ARDC (V2) Risk Election

Description

Introduction

On the 19th of November 2024, the ARDC Tally proposal was executed, marking the ArbitrumDAO’s decision to extend the ARDC with the launch of the ARDC V2. This iteration features a collaborative structure, comprising specialised working members in Research, Risk and Security, alongside a Supervisory Council. The program is designed to deliver ongoing, specialised specialised assistance to the ArbitrumDAO. For more details, see the executed proposal here: https://www.tally.xyz/gov/arbitrum/proposal/36792157050667056852025000136263368859227883753318633087194112219909798752014?govId=eip155:42161:0x789fC99093B09aD01C34DC7251D0C89ce743e5a4

Following a call for applications, a review process and an amendment period, conducted in accordance with the Election Process ratified by the ArbitrumDAO, the elections for the Arbitrum Research and Development Collective are now open. The full version of the applications can be viewed here:

https://forum.arbitrum.foundation/t/election-application-thread-v2-arbitrum-research-development-collective/27267/16

We encourage all Arbitrum Delegates to vote responsibly and in the best interests of the ArbitrumDAO.

Vending Machine

Name: Vending Machine

Email Address: woo.sung@vendingmachine.design , jean-luc@vendingmachine.design, jack@vendingmachine.design (please contact all)

TG Handle: @woosungD94, @jeanluc_sh, @JackMgn (please contact all)

Role: Risk Member

Twitter: Vending Machine

Website: https://www.vendingmachine.design/

Hourly rate: USD 125 per team member

Experience

Vending Machine is a token design and research firm with over two years of experience in crafting and simulating token systems, crypto-economic mechanisms, and incentive strategies for more than ten protocols. Their team brings deep expertise in data engineering, advanced modeling, simulations, and mechanism design.

The firm employs a rigorous Model-Based Systems Engineering (MBSE) approach to token design and simulation, ensuring a systematic, well-structured process for creating and parameterizing mechanisms. This comprehensive process includes multiple phases: research, objective definition, design concept generation, concept selection, simulations, parameterisation, and final delivery. Vending Machine has also successfully delivered projects for high-profile clients such as Fuel Network, Arch Network, Berachain, and Everclear, among others.

Proposed Scope of Work for Arbitrum:

The scope of work we propose to complete for ArbitrumDAO is to conduct a comprehensive design process for ARB staking and governance attack vectors. This scope will cover two months of the six-month period, which is the typical duration of our design process, pre-simulations. From our time participating within the DAO’s staking working groups, it is clear that there is a need for a team to be fully accountable for delivering a comprehensive end-to-end exploration of what the future of the ARB token could look like, as well as exploring and resolving any security threats via governance attacks.

Our work will pick up where we left off in the working group. We will take the research conducted in this group to supplement our design process. With this, Vending Machine will guide the DAO through an end-to-end design, where we will:

• Conduct stakeholder interviews to define system objectives and requirements
• Create multiple design concepts and present these to the DAO for discussion and feedback
• Iterate if necessary and select the final design with the DAO

After the 2-month period where we draft a proposed design to the DAO for feedback, if it is deemed worthwhile to continue exploration, we will then:

• Build a model of the token system to parameterize the design
• Simulate the design and present the DAO with a simulation report
• Present the DAO with a fully parameterized token design

Throughout this process, we will post updates to the forum so that the DAO and key stakeholders can share feedback, allowing them to be part of the design process.

By the end of the process, the DAO will have a fully designed and simulated token system that addresses governance concerns while also potentially extending the utility of the ARB token.

With our wide skill set expanding across risk, incentive design, modelling, and simulating, we can remain flexible to other tasks the Supervisory Council puts forward.

Here are some examples of what the DAO could expect in terms of deliverables. Each deliverable would be delivered in the public forum.

1. Preliminary System Architecture Documentation: an outline of the existing stakeholders and mechanisms in the Arbitrum Ecosystem, as well as value exchange mapping.
2. Design Objectives, Requirements and Constraints Documentation: an outline of the objectives of the design, the requirements of the design and the constraints of the design surface area.
3. Design Concept Generation Documentation: construction of multiple mechanism designs that would achieve the objectives, requirements and constraints previously outlined.
4. Final Design Concept Documentation: a document that clearly outlines the architecture of the final design, ready for simulations.

And if the DAO deemed it important to continue exploring the design, Vending Machine would then deliver:

1. Final Design Simulation Model: a python based model of the design to stress-test and parameterise the mechanism.
2. Final Design Documentation: a document breaking down the final design and optimal parameter settings as defined by the simulation process.

