# SECTION 1: APPLICANT INFORMATION

> Provide personal or organizational details, including applicant name, contact information, and any associated organization. This information ensures proper identification and communication throughout the grant process.

### **Applicant Name: Kleros**

### **Project Name: Kleros v2 Neo, new protocol pre-launch on Arbitrum Mainnet**

### **Project Description**

Kleros stands at the forefront of decentralized arbitration systems, utilizing blockchain technology to deliver swift, secure, and transparent dispute resolution across various industries and applications. Currently, Kleros is set to transition its five-year-old Version 1 protocol from Ethereum to the newly developed Version 2 protocol on Arbitrum. Throughout 2024, we will initiate a series of campaigns to encourage the testing and migration to this new deployment.

Kleros has established itself as a pioneer in decentralized arbitration since its inception in 2017, successfully resolving over 2,000 disputes across Ethereum and Gnosis Chain. Our portfolio of innovative products underpinned by the robust Kleros Court includes:

- **[Curate](https://kleros.io/curation)** - A leading decentralized token-curated registry (TCR) utilized by major industry players like [Etherscan](https://etherscan.io/address/0x6dd655f10d4b9E242aE186D9050B68F725c76d76), [Ledger](https://github.com/LedgerHQ/web3allowlist/blob/main/klerosCDN_to_Github.py), [Metamask Snaps](https://snaps.metamask.io/snap/npm/kleros/scout-snap/) for contract metadata curation.
- **[Governor](https://blog.kleros.io/introducing-the-kleros-snapshot-module/)** - An advanced optimistic governance tool, integrated with Gnosis Guild’s Zodiac and Snapshot SafeSnap, trusted by 1inch, Pather Protocol and Rhino.fi.
- **[Proof of Humanity](https://www.proofofhumanity.id/)** - The OG soulbound token protocol, which has created nearly 20,000 verified profiles on Web3.
- **[Moderate (Susie)](https://kleros.io/moderate)** - The pioneering decentralized Telegram moderation bot, leveraging Kleros Court to adjudicate user disputes.
- **[Harmony](https://blog.kleros.io/harmony-the-kleros-mediator-bot/)** - A ChatGPT bot that incorporates [Kleros Mediation Bridge](https://blog.kleros.io/innovating-dispute-resolution-a-cohesive-approach-blending-traditional-mediation-and-kleros-blockchain-arbitration/) principles, demonstrating our commitment to innovation.
- **[Metamask Scout](https://blog.kleros.io/kleros-scout-snap/)** - A cutting-edge contract insights Snaps extension that was part of the genesis batch of Snaps. It provides Metamask users with unique smart contract insights from our contract metadata TCRs.

Moreover, the core functionality of Kleros Court has been adapted across over a dozen industries, illustrating the versatility of Kleros as a subjective oracle solution (details at <https://kleros.io/industries>). Our partner ecosystem has flourished, growing from just a handful to more than 170 collaborators in just two years (further information available at [kleros.world](http://kleros.world)).

As we will mentionned many times the "juror" side of Kleros protocol in this post, please find below some explanations:

#### **What is a Juror?**

A juror in Kleros is an essential participant in the dispute resolution protocol. Jurors play a crucial role in reaching consensus on decisions regarding various cases submitted to the Kleros Court. They contribute to ensuring fairness, transparency, and impartiality in the resolution process.

#### **How to Participate?**

Participating as a juror in Kleros is open to anyone interested in contributing to decentralized justice. Users can become jurors by staking the Kleros protocol token [PNK](https://www.coingecko.com/en/coins/kleros) and actively engaging in the arbitration process.

#### **Duties as a Juror**

1. **Arbitrating Disputes:** Jurors review evidence presented in disputes and provide their judgment based on predefined rules and guidelines.
2. **Maintaining Impartiality:** Jurors are expected to remain unbiased and make decisions solely based on the evidence presented, without any external influence
3. **Ensuring Transparency:** Jurors' decisions are transparent and accessible to all parties involved in the dispute, promoting trust in the arbitration process.

#### Kleros Academy
Participating as a juror in Kleros offers the opportunity to contribute to a decentralized ecosystem of justice while earning rewards for their involvement.

