council Members

Coinflip Canada

David Bolger

Greg Canessa

Tim Chang

Andrew Green

GCP Working Group elected

DAO-elected

Arbitrum DAO - Ventures contd.

Program Budget: 191,700 ARB

Arbitrum Ventures Initiative

ARB Budget

The AVI (Arbitrum Venture Initiative) team’s mission is to equip delegates and future AVI contributors with the tools needed to develop the AVI Ecosystem Fund (or equivalent). These are: - an effective knowledge base, investment frameworks and a committed team of experts. The initiative will align with DAO budgeting and strategic objectives, building on existing work and GCP learnings as a proof of concept. The result will be capture-resilient to any one party’s interests and aligned with DAO governance best practices. To date, the multisig has received the requested funding but has not incurred any expenditure. Note for the purposes of the budget alongside, an exchange rate of 1.632 USD / ARB was used to reconcile the total requested funds to the USD equivalent, including the 35% price buffer.

21k

49.7k

54.5k

9.4k

19.8k

37.3k

Market Consultation 21k (11.0%) Thesis Development 54.5k (28.4%)

Strategic Recommendations 37.3k (19.5%) Community Engagement 19.8k (10.3%) Project Management 9.4k (4.9%) Price Buffer 49.7k (25.9%)

Program Budget: 52,000 ARB

M&A for Arbitrum DAO

The 8-week M&A pilot phase proposal is the next step toward the Arbitrum M&A proposal outlining the opportunity for Arbitrum DAO to form an M&A Unit focused on identifying and executing on acquisition opportunities. The overarching aim is to utilize M&A as a key growth driver for the Arbitrum ecosystem and to help the DAO expand non-organically through acquisition opportunities that are not accessible to competing ecosystems, thereby critically enhancing Arbitrum DAO's capital allocation methods. The 8-week pilot phase is designed to provide the DAO with sufficient information to make an informed go/no-go decision regarding the further operationalization of the M&A unit and its funding requirements. It is the natural progression of a 6-week Working Group sprint to develop an initial structure of the M&A unit.

ARB Budget

50k

Operational/Team Budget Data Provider Access

No funding has been spent to date.

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