Sinkas - Understanding ArbitrumDAO

Everyone, uh thank you for being here, especially after lunch. Thanks for the kind intro. So, I'm Syncas. My legal real name is Anastasis. Very Greek, very difficult, so I go by Syncas, much easier.

So, I'm here today to talk about two things, kind of like in parallel. One is what is Arbitrum DAO and how it works. But, at the same time, we're also going to be looking at DAOs in general and how they work. Um I'm not sure I want to do a raise of hand. Who here can say that they know what DAOs are, has contributed to one, has participated actually?

Can you raise your hand and please keep it raised? All right. And for the people who didn't raise their hand, who here just has read about DAOs and might have heard something, but doesn't really know? All right. And maybe we have a few people who don't know anything about DAOs.

So, hopefully through this talk, you're going to go out thinking that you know a bit more both about our DAOs in general, but also about Arbitrum more specifically. And in case you haven't noticed, Arbitrum DAO is one of the sponsors of Eth Global, as you can see in the posters around or in this banner. So, I will also talk about how this came to be so you can get a better understanding of how decisions are made and how things are happening in a DAO. So, taking into the very basics, DAO stands for Decentralized Autonomous Organization. Now, an organization, obviously, as you know from the traditional world, is just two people or more working together and coordinating towards a common goal.

Now, I'm going to work my way upwards. Autonomous, what that means generally is that actions within a DAO are autonomously executed on when conditions are met. That could be, more typically it is, a vote. So, we vote on doing something and that's something is being done automatically through code. Through smart contracts.

Now, in reality, it's not as simple as it sounds. We're going to explain why uh a bit later. But, this is kind of like general the general idea. And then, decentralized, as the word says, uh is not uh it does not have a centralized point of control or centralized point of failure. Uh typically in let's say a traditional organization, you have a CEO or board of directors that would make the decisions top-down, and they would flow uh through the organization.

In DAOs, that that is not the case, and all the stakeholders that participate in the DAO, which depending on the DAO are different, we're going to talk about the stakeholders of Arbitrum DAO in a minute, um all of them work together and decide together on what the decisions are going to be and how those are going to be executed on. So, when I talk to people and they mention DAO, whether that's Arbitrum DAO or another DAO, they say things like, "Oh, I'm going to go to the DAO. The DAO can support it. The DAO, the DAO, the DAO." As if that's one coherent single entity that can actually do things as you would expect a traditional organization or a team or a business to do things.

But, that's not how DAOs look like, right? A clearer representation, and excuse the AI image, would be something like that. Right? So, the Arbitrum DAO is a collection, and not just the Arbitrum DAO, but most DAOs are a collection of individuals and organizations working to achieve a common goal. In Arbitrum, that's obviously the growth of Arbitrum ecosystem and the growth of Arbitrum uh uh chain, but it's it has to do with organizations, we have to do with delegates, different working groups, stakeholders, companies, even companies and organizations that are not necessarily building something on Arbitrum, right?

It could be service providers that have a stake in what happens in Arbitrum because a lot of their clients are in Arbitrum. So, this is kind of like a more accurate image. So, when someone says, "Oh, I'm going to talk with the Arbitrum DAO." my natural question is like, "All right, who from the Arbitrum DAO are you talking to? The foundation?

Are you talking to Offchain Labs? Are you talking to a delegate, a contributor, a service provider, a builder? Who from the Arbitrum ecosystem in the DAO are you talking to?" And a lot of people confuse the different responsibilities and mandates of the different teams or individuals within the org. So, we're also going to clear the air up on that front.

So, the general decision-making process in a DAO is done through voting. One token is typically one vote in most token voted uh token DAOs. And token holders can either participate directly. So, I'm holding a bunch of ARB and I go to the Arbitrum DAO, the interface that they use, and there's a vote, and I can cast my vote with my voting power being the amount of ARB I hold. Now, if I don't want to go into that trouble, but I still want the Arbitrum ecosystem to evolve through governance and make decisions, I can delegate my voting power to someone else, someone who I think can do a better job than I am, uh both in terms of keeping up with what's happening, but also in terms of deciding, right?