Educational workshops showcasing Kleros version 2.0 on Arbitrum Sepolia have been held [recently](https://x.com/Kleros_io/status/1763197638667595793?s=20):


### **Team Members and Roles**

- Federico Ast - CEO
- Clement Lesaege - CTO
- JB - Dev Lead [@jaybuidl](https://forum.arbitrum.foundation/u/jaybuidl)
- Guangmian Kung - Integrations Lead [@daisugist](https://forum.arbitrum.foundation/u/daisugist)
- Alexandre Perez - DAO Lead [@0xAlex](https://forum.arbitrum.foundation/u/0xalex)

### **Project Links**

- Website: [kleros.io](https://kleros.io)
- Blog: [blog.kleros.io](https://blog.kleros.io)
- Docs: [docs.kleros.io](https://docs.kleros.io/)
- Github: [github.com/kleros](https://github.com/kleros)
- Twitter: [twitter.com/kleros_io](https://twitter.com/Kleros_io)
- LinkedIn: [linkedin.com/company/kleros](https://www.linkedin.com/company/kleros)

### **Contact Information**

#### Point of Contact

JB @jaybuidl

#### **Point of Contact’s TG handle**

- TG: [@jaybuidl](https://t.me/@jaybuidl)
- Twitter: [@jaybuidl](https://twitter.com/jaybuidl)
- Email: jb \[at\] kleros \[dot\] io

#### **Do you acknowledge that your team will be subject to a KYC requirement?**
YES

# SECTION 2a: Team and Product Information

### **Team experience**

#### [Federico Ast](https://twitter.com/federicoast)

Federico Ast earned degrees in economics and philosophy from the University of Buenos Aires and holds a Ph.D. in management from IAE Business School. He is co-founder and President of Cooperative Kleros, a leading legaltech company that utilizes game theory and blockchain technology for dispute resolution.

A pioneer in the field of decentralized justice, Federico Ast has lectured at prestigious universities, including Harvard, Stanford, and Oxford, and spoken at international organizations such as the United Nations. He is passionate about leveraging exponential technologies like artificial intelligence, crowdsourcing, and blockchain to drive social innovation.

#### [Clément Lesaege](https://twitter.com/clesaege)
Clément is the CTO of Kleros where he works on distributed and smart contract enforced dispute resolution. He has an engineering degree from UTC (France) and a Master of Science in Computer Science from Georgia Tech (US). He worked as a smart contract security freelancer doing audits and finding vulnerabilities in smart contracts.

#### [JayBuidl](https://twitter.com/JayBuidl) / @jaybuidl

Jaybuidl holds a M.Sc. in Electronics Engineering from a French Grande Ecole. He has been the Lead Developer at Kleros for 3 years. In a previous life, Jaybuidl has been the CTO for a hedge fund in the APAC region, implemented quantitative trading strategies, managed on-prems and cloud infrastructure, and was in charge of cyber-security. With nearly 20 years in professional software and systems engineering, Jaybuidl has cultivated a long-time interest in web3, automation and opsec.

#### [Guangmian Kung](https://twitter.com/daisugist) / @daisugist

Guangmian is the integrations lead at Kleros and oversees all the ecosystem and go-to-market activities for the Kleros Cooperative. He has a BSc in Aerospace Engineering from Technical University of Delft (Netherlands), an LLM in IT Law from University of Edinburgh and an EMBA from Quantic School of Tech and Business (US). Prior to Kleros, he has 7 years of experience in both consultant and management roles in the Fintech industry.

#### [Alexandre Perez](https://twitter.com/@alex__eth) / @0xAlex

0xAlex holds a M.Sc. in Management from emlyon Buisness School. He is currently DAO Lead at Kleros and has been participating in the ShutterDAO governance with Kleros Labs. On the side, he is also an active member of a VC DAO - Blockchub and a delegate in Paladin DAO.

### **What novelty or innovation does your product bring to Arbitrum?**

Kleros fills a notable gap in the Arbitrum ecosystem by introducing a decentralized arbitration system. This addition provides essential arbitration services for DAOs, prediction markets, and insurance protocols on Arbitrum, including the possibility for the [Arbitrum DAO](https://forum.arbitrum.foundation/t/pre-proposal-for-a-strategy-framework-for-arbitrum-dao/20947/5) itself to utilize a native dispute resolution system. Kleros's integration aims to offer a practical solution for decentralized dispute resolution, enhancing the ecosystem's efficiency and reliability.

### **Is your project composable with other projects on Arbitrum? If so, please explain**

Yes, Kleros is an open protocol designed to be inherently composable with other projects on Arbitrum, serving as a foundational layer that other DApps can rely on for establishing subjective information on-chain. For onchain integrations, any protocol may:
1. Request a Kleros arbitration onchain by implementing the `IEvidence` interface and pay dispute fees depending on how many jurors they want to draw.
2. Receive a Kleros ruling onchain by implementing the `IArbitrable` interface.

For example the Kleros optimistic governance solution composes the Kleros arbitrator with the Safe multisig ecosystem, particularly the **Gnosis Guild Zodiac framework** and **Snapshot SafeSnap**.

Many projects consume data curated in a decentralized way by Kleros. **Proof of Humanity** is an onchain sybil-resistant identity solution which can be made avaible on Arbitrum once Kleros v2 is live. Other use-cases are possible in combination with **EAS** (Ethereum Attestation Service). Offchain integrations include **Etherscan**, **Ledger**, **Blockscout**, **[TokenLists.org](https://tokenlists.org/token-list?url=t2crtokens.eth)** which can be imported into various DEX frontends such as **Uniswap**.

