The Arbitrum ecosystem continues to evolve, and the Arbitrum Research & Development Collective (ARDC) represents a pivotal initiative in fostering innovation and strategic growth within the ecosystem. Following the completion of ARDC V1, ARDC V2 builds on that foundation by refining its structure and governance mechanisms, introducing a Supervisory Council, a retainer model for working members, and leveraging Aera’s Protocol-Owned Execution strategy for fund management. This post aims to dissect the core aspects of the ARDC V2 proposal, with a particular focus on its supervisory structure, funding mechanics, and operational enhancements.

1. The Supervisory Council: Governance and Strategic Oversight

One of the key structural changes in ARDC V2 is the establishment of a Supervisory Council. The Council replaces the previous DAOAdvocate role in ARDC V1 and the proposed role of the Operations Lead, aiming to distribute governance responsibilities more equitably and improve both macro and micro-level oversight. This move is designed to enhance the strategic alignment of the ARDC with the ArbitrumDAO's long-term objectives, ensuring that resources are efficiently managed and that the working members remain accountable.

The Supervisory Council will be composed of three elected members, each with distinct roles:

• Two members will focus on communications, ensuring clear and consistent information sharing between the ARDC, the ArbitrumDAO, and external stakeholders such as OffChain Labs and the Arbitrum Foundation.
• One member will focus on operations, managing day-to-day activities, overseeing financial transactions, and maintaining operational transparency.

Each member will serve a six-month term, with the potential for a six-month extension, depending on the outcome of a Snapshot vote. The introduction of the Council helps bridge the gap between the high-level strategic goals of the DAO and the granular operational needs of the ARDC, allowing for more nuanced management and decision-making. The Supervisory Council will also handle conflict resolution, oversee communication strategies, and mediate between the ARDC and DAO in case of disputes, ensuring that activities remain aligned with the DAO's best interests.

2. The Retainer Model: Aligning Incentives with Deliverables

Another important improvement in ARDC V2 is the Retainer Model, which aims to reduce the risk of underutilization and misaligned incentives by directly tying payments to project needs. In this model, working members are compensated based on the hours they spend delivering on their tasks, rather than receiving a lump-sum payment upfront. The model follows a structured payment plan:

• One-third of the total cap allocated to each working member’s role will be paid upfront, covering the first 1/3 set of hours.
• The remaining two-thirds of the cap is tied to project-based deliverables and will be paid in phases: 50% upon commencement of each task, and the final 50% upon successful completion of the task.

By requiring applicants to submit hourly rates in their applications, the ARDC incentivizes competitive pricing and ensures that funds are allocated efficiently. The Supervisory Council oversees this process, approving deliverables and tracking the use of working hours to ensure that tasks are being completed as required. This model also mitigates the risk of "pre-paid" work not delivering the corresponding value, a challenge encountered during ARDC V1.

3. Funding Structure and Extension Mechanics

ARDC V2’s funding structure has been designed with flexibility in mind, allowing the DAO to control costs while still maintaining robust operational capacity. The proposal outlines three funding options—Options A, B, and C—each corresponding to different caps for the Security, Research, and Risk verticals. These options offer varying degrees of financial commitment, allowing the DAO to choose the level of funding that best matches its needs and risk tolerance:

• Option A allocates $1.73 million USDC for operations.
• Option B allocates $2.09 million USDC, serving as a middle-ground option.
• Option C allocates $2.60 million USDC for larger-scale operations.

Each option includes compensation for the Supervisory Council, set at 90,000 ARB across the 6-month term (approx. $46,800 USD at the time of the proposal). The Snapshot voting system will allow the community to decide whether to fund the ARDC under one of these options, abstain, or reject the proposal outright.

Furthermore, the extension mechanics give the DAO flexibility in deciding whether to continue with the ARDC after its initial term. At the end of the 6-month term, the DAO will have the following choices through a Snapshot vote:

1. Extend the ARDC with the same working members.
2. Extend the ARDC with a re-election of working members.
3. Choose not to extend the ARDC.

If the DAO opts not to extend the ARDC, any unutilized USDC and ARB will be returned to the Treasury, ensuring that funds are not wasted.