They have better domain knowledge, more context, you name it. Uh those people that generally participate in voting, either directly or through voting power delegated to them, are known as delegates. So, typically a DAO would uh come together and govern either a protocol or a treasury or in some cases both. Now, the difference that I want to make here, and I want to like emphasize it, is basically that many DAOs in the ecosystem only control a treasury. Right?

So, the way you have that is, let's say you have a chain, a layer two on Ethereum, or uh a protocol like an actual app, and they they have the protocol that's working and it's creating revenue. Now, that revenue might be flowing to uh DAO treasury that is basically a fancy way of saying a smart contract that holds money that can only be moved through a vote. And the delegates on the many Dows only control that part of it. They only control the movement of funds outside of that wallet. So, if we want to send funds out from the wallet, we have to do a vote.

But, it's very important for Dows to also control the other part, which is the protocol. In Arbitrum case, that's the chain, and in Arbitrum case, that's also the case, right? Delegates control not only the treasury of Arbitrum one, but they also control the protocol itself. Any chain upgrade on Arbitrum needs to be voted on. No matter how um non-controversial it might be, right?

When uh when Ethereum does an upgrade and we want to adopt certain aspects of that upgrade, we have to do it through a Dow vote. The code might be developed from an outside party. Most typically, it's Offchain Labs, um the ones that also developed Arbitrum, but to implement that, it has to go through the Dow. The delegates need to vote on it, and the Dow uh the proposal needs to pass. And the reason you need to control both to have a what I call a proper Dow is because if you only control, let's say the treasury, and you do not control the protocol, then chances are you also don't control the flow of funds.

So, if the chain owner, who's not the Dow, decides that he doesn't want to flow the treasury or the revenue into the treasury anymore, they can just redirect it. And now, yes, you might have a treasury. It will end up lasting for who who knows how long, but then the funds are going to turn off. You're not have any exposure. And therefore, in a way, the kind of the governance token that you use to govern that treasury is kind of useless.

As, you know, you you've seen the ecosystem. You've probably heard it a lot like governance tokens are useless. And my take on that is exactly for that reason. Is if a governance token does not control the underlying protocol, actually control it on chain, then it there's no reason for it. It just controls a part of a treasury, which can at any point be redirected.

Oops. All right. So, this is a typical proposal life cycle in Arbitrum DAO. Typically, there's discussion. It happens on a public forum.

People post a proposal. That could be an individual, it could be an org, it could be the Arbitrum Foundation, it could be a service provider, you name it. There's discussions, there's uh in Arbitrum DAO we have some bi-weekly calls that we do to host uh discussions for those proposals where stakeholders can come together and discuss them. There are might be like visit shared DAO calendar, we put up events, and people can tune in to listen to the different discussions that are taking place. We have kind of like figured out, let's say, that organizational part of making a decision or making a discussion about a decision.

Then there is the temperature check. Basically, it's an off-chain vote which is um created to help gauge sentiment, right? So, let's say uh this discussion might be do we want to sponsor an event? The temperature check might help answer the the question of yes, like directionally we want to sponsor an event. Whereas, afterwards vote, which actually when executed, when the vote passes, it executes a transaction on-chain.

So, typically that would be to move funds from the treasury to the destination address. Um that uh proposal also probably has shaped up, okay, which event do we want to uh do we want to fund do we want to sponsor? So, temperature check is not binding, it's off-chain, and it's generally used to just uh gauge the sentiment, and then on-chain votes are what executes and has uh executable code associated with it. Um for example, the reason that you're seeing Arbitrum DAO logo all around the room is basically uh kind of many different steps that happened for this to happen, right? So, Arbitrum DAO had funded a DAO program, like a grants program.

If Cluge applied to that program, they got uh a accepted by the program. The person who accepted them was the domain allocator for that program. That person was elected by the DAO to staff that program. And that program was actually in its third year of running. Uh so, it had passed once uh 3 years ago, then renewed 2 years ago, and then renewed again another year.