Kleros also composes with various oracles, such as **[Reality.eth](https://reality.eth.link/app/#!/token/ARETH/question/0x5d18bd4dc5f1ac8e9bd9b666bd71cb35a327c4a9-0x80ddcc04dcbf0c02f707405fa22939d843da165bce7cb6d31d8c8f5bd32a37b7)** for factual verification, and utilizes VRF (Verifiable Random Function) random number oracles from **[Randomizer.ai](http://randomizer.ai)** and **[Chainlink](https://docs.chain.link/vrf)**, demonstrating its adaptability and interoperability within the Arbitrum ecosystem.

Please find more details of all our ecosystem partners there: [kleros.world](https://kleros.world/).

### **Do you have any comparable protocols within the Arbitrum ecosystem or other blockchains?**

Previously, the Aragon Court was a fork of Kleros and a competitor on Ethereum but it has been deprecated since. There was also 1Hive's Celeste court on Gnosis chain.

Currently, within the Arbitrum ecosystem and other blockchains, there are no protocols that offer a comprehensive arbitration court system with integrated appeals and evidence review processes similar to what Kleros provides. The most analogous protocol might be UMA, which also utilizes a Schelling-point mechanism to resolve subjective questions on-chain. However, UMA's approach [differs in terms of latency and security trade-offs](https://blog.kleros.io/kleros-and-uma-a-comparison-of-schelling-point-based-blockchain-oracles/), making Kleros unique in its offering of a full-fledged decentralized court system. Quick tldr from the article of the strenght and weakness of each project:

| | Strengths | Weaknesses |
|---------|-----------|------------|
| **Kleros** | - Appeals system and juror engagement suitable for complex cases.<br>- Robust mechanism for dispute resolution with evidence submission. | - The resolution process may take longer due to the detailed evaluation and appeal round. |
| **UMA** | - Optimistic oracle approach favoring speed and simplicity.<br>- Efficient for uncomplicated questions with clear timelines. | - Less suited for complex disputes requiring detailed evidence considerations and deliberations. |

### **How do you measure and think about retention internally? (metrics, target KPIs)**

Internally, we assess retention through specific metrics and KPIs for both jurors and Ecosystem Partners engaged with Kleros.

For juror retention, a key indicator is the [amount of PNK tokens staked](https://defillama.com/protocol/kleros?mcap=true&tvl=true) in the Kleros Court. A steady increase in staked tokens—rising from 20% to 30% of the total market cap from last June to the present—signifies strong juror engagement and retention, likely driven by the growing number of disputes and our juror incentive program.


The PNK token enables the Kleros protocol to create the right incentives and preventing [Sybil attacks](https://en.wikipedia.org/wiki/Sybil_attack). To be able to attack Kleros court, one needs to get selected enough times to be a juror for the same case in order to change the outcome. Generally, this means that the attacks need 51% of the total (staked) tokens

PNK enhances the security of Kleros by making any attack extremely [hard to achieve, expensive ](https://medium.com/kleros/why-kleros-needs-a-native-token-5c6c6e39cdfe)and also enable Kleros to be forked in the extreme case of a successful 51% attack.

| | Using native token (PNK) | Staking ETH to be draw as juror |
| -------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Cost and difficulty of obtaining 51%** | PNK market becomes quickly illiquid as try to buy up 51% of all tokens. Attacker pays on average well above the initial market price, may not be able to find enough for sale at all. | ETH market is liquid, so purchase will only move price per ETH slightly off of market price. Probably not that hard to find enough ETH on exchanges. |
| **Self-inflicted economic harm to attacker** | By attacking, undermine system and dramatically reduce the value of PNK - which attacker has half of. | Attack on Kleros has minimal effect on value of ETH. Attacker can sell off ETH afterward paying only the spread (which isn’t that much as ETH is relatively liquid). |
| **Last ditch defence in case of 51% attack** | Fork PNK to remove attacker’s holdings. Disruptive but provides path forward if absolutely necessary. | No apparent way out of attack. |

On the Ecosystem Partners side, we track the growth in the number of partnerships, which serves as a measure of our protocol's adoption and value within the ecosystem. The expansion from 20 partners at the start of 2022 to 174 at the beginning of 2024 illustrates a substantial increase in commitment and utilization of Kleros's arbitration services, reflecting positive retention and engagement from our partners.

