ARB Staking: Unlock ARB Utility and Align Governance

ARB Staking: Unlock ARB Utility and Align Governance | proposals.app

posted 11 months ago

Hi Cliffton and Tally Team,

Huge thanks for updates! and thanks for the completing the ARB Staking smart contracts, UI, and audits—it’s a tremendous effort and solid progress toward unlocking ARB’s utility.

Hi Cliffton and Tally Team,

Huge thanks for updates! and thanks for the completing the ARB Staking smart contracts, UI, and audits—it’s a tremendous effort and solid progress toward unlocking ARB’s utility.

That said, it’s honestly disheartening that, despite the DAO approving the ARB Staking proposal last year, there's still no consensus on a rewards source. This risks rendering all those dev hours, audits, and governance work essentially meaningless—leaving us with a functional staking system lacking the crucial component to activate it.

To move forward, here are some viable funding ideas:

Sequencer surplus and MEV fees Per the original proposal, future Arbitrum sequencer and MEV surplus could power staking rewards for active delegators .
Validator fees or future rollup-based revenues As components like BoLD or Time Boost go live, transaction or validation fees could be redirected into the staking rewards pool.
Dedicated transfers from the Arbitrum Treasury With healthy reserves, DAO could approve allocations—perhaps 1–2% of treasury ARB or stablecoins/ETH—specifically to seed staking rewards.
Ecosystem partnerships & project co-funding Encourage DeFi or app projects on Arbitrum to contribute rewards—creating dual incentives: they gain security through stake, users earn, and DAO scales sustainably.

🔔 Call to Action: Build Consensus on Rewards This requires community alignment. Here's a proposed process:

Launch a Snapshot vote or Working Group focused solely on staking rewards funding sources.
Encourage open public debate to compare pros/cons of each funding path.
Set a clear timeline (e.g., decide on funding within 90 days; launch initial staking pool within 180 days).

Let’s not let ARB Staking become a high-potential system stuck in limbo. Together—with Tally, DAO delegates, and the wider community—we can decide on a sustainable framework that “feeds” staking and truly unlocks ARB’s on-chain utility and tool-like nature.

Thanks again for your work. Let’s push this over the finish line! 💪

crypfuto

posted 11 months ago

Hi Cliffton and Tally Team,

Huge thanks for updates! and thanks for the completing the ARB Staking smart contracts, UI, and audits—it’s a tremendous effort and solid progress toward unlocking ARB’s utility.

Hi Cliffton and Tally Team,

Huge thanks for updates! and thanks for the completing the ARB Staking smart contracts, UI, and audits—it’s a tremendous effort and solid progress toward unlocking ARB’s utility.

To move forward, here are some viable funding ideas:

Sequencer surplus and MEV fees Per the original proposal, future Arbitrum sequencer and MEV surplus could power staking rewards for active delegators .
Validator fees or future rollup-based revenues As components like BoLD or Time Boost go live, transaction or validation fees could be redirected into the staking rewards pool.
Dedicated transfers from the Arbitrum Treasury With healthy reserves, DAO could approve allocations—perhaps 1–2% of treasury ARB or stablecoins/ETH—specifically to seed staking rewards.
Ecosystem partnerships & project co-funding Encourage DeFi or app projects on Arbitrum to contribute rewards—creating dual incentives: they gain security through stake, users earn, and DAO scales sustainably.

🔔 Call to Action: Build Consensus on Rewards This requires community alignment. Here's a proposed process:

Launch a Snapshot vote or Working Group focused solely on staking rewards funding sources.
Encourage open public debate to compare pros/cons of each funding path.
Set a clear timeline (e.g., decide on funding within 90 days; launch initial staking pool within 180 days).

Thanks again for your work. Let’s push this over the finish line! 💪

dianedai

posted 2 years ago

edited 2 years ago

I fully support the ARB staking proposal, which represents a significant milestone in enhancing ARB’s utility. It’s encouraging to see that we are finally making concrete progress on this front.

Initially, I had concerns about some aspects of the proposal, particularly regarding the delegate incentives and Karma Score system, as well as the funding sources for stakeholder rewards. Specifically, the discussions highlighted potential issues with the Karma Score system, such as the risk of gamification and the concentration of power among larger delegates, which could undermine the fairness of the governance process. Additionally, there were valid concerns about the sustainability of relying solely on sequencer fees for staking rewards.

I fully support the ARB staking proposal, which represents a significant milestone in enhancing ARB’s utility. It’s encouraging to see that we are finally making concrete progress on this front.