4. Aera’s Protocol-Owned Execution: Streamlining Fund Management

To mitigate volatility and optimize the conversion of ARB into USDC for operational purposes, ARDC V2 will utilize Aera’s Protocol-Owned Execution strategy. This innovative fund management solution employs off-chain logic to monitor on-chain liquidity, model price impact, and execute trades in a way that minimizes slippage and market disruption.

Using  @aerafinance Vault —guarded by @gauntlet_xyz—ARB tokens will be converted to USDC through @odosprotocol and @bebop_dex, decentralized execution platforms designed for efficient liquidity sourcing.

The strategy leverages both active and passive execution techniques:

• Passive execution involves setting concentrated ARB positions in an ARB/USDC liquidity pool, effectively creating limit orders to optimize the conversion process.
• Active execution takes place during optimal market conditions, as determined by Aera’s price impact modeling, which tracks intraday and medium-term price effects of trades.

This dual approach ensures that the ARB-into-USDC conversion process is as cost-effective as possible, reducing the risk of adverse market impacts and preserving the value of the DAO’s assets.

5. Risk, Security, and Research Seats: Building on ARDC V1

In ARDC V2, three specialized roles—Risk, Security, and Research—will build upon the foundations established during ARDC V1. These roles are designed to bring targeted expertise to critical areas of the Arbitrum ecosystem, ensuring focused attention on risk management, security, and research, which were key in delivering the 43 important outputs during ARDC V1 produced by @blockworksres, @chaos_labs & @OpenZeppelin.

1. Risk Seat: Ensuring Protocol Safety

The Risk Member focuses on evaluating and mitigating risks within DeFi protocols. This builds on work from ARDC V1, where Chaos Labs conducted risk analyses on protocols like @vertex_protocol and @pendle_fi , providing insights on economic efficiency and systemic health. In V2, the Risk Member will continue this work, offering quantitative risk assessments and strategic guidance on managing potential threats in the ecosystem.

2. Security Seat: Fortifying Governance and Contracts

The Security Member ensures smart contracts and governance mechanisms are secure, expanding on the significant security evaluations performed by OpenZeppelin in ARDC V1. Their work will focus on bug detection, fuzz testing, and ensuring governance upgrades are secure—similar to ARDC V1’s BOLD Security Analysis and Arbitrum Governor V2 Review.

3. Research Seat: Data-Driven Insights

The Research Member will provide objective, data-driven analysis on key topics like sequencers and fraud proofs, echoing the work done by @delphi_digital and @blockworksres in ARDC V1. Research outputs will support governance decisions and help guide the DAO's strategic direction, just as V1 delivered insights like the Arbitrum DAO Treasury Research and analysis of STIP programs.

The Interplay Between These Seats

Together, the Risk, Security, and Research members form the backbone of ARDC V2’s specialized expertise. By focusing on their respective verticals, these members ensure that the ArbitrumDAO is equipped to handle the complex challenges of the DeFi ecosystem, from managing risks and securing smart contracts to fostering a data-driven approach to governance and innovation.

The Supervisory Council will oversee the performance of each of these members, ensuring that their work aligns with the strategic priorities of the ArbitrumDAO. Furthermore, this structure allows for flexibility in allocating resources to the most pressing tasks, whether those relate to immediate security concerns, risk management, or long-term research initiatives.

Conclusion: A Path Towards Structured Growth and Efficiency

The Arbitrum Research & Development Collective V2 proposal introduces a more refined and efficient framework for executing granular research, risk analysis, and security assessments for the ArbitrumDAO. Through the introduction of the Supervisory Council, the Retainer Model, and Aera’s Protocol-Owned Execution, the ARDC aims to align incentives, reduce waste, and ensure that its activities consistently deliver value to the DAO. By structuring the funding and operational mechanisms around clear deliverables, ARDC V2 stands as a thoughtful evolution in DAO governance initiatives as it relates to service provider contributions.

This proposal not only strengthens operational efficiency but also reflects a deep commitment to transparency, accountability, and long-term strategic alignment. The ArbitrumDAO community now has the opportunity to shape the future of ARDC through a carefully considered Snapshot vote, determining the best course for its ongoing research and development initiatives.

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