### Relevant usage metrics

The ‘Community’ category in [OBL Chart 23](https://docs.google.com/document/d/1_ZDbimgtuCuAKxFhvPOZSiqP2vP2bLdbao6Bxe7gA7U/edit#heading=h.zf6byxerywvh) is probably the best category to consider Kleros under. While not all the metrics are relevant or well-suited for evaluating protocols like Kleros, we have tried to answer them as well as we can, as well as providing some addition metrics unique to the Kleros ecosystem.

#### Interactive Dashboards

Dune
- https://dune.com/salva/kleros-pnk by [@salva](https://twitter.com/SalvaCzo)
- https://dune.com/kouei/kleros-v1-overview by [@k0uei1in](https://twitter.com/k0uei1in)
- https://dune.com/mar2/kleros-pnk

Jupyter
- https://stats.kleros.builders (takes up to 1 minute to fetch all the data)

#### Daily Active Users

Number of active jurors: 737 (Ethereum), 113 (Gnosis chain)

Among the key players in the Kleros court are the active jurors (wallets with PNK staked). It's worth mentioning that in the graph below, only active jurors are accounted for, but other participants are also crucial for the ecosystem. For example, users submitting items into Kleros Curate or registering in Proof of Humanity, etc.


#### Daily User Growth

As was mentioned above, the growth rate of active jurors is considered as the metric to follow, but there are other participants in the Kleros ecosystem that are not considered. The graph is shown monthly to make it more clear.


#### Daily Transaction Count
The following graph shows the monthly amount of transactions on the Kleros court for each chain. While the most common transactions are captured, not all of them are included in the graph at the moment. If requested, a more detailed graph could be generated. We have chosen a monthly summary because, on a daily basis, the length of the time series leads to extreme noise.


#### Daily Protocol Fee
The Kleros protocol serves as a public good within the Web3 ecosystem, distinguishing itself by not imposing fees on its users. Instead, it operates on a model where the protocol compensates jurors for their contributions to dispute resolution.

#### Daily Transaction Fee

To quantify the economic activity associated with Kleros, we can examine the cumulative rewards distributed to jurors since the protocol's launch. These rewards amount to 401.3 ETH on the Ethereum Mainnet, which translates to nearly $1.4 million at current market prices or $330,000 when considering the ETH price at the time of payment. Additionally, jurors have received approximately 24,000 XDAI on the Gnosis Chain.

Kleros's mission extends beyond just dispute resolution; it aims to make the process more cost-effective, swift, and secure for all involved parties. The transition towards gas-efficient environments like Gnosis Chain and, prospectively, Arbitrum, is a strategic move to allow for lower cost disputes. This enhances the protocol's accessibility and efficiency, further aligning with its goal to benefit the community without extracting value from users.


### Daily ARB Expenditure and User Claims

This is not yet relevant as we have not yet given out incentives in ARB.

### Incentivized User List & Gini

Kleros does not have incentive programs targeted at generating dispute volume at the moment. Kleros does have a staking incentive program but it does not apply to this arbitrum deployment until the full-scale launch later this year (cf. roadmap in section 2b and [KIP-66](https://forum.kleros.io/t/kip-66-long-term-juror-incentive-program/1037)). In the current phase of the Kleros v2 project, there is a cap on the amount that each user can stake and on the total amount which can be staked on the protocol (2M PNK), which is expected to achieve a fair engagement level among the users (Gini coefficient close to 0).

### Do you agree to remove team-controlled wallets from all milestone metrics AND exclude team-controlled wallets from any incentives included in your plan:

YES

### Did you utilize a grants consultant or other third party not named as a grantee to draft this proposal?

NO

# SECTION 2b: PROTOCOL DETAILS

> Provide details about the Arbitrum protocol requirements relevant to the grant. This information ensures that the applicant is aligned with the technical specifications and commitments of the grant.

### Is the protocol native to Arbitrum?

The legacy protocol v1 comes from Ethereum, however for the new Kleros v2 we wanted from the outset to provide a cheaper experience, to lower the dispute fees (impacted by gas prices) without sacrificing on security. By choosing a L2 chain as opposed to an alt-L1 chain, Kleros v2 inherits from the security of Ethereum. We identified that Arbitrum is ahead with its fraud proof mechanism, making it an obvious choice.

The plan for Kleros v2 is for it to be the main deployment and **targetting 50% of the PNK market cap to be staked on the Arbitrum court** in the long term ([KIP-66](https://forum.kleros.io/t/kip-66-long-term-juror-incentive-program/1037)).

The protocol’s token PNK is native to Ethereum and bridged over to Arbitrum.

### **On what other networks is the protocol deployed?**

The Kleros protocol version 1 is deployed on both the Ethereum and Gnosis chains, with an onchain history of 5 years and 3 years respectively. These existing deployments are planned to be phased out and replaced by the version 2 deployment on Arbitrum over time.