Um and that's kind of like how this happened. So, basically, the fact that you see the logo of Arbitrum DAO as a sponsor here is the culmination of three or four separate different proposals, like three proposals and one election, right? It's not as simple as, "Yeah, I'll go to I don't know, sing this and ask him for money." It's a multi-step process that had happened before for the outcome to be what you see today. So, some examples of different initiatives that you can see in DAOs, and I'm using Arbitrum DAO obviously as an example, um is is different funded initiatives that are supporting the ecosystem.

So, in Arbitrum, we have done um I only included things that are still active and can be used, let's say, or taken um advantage of by the ecosystem in a good way. So, we have the orbit audit subsidy program. Basically, if you're building on chain, you have smart contracts, you need to audit them to be secure. We're offering up to $10 million uh in subsidies. It's running for a year now, I think.

And there's 10 12 white-listed service providers that we're working with. They applied to the DAO, the DAO elected them, and now we work with them. Uh so, if if a builder wants to get an audit and they use one of the 12 white-listed uh providers, they can apply for a subsidy, and if they get accepted, we cover part of or the entire uh cost of the audit. For more information, you can go to arbitrum.foundation/grants, and you can select the uh audit subsidy program.

Then we have DRIP. DRIP stands for DeFi Renaissance Incentive Program. It's incentives given to protocols and users using those protocols in DeFi on Arbitrum. It was 80 million ARB for DeFi incentives, separated in four quarterly seasons. There were six participating protocols in the first season, all on the lending category, and it's managed by Entropy Advisors, which, as I'll get in a moment, they're also a DAO-funded and uh organized entity.

For more information, of course, you can visit arbitrumdip.com. The next The second season hasn't started yet, so uh if you are a DeFi farmer, you can look into it and be uh like be following the the developments there, so when it launches, you can actually take advantage of that. Then we had uh uh a DAO treasury management initiative. I added this here even though it's not like very ecosystem-facing.

It doesn't have to do with uh builders benefiting in some way directly, but it goes to show that right now the DAO treasuries are sitting at around 300 million, 350 last time I checked. But that's mostly in Arb tokens. So, it's like the native token of the ecosystem. If I can price goes down, if or if we decide to try and cash in on the whole amount, the real actual value is much less. So, what we've done over the last 2 years or so is we've been begun diversifying.

So, we've elected uh service provider, in this case it's like Entropy Advisors who handles most of that, and they've deployed a little more than 100 million into different strategies. Most of them are in ETH-allocated strategies, like staked ETH. Um we have some stablecoin strategies, and then I think the majority is actually in RWA products, which also ties very well to the discussion that we're having yesterday about institutional adoption. So, we have deployments in uh in BlackRock's BUIDL, in Franklin Templeton, in WisdomTree building tokenized products on chain. And for more information, you can visit arbdata.

com, and you can see live updates on the deployments, how they're performing, the year-to-date interest. I think uh so far we've earned Not that that's from the beginning of the initiative, not year-to-date, but a little over $3 million in interest that would otherwise uh we would not have accumulated. And then lastly, we have the watchdog program. Basically, this program is created to report, like for people to be able to report misuse of funds from any of the DAO activities. When you have a DAO this large, many different activities, many moving parts, it's very difficult for one person to be on top of everything and manage to oversee them successfully.

So, we have created this program where anyone can be kind of like the the watchdog for Arbitrum. And if they report a use case a misuse case, which we had 68 of that were unique and not duplicates, they can get a bounty of the recovered funds. So far, we have recovered a little over 450,000 Arb, and we've given out 267,000 Arb in rewards to reportees. Right? And this program is still ongoing.

It's kind of like perpetually going, and it applies for all the programs that you can see here on the screen or any others that we're running as a DAO. So, if you're the kind of like on-chain detective/sleuthing type, and you find something that was not supposed to be happening, you can report it and and get paid for it. And actually, one of and one other initiative or entity that was funded by the DAO and was decided by the DAO through a proposal, funded, and a board elected was the OpCo, and it's the reason that I'm here today. I'm with the Arbitrum OpCo. I'm a program manager there, and the whole the OpCo stands for operational company, and the whole purpose of OpCo was set up to be an operational entity on behalf of Arbitrum DAO.