However, the thoughtful revisions from @Frisson and the establishment of dedicated working groups to further refine these details have alleviated these concerns.

After all, liqudity matters. Currently there is not significant liquidty for ARB on ETH mainnet. With $stARB adoption, we expect better liquidity for ARB token in DeFi and be more accessible for on chain users.

I look forward to the continued discussions and the forthcoming proposals from these working groups.

dianedai

posted 2 years ago

edited 2 years ago

I fully support the ARB staking proposal, which represents a significant milestone in enhancing ARB’s utility. It’s encouraging to see that we are finally making concrete progress on this front.

However, the thoughtful revisions from @Frisson and the establishment of dedicated working groups to further refine these details have alleviated these concerns.

I look forward to the continued discussions and the forthcoming proposals from these working groups.

Retar_Dalio

posted 2 years ago

"...incentive programs that make planning around treasury management difficult, ceding 50% of our sequencer revenue, one of the few sources of diversity we have is a risky move to put it kindly"

I disagree. These other programs have no relevance to this proposal, don't share the same source of funds and don't jeopardize the existing treasury. The proposal is to spend from revenue not savings.

103

"...incentive programs that make planning around treasury management difficult, ceding 50% of our sequencer revenue, one of the few sources of diversity we have is a risky move to put it kindly"

"Again, we are losing half of our ETH from the treasury. Another 50% taken from the sequencer..."

This is a very misleading hyperbolic statement. The DAO isn't losing half its ETH, and drawing from future profits won't diminish the current treasury at all.

"And finally, there’s the question if our current reputation system would be able to handle this without retroactive changes in the future"

I am also skeptical of the karma score system but I think you've made a great case for why any delegate incentives should come from profits not treasury funds. Delegates are more aligned if they are only incentivized when the DAO is generating cash flow. In the absence of cash flow these programs do not draw on the treasury, they halt.

More importantly your last point could itself be considered an attack on the DAO. You are proposing we take no action that isn't perfected in spec before implementation. And that evolving implementation and spec shouldn't be allowed. This is impossible and prevents all meaningful action from the DAO.

I take it that your point is to protect the treasury in order to reduce long term risks. But the biggest risk of all is to have the treasury lost to governance capture or manipulation. The ARB token must be a part of the Arbitrum economy, otherwise it's an existential and reputational hazard to the successful operating of the Arbitrum L2.

Retar_Dalio

posted 2 years ago

"...incentive programs that make planning around treasury management difficult, ceding 50% of our sequencer revenue, one of the few sources of diversity we have is a risky move to put it kindly"

103

"...incentive programs that make planning around treasury management difficult, ceding 50% of our sequencer revenue, one of the few sources of diversity we have is a risky move to put it kindly"

"Again, we are losing half of our ETH from the treasury. Another 50% taken from the sequencer..."

This is a very misleading hyperbolic statement. The DAO isn't losing half its ETH, and drawing from future profits won't diminish the current treasury at all.

"And finally, there’s the question if our current reputation system would be able to handle this without retroactive changes in the future"

Roberto-Carlitos

posted 2 years ago

Here @BlockworksResearch recalibrate our collective mindset and reconfigure our operational paradigms in perfect alignment with the DAO's core objectives and ethos. Through this synergistic effort, we architect mere formality, evolving into a dynamic force of meaningful change, while simultaneously cultivating an ecosystem that not only incentivizes but celebrates exemplary delegate performance.

Envision a DAO invigorated by the essence of delegates who consistently demonstrate superlative participation and voting practices. This creates a virtuous cycle of excellence, permeating every stratum of our decentralized structure and yielding bearing for all stakeholders. The ripple effects of such high-caliber engagement would be profound, potentially catalyzing unprecedented growth and innovation within our ecosystem.

110

This proposal represents more than incremental progress; it embodies a quantum leap towards the realization of our shared aspirations. By harmonizing our actions with these lofty ideals, we position ourselves at the @Avantgarde of decentralized governance evolution.

However, as we navigate this exciting frontier, we must remain vigilant. While expanding our active voter base is undoubtedly beneficial, it is paramount that this numerical growth is matched by a commensurate elevation in the qualitative aspects of governance. In the pursuit of substantive, impactful participation that propels the DAO towards its strategic objectives.

In essence, this proposal offers us a blueprint for a governance renaissance – one where blue chips , meme, quantity and quality coalesce to forge a more robust, responsive, . Let us seize this opportunity to redefine the very paradigms of decentralized governance and set new benchmarks for excellence.