For version 2, while the primary deployment is on Arbitrum, the system has been designed to ensure that the rulings issued on Arbitrum can be effectively communicated to other networks where their ecosystem partners operate. This is facilitated through the development of an optimistic message bridge named [Vea](http://vea.ninja), along with ongoing efforts to integrate with bridge aggregators, enabling the protocol to interact with multiple networks beyond its main deployment on Arbitrum.

### **What date did you deploy on Arbitrum mainnet?: \[Date + transaction ID. If not yet live on mainnet, explain why.\]**

**TBD** - Currently on testnet, will complete Mainnet deployment before the end of the feedback period.

Kleros has executed several deployments for testing purposes. Specifically, there have been two deployments on Arbitrum Goerli and a recent one on Arbitrum Sepolia. Details of these Testnet activities, including deployment [artifacts](https://github.com/kleros/kleros-v2/tree/dev/contracts/deployments/arbitrumSepolia), are accessible, with a specific mention of a transaction ID on Arbitrum Sepolia available for reference at the provided link.

Testnet transactionID: <https://sepolia.arbiscan.io/tx/0xdddc8358282ebf57d1b6c4773e2625c66f633c4d7778898497aac375e08cf208>

### **Do you have a native token?**

Yes, it’s called the Pinakion (PNK), and its allocation can be seen [here](https://medium.com/kleros/kleros-project-token-sale-overview-95ffaba71d94).

It has been live on Ethereum for 6 years at: [0x93ed3fbe21207ec2e8f2d3c3de6e058cb73bc04d](https://etherscan.io/token/0x93ed3fbe21207ec2e8f2d3c3de6e058cb73bc04d)

The Arbitrum bridged PNK token can be found at: [0x330bd769382cfc6d50175903434ccc8d206dcae5](https://arbiscan.io/token/0x330bd769382cfc6d50175903434ccc8d206dcae5)

### **Past Incentivization: What liquidity mining/incentive programs, if any, have you previously run?**

We have been running a juror incentive program since 2021 under [KIP-37](https://forum.kleros.io/t/kip-37-juror-incentive-program/514). Since the first implementation of KIP-37, there has been a 70% increase in PNK staked into the Kleros protocol (from 123M in March 2021 to 213M in Dec 2023). The program has been recently revamped under [KIP-66](https://forum.kleros.io/t/kip-66-long-term-juror-incentive-program/1037) with the aim of reaching 50% of the token market capitalization staked into the protocol by October 2025.

### **Current Incentivization: How are you currently incentivizing your protocol?**

Beyond the juror staking incentive program, the primary motivator for jurors in the protocol is the opportunity to earn arbitration fees through voting for rulings that coincide with the majority (i.e. the Schelling point).

Additionally, there's a built-in mechanism to ensure careful and thoughtful participation: jurors who don’t vote or vote incoherently (i.e. against the majority consensus) face the possibility of financial penalties through the slashing of their stakes. This framework is designed to promote diligent and judicious engagement in the arbitration process.

### **Have you received a grant from the DAO, Foundation, or any Arbitrum ecosystem related program?**

No.

### **Protocol Performance**

| Metric | Ethereum Mainnet | Gnosis Chain |
|--------------------------------------------------|--------------------------|-------------------|
| Numbers of cases | 1640 | 236 |
| Jurors payments for voting | 401.3 ETH (almost $1.4M) | 24k xDAI |
| Active Jurors payments for voting | 401.3 ETH (almost $1.4M) | 24k xDAI |
| Average number of rounds in chain | 1.11 | 1.31 |
| Average dispute resolution time | 11.9 days | 10.8 days |

**Protocol Roadmap**

Our roadmap for the protocol v2 includes two types of milestones: migration milestones targetting existing integrations from Ethereum and Gnosis chains to integrate natively with our new deployment on Arbitrum, and continuity milestones targetting those integrations with Kleros v1 which cannot be migrated directly, in this case an interoperability solution will be deployed to relay their arbitration request from Ethereum or Gnosis chain to Kleros v2 on Arbitrum, and then to send the ruling back to them.

#### Protocol iterations
The v2 protocol is deployed progressively throughout the v2 Neo and the v2 Agora iterations.

Here is an overview of their differences:
| Features | **V2 Neo** | **V2 Agora** |
|----------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------|--------------|
| Court hierarchy | ✔️ | ✔️ |
| Anyone may be a juror<br>(permissionless staking) | ✖️ | ✔️ |
| Anyone may stake <br>as much PNK as they want | ✖️ | ✔️ |
| Anyone willing to pay disputes fees<br>may create a dispute | ✔️ | ✔️ |
| Any IArbitrable contract<br>may create a dispute | [DisputeResolver](https://github.com/kleros/kleros-v2/blob/dev/contracts/src/arbitration/arbitrables/DisputeResolver.sol)<br>only | ✔️ |
| Anyone may submit evidence | ✔️ | ✔️ |
| Random juror sortition | ✔️ | ✔️ |
| Juror voting | ✔️ | ✔️ |
| Hidden votes via <br>2-steps commit/reveal | ✔️ | ✔️ |
| Appeals rounds with `2n+1` juror | ✔️ | ✔️ |
| Appeals rounds crowdfunding | ✔️ | ✔️ |
| Ruling execution onchain | ✔️ | ✔️ |
| PNK juror rewards/penalties | ✔️ | ✔️ |
| Dispute fee juror rewards | 100% | 100% |