So, Arbitrum DAO, as I mentioned earlier, is a group of individuals and organizations. So, let's say you want to do a grants program, right? There is many details around that. Very simple, like who how do we handle KYC and legal grant agreements with grantees, right? So, the way we do that is now through an operational company.

We act as a wrapper for like the operational wrapper, both on the legal side, but also on all the other sides on how to figure out different things. We had an oversight transparency board which was also elected by the DAO to oversee the entity and in fact the elections for the new board are starting around this week. And the what we do basically is we we try to help different initiatives in the DAO succeed operationally. So let's do a live example of what that looks like as I find it's easier to demonstrate. So let's say we want to just order food to to eat, right?

We can all just raise our hands and vote. We can decide pizza or burgers or whatever that might be. And if we decide let's say we decide on pizza, right? That means we're all set. We decided what we want to eat.

But in reality that's not the case, right? Cuz there's all those many small questions that are very relevant to how we're going to eat that pizza. Who whose phone we're going to use, which app, who's going to pay for it, how do we handle like if we're going to split the pay the bill or someone covers it, all those little things. These are details in the grand scheme of ordering a pizza, but they're still things that need to operationally be figured out so we can eat and enjoy that pizza. In a similar sense in a DAO, there are operational details that are details in the grand scheme of things like KYC and fiat transfers and going into contracts with service providers, but there is someone needs to do it on behalf of the DAO.

That someone is OpCo now. So how does everything fit together in Arbitrum? We have a bunch of entities. Most like what we call Arbitrum aligned entities or AAEs are the entities that you'd most recognize when talking about Arbitrum. Typically you'd recognize Arbitrum Foundation which is responsible for ecosystem, for marketing, for ecosystem growth and engagement from DAO operations and governance now in conjunction with the OpCo.

You have Offchain Labs which recently rebranded to Offchain and they handle research and engineering, the product, a little bit of the brand marketing, and the business development. Then you have Entopy mostly doing the treasury stuff on the DAO's behalf now, but also analytics and data. You have AGV or Arbitrum Gaming Ventures. They do invest in Arbitrum gaming and gaming development on Arbitrum. And then you have OpCo, which is kind of like the entity that acts as a control panel for all those things.

This map can also be found at arbitrum-opco.com. So, if anyone wants to have it for reference in the future. And what we do is we coordinate those entities between them, but also with the delegates. This is just a sample of some of the delegates on Arbitrum.

In total, these are the numbers. So, there's 352,000 people delegating their tokens to a total of 230,000 delegates on Arbitrum. Those are people who can participate in the vote and vote to decide on what happens in the ecosystem. So, how do you can participate in Arbitrum? And one thing I want to make clear, like Arbitrum is the chain, like Arbitrum One as you know it.

But when you're talking and you're trying to figure out, "Okay, who do I talk to in Arbitrum?" There is not one single entity as we covered. Depending on what you want to do, you have to find the right person to talk to. What we do as the OpCo, and what I'm here for today as well, if anyone wants to get connected to, I don't know, the ecosystem team at Arbitrum Foundation, the technical team at Offchain Labs, I'm the person that you can reach out to, connect with me, and I'll try to figure out who you should be connected to and make that connection for you. So, that's kind of like one way.

And here's a bunch of ways you can participate in Arbitrum as we're speaking right now. Arbitrum grants, obviously at arbitrum.foundation/grants. There is the open house program, which is an online hackathon, but also an IRL founder house. There is uh more than 400,000 up for grabs in rewards, but also mentorships and sort of like an acceleration.

The you can explore apps at portal.arbitrum.io, and you can explore the forum at forum.arbitrum.foundation, but I would prepare, if I were you, for a lot of chaotic conversations that you probably will need a lot of time to catch up with.

So, that would be all. You can stay in touch, and you can find me on Telegram at t.me/sinkas5. I'm happy to connect with anyone and answer any questions that might be in in relation to Arbitrum. Thank you.