GMC’s Preferred Choices for 7,500 ETH RFP

DAOs GMC Theresa Ejiogu March 9, 2025 0 Comments

On December 21, 2024, the Arbitrum DAO approved the establishment of two key committees—the Treasury Management Committee (TMC) and the Growth Management Committee (GMC). Their mandate was to oversee the strategic deployment of 25M ARB and 7,500 ETH from the DAO’s treasury, ensuring optimal financial management and ecosystem development.

This proposal outlines the GMC’s preferred allocation strategy for the 7,500 ETH, supported by risk assessments conducted by LlamaRisk. Following an extensive review of 45 applications, the GMC has selected three key allocations designed to balance yield generation with ecosystem growth:

5,000 ETH staked with Lido for wstETH
5,000 wstETH deposited in Aave V3 on Arbitrum
2,500 ETH lent on Fluid to support ETH-based DEX and lending liquidity

The GMC’s primary goals align with the Treasury Management V1.2 proposal:

Generate low-risk yield on otherwise idle ETH.
Stimulate ecosystem growth through strategic allocations.
Establish a strong and stable financial foundation for the DAO’s treasury.
Secure key partnerships that enhance Arbitrum’s long-term viability.

GMC’s Preferred Allocations

Total Allocation: 7,500 ETH

Allocation 1: Lido (5,000 ETH)

Strategy: Stake 5,000 ETH with Lido to receive wstETH.
Expected Benefits:
- 3.20% ETH/stETH yield (30-day average).
- Highly liquid and composable wstETH token for broader DeFi applications.
- 20% “Reward Share” from Lido’s program, enhancing yield potential.

Allocation 2: Aave V3 (5,000 wstETH)

Strategy: Supply 5,000 wstETH to Aave V3 on Arbitrum to facilitate LRT borrowing.
Expected Benefits:
- 3.20% ETH/stETH yield + 0.62% Aave supply yield + 0.82% wstETH incentives.
- Additional incentives from Lido, Aave, Renzo, and Kelp.
- Strengthens liquidity for wstETH on Arbitrum.
- Supports DAO participation in Aave’s growing DeFi ecosystem.

Allocation 3: Fluid (2,500 ETH)

Strategy: Lend 2,500 ETH on Fluid’s Arbitrum platform.
Expected Benefits:
- 1%-2% native ETH yield.
- Enhances liquidity for Fluid’s capital-efficient DEX and lending market.
- Each $1 of ETH lent can generate up to $39 in ecosystem liquidity.
- Helps onboard additional LSTs and LRTs on Fluid’s Arbitrum instance.

Justification

The GMC carefully assessed all applications and selected protocols that prioritize risk mitigation, sustainability, and ecosystem-wide benefits. While higher-yielding and more experimental strategies were considered, the committee determined that a conservative initial approach was essential to build a robust foundation.

Key factors influencing the selections:

Risk Management: Avoidance of direct exposure to highly speculative assets or leveraged positions.
Liquidity Considerations: Ensuring that funds remain accessible and usable across Arbitrum.
Long-Term Partnerships: Establishing relationships with protocols that have demonstrated resilience and value within DeFi.

The inclusion of Lido, Aave, and Fluid represents a calculated approach to achieving sustainable growth and yield generation while minimizing exposure to undue risks.

Risk Assessment (LlamaRisk)

LlamaRisk conducted a thorough risk analysis on the selected strategies, identifying and mitigating key risks:

wstETH Risks: Liquidity challenges on Arbitrum require ETH to be staked on the mainnet before bridging.
Aave wstETH Risks: Potential withdrawal limitations during high market volatility.
Fluid Risks: Centralized control over key governance functions, regulatory uncertainties, and potential withdrawal liquidity constraints.

Despite these risks, the GMC is confident that appropriate safeguards are in place to ensure the security and efficiency of these allocations.

Next Steps

If approved, the proposal will move to a Snapshot vote on Thursday, February 27, 2025. A simple majority vote, with a quorum of 3% of the votable token supply, is required for execution. Should the DAO reject the proposal, the GMC will revisit community feedback and propose an alternative strategy in a future vote. You can read more about this here on their forum.