TAU Labs

• Name: TAU Labs
• Telegram Handles: [Pixel2904], [TauKatana], [gm_0xKepler], [OxCypherPeak], [RogerTennis1]
• Email Addresses: vladt@628labs.xyz 0xkepler@628labs.xyz Katherine Long alexander.zahnd@gmail.com rogger@628labs.xyz
• The role being applied for: Risk Working Member
• Hourly Rate (in USDC):$125/hr for access to the entire TAU Labs team

Experience

TAU Labs is a Tokenomics and Data Science Lab specialising in token and incentive engineering, financial modeling, economic simulations, and mechanism design. Over the past year, they have worked with more than 15 clients, with a focus on DeFi protocols, such as MORE Markets, Rain.FI, and YieldNest among others.

Their multidisciplinary team includes data scientists, chartered financial analysts, and DeFi specialists. TAU Labs is particularly skilled in data science and economic modeling, leveraging Monte Carlo simulations and rigorous stress testing to ensure resilient risk management. They enhance transparency and stakeholder engagement by delivering public Machinations models and custom-built Python dashboards, making their research and recommendations accessible and actionable for all stakeholders.

Proposed Scope of Work for Arbitrum:

Given the success of the STIP and LTIPP programs, we would like to continue to explore data-driven incentive distribution to boost TVL and trading volumes for DeFi protocols, as well as the usage of Arbitrum apps more generally.

Strategically allocating incentives based on pre-determined goals such as liquidity and market share has proven effective as a macro level optimization.

We believe further optimizations are possible on a micro, per-user level. By utilizing onchain (and potentially offchain data), we can further segment users by expected lifetime value and related metrics such as retention, wallet net worth, etc.

One-third of the 6-month term would be dedicated to build upon the existing analysis of LTIPP and STIP programs to push improvements at the macro level. Additionally, TAU Labs will provide the DAO a range of suggestions for incentive designs and micro level optimizations.

• Summarize key findings from existing LTIPP and STIP analysis and foster it with secondary research. Fill gaps with primary research
• Identify room for optimization on the macro level
• Ideate micro level optimizations through user segmentation. Discuss tradeoffs and feasibility with the DAO, then plan, budget, and execute experiments for multiple promising approaches to generate insights
• Provide a final report with key learnings

Throughout the term, TAU will be at the DAO’s disposal to work on other tasks the Supervisory Council puts forward. Given our expertise in protocol design, tokenomics, and economic modeling, we are flexible enough to work on any relevant task.

Jupiter Block

• Applicant: JupiterBlock [JB Advisory Services SEZC]
• Telegram Handle: @rtudor
• LinkedIn Profile: Ramona Tudorancea - JupiterBlock | LinkedIn
• The role being applied for: Risk Working Member
• Hourly Rate (in USDC): 350 USDC for senior / executive / NED level, and 150 USDC for supervised junior / lawyer level

Experience

Jupiter Block is an experienced law firm specialising in Web3 projects, Cayman foundation companies, BVI tokenization structures, investment funds, capital markets, M&A, Strategy as well as Risk Management and Governance. They are building a decentralized risk management framework based on an application of ERM in a decentralized setting, with a risk dashboard and Guardian Roles.

More recently they published a research paper with the Crypto Valley Association relating to DAO legal wrappers, DAOs as automated cybernetic organisms and risk management frameworks in DAOs, also serving as members of the LexDAO operating committee and co-founding Ixian.tech, a hybrid law, management and Web3 legal engineering firm building legal products for the world of tomorrow.

Proposed Scope of Work for Arbitrum:

Like all decentralized projects, I believe (also based on interactions and conversations) that Arbitrum is confronted with a strategic and management gap. On the risk side, it is important to be aware of the good practices developed in other industries and fields, and adopt a holistic approach, and I believe that I could support this build. With developer resources and assistance from the Arbitrum communities, a decentralized risk management framework could be developed comparable to what ERM is currently for traditional organizations. This would improve the quality of interactions and increase credibility for Arbitrum overall. I could develop the general outline and framework for the first couple of months in approx. 25-30 hours of work and then work together with devs for the build, for another 50-75 hours of work. I do not have the tech skills personally, but could get technical support via Ixian.tech also

DeFiSafety

Name of Applicant & Applicant’s Representative: DeFiSafety, Rex Hygate

Email Address: rex@defisafety.com

TG Handle: @ShinkaRex

Role: Risk Member

Twitter: DeFiSafety, Rex Hygate

LinkedIn Profiles: DeFiSafety, Rex Hygate

Website: https://www.defisafety.com/app

Hourly rate: $150 USD per hour per team member [though we are only allocating 1 member]

Experience

DeFiSafety has been specialising in risk transparency and mitigation for DeFi protocol over the past 4 years, producing over 600 reports, including 40 reviews of protocols on the Arbitrum network. Notably, Arbitrum was one of the first chains reviewed using DeFiSafety’s chain scores process. The team’s risk management expertise originates from their prior careers in aerospace, specifically in avionics, ensuring a methodical, safety-first approach to their work.

