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June 5, 2024

Building Bridges Across Ecosystems

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Arbitrum and Uniswap are two of the largest and most advanced web3 projects. Arbitrum is an Ethereum Layer 2 solution that offers faster and more cost-effective transactions while leveraging Ethereum’s shared security. It uses optimistic rollup technology to batch transactions and execute them off the main chain to solve Ethereum’s scaling problem. Uniswap is the largest decentralized cryptocurrency exchange operating on Ethereum. They created the Automated Market Maker model, which leverages code, via smart contracts, to set market prices and creates liquidity pools from user-supplied Ethereum tokens to facilitate transactions.

Funding inter-ecosystem development, finding synergies

Uniswap was an early supporter and adopter of the Arbitrum protocol. In August of 2021, Uniswap deployed a version of their popular exchange on the layer 2 platform. For Uniswap users, this meant lower gas fees and instant transactions: an obvious selling point for DeFi power users. For Arbitrum, this meant exposure to Uniswap’s loyal and growing user base and their associated transaction volumes. A win win. 

Fast forward to March of 2023. Arbitrum launched their highly anticipated protocol token, and airdropped close to $4.4M ARB to the Uniswap treasury to recognize the product’s contributions to the network’s growth. Again, the love was mutual: 92% of all airdrop recipients used Uniswap to swap their holdings. The virtuous cycle continued.

Grants as a lever to support partnerships strategy

The ARB tokens sat idle in Uniswap’s treasury until June of 2023. It was then that a small group of web3 contributors posted a governance proposal on the Uniswap forum to create a joint UNI-ARB working group. The two ecosystems had already been long-time collaborators at this point, so doubling down on the treasury investment to foster even more cross-ecosystem collaboration seemed like the rational next step. 

 The goal of the working group was two-fold:

  1. Serve as protocol delegates and contribute to Arbitrum governance
  2. Create an Ecosystem Fund to manage a grant program and support research on behalf of projects building across the Uniswap-Arbitrum ecosystem

The working group would make use of the tokens by creating a cross-ecosystem grant program and a delegate program where the ARB was used as voting power.  The proposal requested a substantial $1.1M worth of ARB tokens from the Uniswap treasury to support the Ecosystem Fund. The proposal outlined the creation of a grant program to help distribute this funding. The Uniswap Arbitrum Grant Program (UAGP) was born.

Objectives of the Uniswap-Arbitrum Grant Program

 First, the grant team crafted an investment policy to articulate their objectives, risk tolerance and investment thesis. The working group wanted to focus on projects with a high potential for long-term growth. Specifically, they aimed to fund projects that would improve the liquidity, usability and composability of Uniswap on Arbitrum.

  • Evolve the DeFi landscape and foster innovation
  • Strengthen ties between the Uniswap and Arbitrum ecosystems
  • Fund high-impact projects with potential for outsized impact on the two ecosystems
  • Involve the broader community in a transparent process

The working group quickly formed a grant committee of five, pulling members with  experience across DAO governance, distributed ledger technology and investment management to bring a well-rounded set of skills to the table. With a broad set of web3 ecosystem  knowledge and the outlined objectives in mind, the UAGP team set out on the journey of determining how to design and create such a program. 

Using open tools to create transparency and trust

As long-time web3 contributors, the team members of the UAGP had long admired Gitcoin. Specifically, they admired Gitcoin’s brand principles of transparency, trust and open collaboration. Working with Gitcoin meant getting access to their community of people advancing the values of decentralization and community-led governance. Both UAGP community ecosystems  are rooted firmly in the belief of the power of the collective: the ability for a community to come together and build momentum towards change and progress. Therefore, it was important to make sure they honored the blockchain principles of decentralization - to practice the very principles they preached. 

While Uniswap had run other grant programs before, this was the first cross-ecosystem program. As a result, the UAGP committee members were selected from various ecosystems and were not all housed under a singular organizational umbrella. So they needed a platform that would enable multiple administrators while still safeguarding the significant program funds. Grants Stack enabled the program to be a community-led initiative. 

When evaluating various tools to help run their program, they noted that many used web2 tools such as Notion, or facilitated payouts offchain with traditional web2 methods. As pioneering web3 projects, the UAGP team gravitated towards Grants Stack as the only fully decentralized and onchain platform for grants, which was especially important for a cross-ecosystem grants program. The transparency of the platform was not only helpful from a community involvement perspective, but it also proved highly valuable to prospective applicants from across both ecosystems who wanted to view their progress through the UAGP pipeline. The openness and efficiency of the Grants Stack tooling quickly saved the team from a bunch of operational busy work. 