#### Milestone within the scope of LTIPP

- **Kleros v2 Neo**, the pre-launch on Arbitrum mainnet with the above subset of functionalities capable of supporting the entire dispute lifecycle, drawing jurors and issuing a ruling.

#### Milestones outside the scope of LTIPP
- **Migration of the existing arbitrated dapps** including the Kleros Escrow, Curate, Reality Proxy, Governor, Dispute Resolver, Proof of Humanity.
- **Kleros v2 Agora** (with feature parity with v1), code freeze, reviews, testing and audit.
- **Kleros v2 SDK** release, enabling developers to build contracts arbitrated by the v2 protocol.
- Kleros v2 Agora **full launch** on Arbitrum.
- Launch of the **Vea bridge** between Arbitrum/Ethereum and Arbitrum/Gnosis
- **Interoperability solution** for those non-migratable legacy v1 integrations on Ethereum and Gnosis chain.
- **PNK staking migration** from v1 to v2 on Arbitrum.
- **New v2 functionalities** such as hidden votes auto-reveal with [Shutter’s DKG](https://blog.shutter.network/announcing-shutter-governance-shielded-voting-for-daos/) (instead of a 2-steps commit/reveal), sybil-resistant juror sortition via Proof of Humanity or equivalent, new voting mechanisms as described in [the Kleros Yellow Paper](https://kleros.io/yellowpaper.pdf).
- **Progressive sunsetting** of the legacy v1 dapps starting.
- Launch of the **Vea bridge between Arbitrum and other EVM L1s and L2s** (starting with OP L2s and Polygon PoS), allowing the Kleros v2 protocol to reach arbitrated protocols beyond Arbitrum, Ethereum and Gnosis chain.

### **Audit History & Security Vendors**

For V2 of the protocol, it is currently in the phase of thorough internal reviews and testing. A detailed external audit is planned for Q2 to coincide with the launch of the fully-featured protocol. Additionally, we anticipate establishing a bug bounty program with Hats Finance for V2, similar to what was implemented for version 1.

Regarding version 1, it underwent significant internal reviews but did not undergo an external audit. Despite this, the protocol has maintained a strong security record, with no hacking incidents reported over its five-year operational history on the blockchain. There is an ongoing bug bounty program for version 1 [here](https://github.com/kleros/kleros/blob/master/auditor.md#bounties), as well as [on Hats Finance](https://app.hats.finance/bug-bounties/kleros-0xe03d5c99da383c434168be5327175212386fb92d531a65125ddd6a5c84cc8621/rewards), providing an avenue for identifying and rectifying potential vulnerabilities.

### **Security Incidents**

Version 2 of the protocol is relatively new and, to date, has not experienced any exploits. As for version 1, it has maintained a solid security track record with zero exploits over its five-year history on the blockchain.

However, there was a notable incident involving an attempted governance attack on the Proof of Humanity DAO's Governor. An attacker tried to pass a malicious proposal to withdraw 46 ETH (approximately $150,000) from the DAO's treasury. This attempt was thwarted by the protocol's optimistic governance mechanism, where a community member identified and challenged the proposal, leading to a Kleros dispute that concluded in favor of the DAO, preventing the theft. Details of this incident have been documented in a [published article](https://blog.kleros.io/how-kleros-prevented-more-than-100-000-from-being-stolen-from-proof-of-humanity-dao-a-detailed-analysis/).

# SECTION 3: GRANT INFORMATION

### **Requested Grant Size**
40,000 ARB

### **Justification for the size of the grant**

#### **Grant Matching**
No

#### **Grant Breakdown**

The funds will be used to incentivize the community of Kleros users to start staking on the new Kleros v2 on Arbitrum and therefore get a chance of participating as jurors when disputes are created.

As an example: a user who staked 50 PNK in the court for the entire 12-weeks duration of the grant will be able to claim 1 ARB in total. This ratio of 50:1 is roughly equivalent in USD value at today’s market price. In practice the minimum juror stake is the thousands of PNK, so the rewards are in the tens or hundreds of ARBs if they stake for the entire 12 weeks.

With Kleros 2.0 Neo representing a pre-launch ahead of the full-scale launch later this year, we are keeping the training wheels on for now and are placing a cap on how much can be staked into the court in total. This cap is set to 2M PNK and is not expected to be fixed for the whole duration of the program. There is also a cap per address to protect from whales concentrating most of the stakes.