110

Roberto-Carlitos

posted 2 years ago

110

hhe

posted 2 years ago

Hey Frisson, thanks for submitting this proposal. I really like the "one stone, two birds" design: it solves the potential security issue for the Arbitrum DAO while at the same time add a new utility to ARB token!

I would like to make a suggestion to improve the proposal. In the current design, the ARB tokens locked in the staking contract is unproductive. I propose to make use of those unproductive ARB tokens via Double Restaking as illustrated in the diagram below:

139

Double-Restaking-ARB|690x388

The design is that ARB holders deposit ARB into ArbGov staking contract, and then the ArbGov staking contract will automatically deposit ARB into Double, and vice versa. The value proposition is simple and clear: 1) the unproductive ARB will now be used to support on-chain liquidity of ARB; 2) ARB holders can earn additional yields from Double's incentives on top of DAO treasury. With Double Restaking, ARB holders don't need to choose between yield from staking or yield from AMM. They will get both!

For people who are not familiar with Double, the ARB will be deposit into the Token side of Double as shown in the diagram below:

Double-for-Arbitrum-1|690x388

In the current design, the token side always get back their token that are matched to capital providers. The concept of IL does not apply to the token side.

(Please note: currently, ARB is not configured as a capital type on Double, only USDC/USDT/DAI/WETH are configured as capital types. There is a discussion on whether ARB should be used as a capital type, which will add another utility for ARB. But that should be a separate discussion and will not have any impact on this proposal.)

Even though the token side won't earn the AMM trading fees, it will, by design, receive Double's incentives via Double Dip Joy (DDJ), a utility ERC20 token that has no pre-mine and strong protocol native demand. The ArbGov can decide how to handle the DDJ received: 1) pass DDJ directly to ARB holders; 2) convert to stable/ETH and then pass along to ARB holders; 3) take a cut.

There is a little technical work required for integration and Double will work with Tally team on the technical integration. The timing is good though since the staking contract has not been deployed yet. (The Double restaking is designed to work with veToken model as well. But it will require contract upgrade if the veToken contacts have been deployed).

In addition, Double will work with Tally and ArbGov to support the on-chain liquidity for Tally ARB LST, which is important for ARB LST holders and also critical for many DeFi integration of ARB LST such as Pendle.

139

bendi

posted 2 years ago

Hey all, Ben from ScopeLift here. For context, we built the UniStaker contracts for the Uniswap Foundation and would be involved in bringing this proposal to fruition if it is passed. I love the quality of the discussion we've had here so far—really thoughtful and great points raised all around. Unsurprisingly, I'm in favor of this proposal, but several responses have made me think a bit more deeply about my opinion. Allow me to expand a bit on a few points:

On Timing & Attack Incentives

157

On Timing & Attack Incentives

Several responses have indicated the timing doesn't seem right, and implied the DAO has more time to work out a solution before a governance attack becomes a serious issue. I want to highlight a few reasons I think we should be careful about assuming these kinds of attacks are still far off.

Rapid price changes can swing the incentives quickly. Imagine that, as one thought experiment, ETH price quadruples to ~$13K post ETF launch, while ARB stays the same or drops. It's not implausible to imagine a scenario where the incentives are 4-8x stronger in only a few months. This isn't a prediction, but just an example of something that's well within the realm of possibility and could happen fast.

We also shouldn't assume an attacker has to buy the ARB they will use to execute the attack. ARB in lending markets can be used for an attack while paying only a few days worth of interest. This means acquiring the ARB needed to execute an attack can be much cheaper than the actual price of the token would imply. (Importantly, offering rewards to users who participate in governance staking, by giving holders a more productive way to get utility from their ARB, will also decrease the amount of ARB available cheaply in these lending pools. This is another way in which staking helps improve governance safety).

Finally, as @Frisson alluded to earlier, looking only at the treasury assets underestimates the upside for an attacker. To a certain degree (with some mitigation from the security council, to be sure) the full TVL of the Arbitrum networks come in to play. An attacker can also gain further upside externally by doing things like shorting ARB, longing assets that stand to benefit from ARB being attacked, draining AMM pools with ARB acquired from the treasury, etc... What this means is that the upside for an attacker is likely to be significantly more than the ETH held in the treasury.

In short, while a naive calculation of treasury assets vs. cost of the ARB token might imply a certain cushion of economic security in the short term, the reality is likely worse, and could become much worse much quicker than one might expect.

Impacts on Token Valuation

I think @swmartin made a really interesting point here that's worth considering:

If we tie the token to insignificant revenue values, we introduce the risk of people valuing ARB relative to its revenue generation and could face compression of multiples.