Designing a program for mutually beneficial impact

The UAGP committee wanted to start distributing funds quickly and efficiently to start realizing impact across the two ecosystems. They decided to run a Direct Grants program wherein the committee members would ultimately determine the grant recipients.

“One of the main nuts to crack for designing the UAGP was determining RFPs which would properly identify and incentivize building at the correct intersections of Arbitrum and Unsiwap ecosystems. We were trying to strike the right balance there as to get builders into the program who were really interested in building in both ecosystems.” Fin Boothroyd of Areta, a UAGP Operator

 The UAGP committee leaned on the community to inform the proposal requests and corresponding assessment rubrics. The contents were expressly deliberated on and eventually approved by the collective community. They aligned on 5 RFPs that were designed to accelerate the adoption of Uniswap on Arbitrum and to highlight the potential opportunity areas for cross-pollination between the ecosystems.

Request for Project Areas

With the proposals in place, they solidified the key program details:

The next step was getting the word out to attract the best and brightest builders to the program. The UAGP committee employed a host of different tactics to create buzz for the program, including:

  • Creating a dedicated website and educational materials for a seamless grantee experience 
  • Drafting announcement blog posts to increase awareness 
  • Running Twitter Spaces to answer grantee questions in real-time
  • Leveraging forums to involve community members & incentivize engagement
  • Reporting on program progress monthly on public governance forum 
  • Empowering the delegates, high-context ecosystem stakeholders, and the Uniswap and Arbitrum foundation teams with scripts to promote the program through word of mouth and referrals to talented ecosystem teams
  •  Attending conferences such as EthDenver to meet with builders on the ground

Investing into collaborative opportunities

At the May program close, the UAGP had received over 120 applications, with 11 total projects selected as grant recipients. 

The team leaned on Gitcoin to KYB all the recipients for compliance reasons, which proved to be a huge value add and efficiency play for the grant committee.  In total, the full $1.1M worth of ARB tokens initially committed  was successfully allocated to the most promising grant recipients.

Some of the UAGP winners:

As agreed upon by the community, the UAGP committee extended the program for an additional three months. At the time of UAGP’s inception, roughly $1.1M worth of ARB had been earmarked for the program. Since then, the ARB token price has nearly doubled, increasing the treasury of ARB to a USD value of $1.8M. “From the inception of the UAGP, we were the benefactors of a significant price increase in our allocated ARB tokens, which nearly doubled our capacity to fund projects that fell into our scope,” says Fin. As a result, the committee decided to swap the remaining ARB to USDC to hedge against future currency risk with ARB price fluctuations.

“One of our learnings was navigating financial timing and planning in a program that had large currency risk (ie. we were holding ARB as the price was changing a lot). We had to refine our treasury forecasting process in order to ensure sufficient runway to support UAGP builders.” - Fin Boothroyd of Areta, a UAGP Operator

Based on the positive feedback on the program so far, and should token holders be in favor, the committee plans to consider a renewal of the program as soon as the funds are fully deployed. To inform the decision, they launched a grantee survey and plan to publish the results on the forum for community discussion. 

The program success should also be partially attributed to the strength of the UAGP committee. The committee is comprised of DAO foundation leaders,  investment bankers, and professional governance delegates, with experience from the likes of  MakerDAO, Optimism, Aave, and other leading web3 projects. It also comprised members of the Abritrum Grants Committee and the Uniswap Foundation, ensuring equal representation and insights from both ecosystems.

The impact of strategic capital allocation

The UAGP effectively strengthened the ties between the Uniswap and Arbitrum ecosystems, with the more tangible effects being realized more downstream by the project builders themselves. The UAGP grants  have enabled many of the recipients to finally  afford necessary code audits, which now allow them to operate their full suite of services on Uniswap and/or Arbitrum. One grantee, the questing platform Layer3, contributed more than 150K to Arbitrum transaction volumes, over 50,000 of which were routed through Uniswap v3. 

“We feel we’ve been able to fund some really exciting projects which are building exactly at the core of what the UAGP is about, finding that intersection of collaboration and growth between Uniswap and Arbitrum. We’ll be eagerly awaiting as our grantees continue to achieve their larger downstream milestones over the next few months” - Fin

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