Therefore at maximum utilization, the maximum rewards to be distributed to our users is `2M PNK / 50 = 40K ARB`.

This amount represents a theoretical maximum for the rewards which in practice won’t be achieved, because if there is less than 2M PNK staked on Kleros v2 at any given time, then some ARB rewards won’t be distributed and will be returned to the Arbitrum DAO.

### **Funding Address**

[0xDc657fac185d00cDfA34a8378Bb87d586bf998F7](https://arbiscan.io/address/0xDc657fac185d00cDfA34a8378Bb87d586bf998F7)

### **Funding Address Characteristics**

The funding address is a Safe multisig 2/5 set up with the [CompatibilityFallbackHandler](https://arbiscan.io/address/0xf48f2B2d2a534e402487b3ee7C18c33Aec0Fe5e4) module to receive ERC-721 tokens.

### **Treasury Address**

Cooperative treasury: [0xe979438b331b28d3246f8444b74cab0f874b40e8](https://debank.com/profile/0xe979438b331b28d3246f8444b74cab0f874b40e8)

### **Contract Address**

**TBD** - a new deployment of our [MerkleRedeem](https://github.com/kleros/pnk-merkle-drop/blob/master/contracts/src/MerkleRedeem.sol) contract.

# SECTION 4: GRANT OBJECTIVES, EXECUTION AND MILESTONES

> Clearly outline the primary objectives of the program and the Key Performance Indicators (KPIs), execution strategy, and milestones used to measure success. This helps reviewers understand what the program aims to achieve and how progress will be assessed.

### Objectives

The primary objective of this grant is to incentivize a subset of our existing community members to participate in Kleros 2.0 Neo on Arbitrum. These community members are already engaged with the Kleros protocol, having staked PNK on the Ethereum Mainnet, Gnosis Chain, and Arbitrum Testnet.

It is valuable to Kleros that our users familiarize themselves with this new version, deployed on a different chain than version 1.0. These early users will also provide valuable feedback.

The grant will support the launch of Kleros 2.0 Neo on Arbitrum, representing one more step towards the full migration from the 1.0 version later this year and is part of a broader strategy to fully launch our protocol on Arbitrum, as it is set to become the central hub for our cross-chain arbitration capabilities.

### **Execution Strategy**

The execution strategy for the launch of Kleros 2.0 Neo on Arbitrum is about prioritizing community engagement and ensuring alignment with the project's goals.

#### Community engagement
To this end the community of users who are participating in our existing products (Kleros v1 and Proof of Humanity), as well as our Kleros 2.0 testnet early users are whitelisted for access to Kleros 2.0 Neo. At the same time we are excluding all the team addresses from benefiting from the ARB rewards and from being included into the metrics.

The list of eligible addresses can be found [here](https://github.com/kleros/kleros-stats/tree/master/lists).

The team reserves the right to use 3 addresses for quality testing purposes and will communicate transparently about them and exclude them from the rewards and metrics.

#### PNK staking on Arbitrum
Using a Galxe.com campaign, our users will have the opportunity mint a free "Kleros v2 Neo Early User NFT", which is a prerequisite for staking on Kleros v2 Neo. The users will either bridge PNK tokens from Ethereum to Arbitrum using the canonical Offchain Labs bridge, or will swap on a liquidity pool (LP) which is being set up on [Camelot](https://info.camelot.exchange/pair/v3/0x28e90b865292593b32fda5d61a9b34076ecfb05f). The users can then stake these PNK tokens on the Kleros 2.0 Neo court on Arbitrum.

#### ARB rewards claim
The grant plays a crucial role here, as it's intended to offer incentives of **1 ARB for every 50 PNK staked for the entire 12 weeks**.

At the end of each week, the users will be able claim their ARB rewards from our Kleros frontend. We will set up a Merkle drop mechanism similar to the [one already implemented](https://github.com/kleros/pnk-merkle-drop/blob/master/contracts/src/MerkleRedeem.sol) for the monthly Kleros v1 staking rewards. The amount claimable by a user at a given week $i$ is
$$
\text{ARB}_{week_i} = \dfrac{\text{average}_{week_i}(\text{stakedPNK})}{50 \times 12 \text{ weeks}}
$$

#### Whale protection
To ensure a wide distribution and avoid concentration, we're implementing a cap of 2000 PNK that can be staked per address initially. We will re-evaluate this cap at the end of each week. The goal is to find the optimal tradeoff between whale protection (aka "packing the court") and under-utilization. If total staking on the courts is at less than 80% utilization (1.6M PNK), then the cap per address will double for the following week, up to a maximum cap of 32K PNK. If the 80% threshold is reached, then the cap per address resets to 2000 PNK.