What's implied is that the current value of the ARB token enjoys a speculative premium that might erode if investors have "real" numbers to do calculations on. It's possible this could play out to a certain extent, but I think it actually highlights why moving in this direction is so needed.

Right now the incentives to hold ARB are purely speculative. As such, they are also fickle. A shift in the narrative around Arbitrum—or even just around crypto or L2s in general—could crater the token price, exacerbating the security issues as discussed above. Rather than fearing providing preliminary rewards to ARB holders will erode the speculative premium, we should be concerned that speculative premium is the only thing providing ARB with value today.

In the long run, this is just not sustainable. I think there are enough investors sophisticated enough to understand that traditional multiple calculations will not look great at first. However, demonstrating that ARB is a productive asset, one that will reward holders for their participation in governance stewardship, anchors ARB's value in something real and tangible. If we shake out unsophisticated holders expecting short term gains, in exchange for sophisticated investors who can recognize the longer term potential, I would consider that a win.

Defining "active participation" and Gameability

I share a lot of the concerns voiced by others about the difficultly of defining "active participation" in a way that isn't gameable or ineffective. What's important here is that the system be designed in such a way as to allow this to evolve over time. I don't expect we'll get it 100% right on the first swing. That said, the work Karma is doing here seems like a solid starting point.

hhe

posted 2 years ago

139

Double-Restaking-ARB|690x388

For people who are not familiar with Double, the ARB will be deposit into the Token side of Double as shown in the diagram below:

Double-for-Arbitrum-1|690x388

In the current design, the token side always get back their token that are matched to capital providers. The concept of IL does not apply to the token side.

139

bendi

posted 2 years ago

On Timing & Attack Incentives

157

On Timing & Attack Incentives

Impacts on Token Valuation

I think @swmartin made a really interesting point here that's worth considering:

If we tie the token to insignificant revenue values, we introduce the risk of people valuing ARB relative to its revenue generation and could face compression of multiples.

Defining "active participation" and Gameability

Tane from tanegov.eth

43.6K TOKEN

posted 9 months ago

edited 9 months ago

We checked some numbers of Arbitrum DAO again, and we assume the DAO is not ready to implement staking as there are several things to be solved before that, especially the funding of staking rewards. (We voted for the proposal itself as we believe it would be amazing if we could make it work.)

Would you give us some updates on how you are thinking about or discussing the funding aspect?

Quoted from cliffton.eth

Our understanding is that there is not currently consensus in the DAO about funding staking rewards. When the DAO is ready to re-engage on a rewards framework, we will participate actively in that process. The contracts have been architected to accommodate the addition of a rewards mechanism with minimal further engineering, so an approved funding decision can be implemented relatively quickly.

Would you give us some updates on how you are thinking about or discussing the funding aspect?

Quoted from cliffton.eth

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As many community members have already highlighted, the design of ARB staking raises significant concerns regarding price impact and sustainability. For staking to serve as a mechanism to strengthen ARB, there must be strong underlying factors supporting token value, such as a consistently positive treasury balance, sustainable buybacks, or clear network effects centered around ARB that create durable demand. Without these, staking risks becoming a mechanism that increases sell pressure rather than supporting the token.

Looking at the current financials of Arbitrum DAO, the situation is challenging. According to the Entropy`s dashboard, the DAO generates around $15M in annual revenue but spends approximately $35M per year, resulting in a deficit of about $20M. In this state, it is difficult to construct a sustainable flywheel around staking. The more urgent priority is to address revenue generation and move the DAO toward profitability, rather than introducing staking rewards that could strain the treasury further. Until there is a stable and growing revenue base, staking cannot fulfill its intended purpose of strengthening ARB.

For comparison, Aave recently approved a buyback program under very different financial circumstances. This can be a good example of a sustainable buybacks that support staking. The Aave DAO has roughly $130M in annual revenue, with estimated service provider expenses of $40–50M.

image|690x388, 75%

Even after accounting for these costs and additional obligations, Aave should maintain a healthy surplus, which provides room to experiment. On top of that, they are running a $4M/month buyback as a six-month pilot. This is built upon a strong and profitable financial foundation.

We'd love to hear what people think, but, at the moment, the focus should first be on improving revenue streams and securing long-term financial sustainability in our view.

Tane from tanegov.eth

43.6K TOKEN

posted 9 months ago

edited 9 months ago

Would you give us some updates on how you are thinking about or discussing the funding aspect?