DeFiSafety's core output is its protocol review reports, with more than 300 publicly available on their website. They have collaborated with top-tier DeFi protocols on various initiatives, such as the Compound Protocol Multisig Improvement Program, which aimed to mitigate risks associated with lost keys and enhance trust in multisig wallets through increased transparency. Additionally, they have delivered independent chain reports to evaluate the security and performance of various L1 and L2 chains, as well as token risk assessment reports.

Proposed Scope of Work for Arbitrum:

First off, we will execute the tasks requested by the Supervisory Council. We work for you. A personal recommendation within the first six months would be development of a risk management plan. Arbitrum is in a very risky sector. Block chains are new. Layer 2’s are new. Yet, despite how technical our industry is, formal risk management is seldom found. We face many very large risks.

Therefore we recommend that through a series of meetings we develop a top level and mid-level risk management description with mitigations. Plans such as this focus DAO members on what is important and offer justification for investment in mitigation plans. We would estimate a spend of 30k over the first 2 month.

We would also suggest that Arbitrum consider a quality system. A quality system tells new users what is safe because they follow audited best practices. My opinion is that we will not have new user growth without a quality system. If a large chain like Arbitrum cannot indicate which wallet is safe to use and which protocols are safe to use, how can we expect add users.

Nethermind

• Applicant: Nethermind Research
• Applicant Representative: James Baggett
• Applicant Website: website
• Telegram Handle: @jamesbaggett
• Role being applied for: Risk Working Member
• Hourly Rate (in USDC):
  • Mid Level Researcher: $130 per hour
  • Senior Level Researcher: $180 per hour

Experience

Nethermind is a leading infrastructure builder, researcher and core development team in the blockchain space. Their risk research team was a member of the STEP Committee where they rigorously vetted yield-bearing stablecoin opportunities, which led to a successful vote whereby $35M of DAO funds were deployed into yield-bearing stablecoins.

Nethermind’s research team combines expertise in finance, risk management, quantitative modeling, and on-chain data analysis, drawing from experience in prestigious financial institutions and hedge funds. They have also been long-term partners of hedge funds and VC funds, providing due diligence on projects, assessing technical and financial risks, and identifying areas for improvement. Their recent projects include working with dYdX to calibrate tokenomics and incentives for their Megavault product, and assisting Puffer Finance in designing their Validator Ticket pricing system.

Proposed Scope of Work for Arbitrum:

As part of our ARDC membership, our work will include a combination of:

• In-depth Research: Complex studies aimed at assisting the DAO and the Foundation with strategic decisions including Treasury allocations, fund distributions, technological upgrades, and tokenomics design.
• Short-form Research: Informative pieces intended to keep community members informed.

This approach aims to maximize value for the DAO while fostering delegate engagement, enabling diverse projects, and prioritizing Arbitrum’s most pressing needs. We anticipate that our time allocation will composed of 2/3 mid-level analyst and 1/3 a senior analyst.

Our suggested projects include, but are not limited to, the following:

1. Incentive Programme Allocation Framework (Estimated 2 months of manpower):
   • Develop a framework for proactive allocation of incentives to projects.
   • Adapt it to the specificities of the various verticals (gaming, DeFi, dePIN, deSci…)
   • Define performance-based quantitative milestones to ensure incentives create value for Arbitrum by attracting users and fostering sustainable demand.
   • Leverage insights from ARDC V1’s previous studies and best practices from other ecosystems.
2. Risk Modelling and Management for Arbitrum Treasury Investments (Estimated 1 to 2 month, depending on complexity):
   • Research potential investment and strategies to generate yield for the DAO.
   • Due diligence and conduct risk assessments of potential investments similar to those Nethermind performed for Arbitrum Stable Treasury Endowment Program (STEP) Committee and by Chaos Labs under ARDC V1 for the Treasury Backed Vaults.
3. Impact Analysis Post-Deployment of ARB Staking (1 month):
   • Assess how staking influences treasury funding, governance engagement, price volatility, and liquidity conditions.
   • Provide recommendations for optimizing staking incentives in line with community and DAO objectives.
4. Impact of Timeboost Upgrade on Arbitrum Ecosystem (1.5 months):
   • Analyze changes in transaction ordering policies, impact on maximal extractable value (MEV) captured, user fees, and sequencer revenues.
5. Enhancing Competitiveness of DeXes Against Other L2s and CeXes (Approximately 1.5 months):
   • Evaluate existing projects on Arbitrum to identify improvements and new initiatives that should be incentivized.
6. Restaking (Ethereum and BTC) and LRTs Analysis (1 month):
   • Evaluate risks associated with restaking (LRTs becoming a core part of DeFi, stARB potentially being restaked, etc)
   • Identify which AVS/Restaked Networks should be strategically incentivized by Arbitrum.
   • Leverage Nethermind’s expertise through its expertise in the restaking space