This strategic approach aims to foster a diverse and committed participant base in our courts, utilizing the grant to catalyze engagement while managing risk through controlled token distribution and stake limits.

### **What mechanisms within the incentive design will you implement to incentivize “stickiness” whether it be users, liquidity or some other targeted metric?**

The incentive design for Kleros on Arbitrum diverges from typical DeFi protocols due to the lack of alternative yield opportunities for PNK holders within the Arbitrum ecosystem.

With no other options available, the staking rewards in ARB tokens create a compelling incentive for PNK holders to participate. We believe this exclusivity will drive strong initial engagement in the Kleros 2.0 Neo program. An additional benefit is that ARB rewards are likely to be re-invested into other protocols within Arbitrum, further boosting activity and liquidity.

### **Specify the KPIs that will be used to measure success in achieving the grant objectives and designate a source of truth for governance to use to verify accuracy**

Our main KPI will be the percentage of the 2M cap of PNK tokens staked on Kleros 2.0 Neo. At the beginning we will have an initial cap of 2000 PNK per address that we are going to increase progressively. The goal for us here is to seed our protocol with different individuals and not just a few whales.

We are aware that this might take time and the cap of 2M might not be full at all the time because some people can unstake at any point. So we can guarantee that we won’t use the full 40k ARB tokens as it is a theoretical maximum.

We are aiming for a 90% reach of this 2M cap to consider this program successful.

### **Grant Timeline and Milestones**

The grant should cover all the periods planned in the LTIPP proposal for 12 weeks. The ideal milestone for us would be to reach 50% of our 2M cap by the 6th week of the incentive program. The last milestone that would make us consider this as a success will be if we reach the cap of 90% by the end of the 12 weeks.

**How will receiving a grant enable you to foster growth or innovation within the Arbitrum ecosystem? \[Clearly explain how the inputs of your program justify the expected benefits to the DAO. Be very clear and tangible, and you must back up your claims with data\]**

The Kleros grant benefits the Arbitrum ecosystem in multiple ways:

- By introducing a new decentralized arbitration system to fill a clear gap in dispute resolution services on Arbitrum. Kleros' integration can be leveraged by DAOs, prediction markets, insurance protocols and others that need on-chain arbitration.
- By incentivizing an initial core of engaged Kleros users to participate on Arbitrum specifically, kickstarting activity and providing user feedback on v2 based on its existing community. Past staking incentives (with <10% APY) have grown staking in our court by 70% in less than two years.
- By helping to establish Arbitrum as the home chain for dispute resolution and arbitration for all EVM chains, with Kleros on Arbitrum as a cross-chain protocol and the support of the [Vea bridge](https://vea.ninja/).

### **Do you accept the funding of your grant streamed linearly for the duration of your grant proposal, and that the multisig holds the power to halt your stream?**

YES

# SECTION 5: Data and Reporting

OpenBlock Labs has developed a comprehensive data and reporting checklist for tracking essential metrics across participating protocols. Teams must adhere to the specifications outlined in the provided link here: [Onboarding Checklist from OBL 21](https://docs.google.com/document/d/1XafsPpTSBlgkUhEUdE2mX5pqU8V4njl8v6TEPxrgAck/edit#heading=h.fqrd0eokvjv9). Along with this list, please answer the following:

### **Is your team prepared to comply with OBL’s data requirements for the entire life of the program and three months following and then handoff to the Arbitrum DAO? Are there any special requests/considerations that should be considered?**

Yes we are.

### **Does your team agree to provide bi-weekly program updates on the Arbitrum Forum thread that reference your OBL dashboard? \[Please describe your strategy and capabilities for data/reporting\]**

We will be reporting both cumulative and active number of users who are participating in the campaign on a biweekly basis, as well as the ARB distributed alongside those numbers.

### **First Offense: \*In the event that a project does not provide a bi-weekly update, they will be reminded by an involved party (council, advisor, or program manager). Upon this reminder, the project is given 72 hours to complete the requirement or their funding will be halted.**

This is noted.

### **Second Offense: Discussion with an involved party (advisor, pm, council member) that will lead to understanding if funds should keep flowing or not.**

This is noted.

### **Third Offense: Funding is halted permanently**

This is noted.

### **Does your team agree to provide a final closeout report not later than two weeks from the ending date of your program? This report should include summaries of work completed, final cost structure, whether any funds were returned, and any lessons the grantee feels came out of this grant. Where applicable, be sure to include final estimates of acquisition costs of any users, developers, or assets onboarded to Arbitrum chains. (NOTE: No future grants from this program can be given until a closeout report is provided.)**

Yes, this is noted.

### **Does your team acknowledge that failure to comply with any of the above requests can result in the halting of the program’s funding stream?**

Yes