Quoted from cliffton.eth

Would you give us some updates on how you are thinking about or discussing the funding aspect?

Quoted from cliffton.eth

jump to post →

image|690x388, 75%

We'd love to hear what people think, but, at the moment, the focus should first be on improving revenue streams and securing long-term financial sustainability in our view.

The ARB Staking working groups published their analysis and recommendation here: https://forum.arbitrum.foundation/t/arb-staking-working-groups-final-recommendation/27651

As per the working group recommendation, Tally has committed to revisiting our implementation of the LST (stARB) to enable its functionality without requiring the redelegation of Voting Power. We are working on a proposed implementation that meets this requirement and will update the DAO as we make progress.

Quoted from SEEDGov

DAO Redelegation Strategy

After extensive discussions with stakeholders, consideration of current limitations for implementing a plural strategy (e.g., the lack of features such as Partial Delegation or Flexible Voting), analysis of potential legal implications, and challenges in reaching a consensus on a strategy, we concluded that eliminating its necessity from the design would be the most effective path forward.

As such, Tally has committed to revisiting the implementation of the LST to enable its functionality without requiring the redelegation of Voting Power. The goal is to create a design that allows users depositing their stARB in DeFi and to retain their chosen delegation. This redesign would also address cases where users delegate to an active delegate who later becomes inactive, ensuring that these users would need to take action (e.g., manually redelegating to an active delegate) to continue receiving rewards.

In summary, the Working Group recommendation is to proceed with the implementation of Native Staking based on the previously suggested parameters and to allow Tally the opportunity to redesign the LST. This approach ensures that the DAO can launch a platform aligned with its principles—a crucial consideration given that the creation of LSTs is currently 100% permissionless (i.e., anyone could create one without engaging with the DAO to discuss its design).

The ARB Staking working groups published their analysis and recommendation here: https://forum.arbitrum.foundation/t/arb-staking-working-groups-final-recommendation/27651

Quoted from SEEDGov

DAO Redelegation Strategy

AbdullahUmar from uniswap-dao.eth

1.3M TOKEN

posted 2 years ago

Below are the reflections of the UADP:

We voted For this proposal in both the snapshot and onchain phases.

Our team has been monitoring the continual iterations of this proposal by intaking delegates’ feedback, and it has been great to see the progress towards a more conclusive structure.

Below are the reflections of the UADP:

We voted For this proposal in both the snapshot and onchain phases.

Our team has been monitoring the continual iterations of this proposal by intaking delegates’ feedback, and it has been great to see the progress towards a more conclusive structure.

After the introduction of the unistaker concept, it’s exciting to see the possibilities that can be implemented for introducing some degree of value behind “mere governance tokens”. The initial idea to distribute surplus sequencer fees to stakers is of course difficult since the operating revenue for the DAO is currently limited, and it is an important revenue management decision to consider where and how this capital should be used. We are interested in seeing the new working groups’ research regarding how capital should be directed to stakers. It seems unlikely that the DAO will be able to sustain decent enough yield to stakers from sequencer fees alone. The recent proposal by Karpatkey and Aera regarding “diversifying” the treasury into stables and yield bearing assets would be an interesting way to potentially divert some of this non-operating revenue to stakers. Again, this is a revenue management decision. It could be the case that incorporating this staking setup is good enough for now–and we can in the future turn on this, so to speak, fee switch and begin issuing dividends.

It could also be the case that the yield is turned on for a period of time, like issuing a dividend during a period where we have excess revenue. However, this is difficult since whenever a company issues dividends, investors expect an indefinite dividend. Turning on fees to stakers could also be something that’s implemented during times where we need the price of ARB to perhaps increase to a particular threshold in order to preserve the severity of the treasury. As mentioned, the likelihood and incentive towards conducting a governance attack only increases as the treasury balance sheet is full of more and more non-native tokens.

Deciding who will be eligible for the yield is also a very difficult problem due to the subjectivity surrounding assessment results from groups like Karma. We look forward to seeing the research surrounding this as well.

Overall, this staked governance token setup is very promising in increasing the attractiveness of holding these tokens. I’m sure many large DAOs have seen this and are now contemplating similar practices.

AbdullahUmar from uniswap-dao.eth

1.3M TOKEN

posted 2 years ago

Below are the reflections of the UADP:

We voted For this proposal in both the snapshot and onchain phases.

Our team has been monitoring the continual iterations of this proposal by intaking delegates’ feedback, and it has been great to see the progress towards a more conclusive structure.

Below are the reflections of the UADP:

We voted For this proposal in both the snapshot and onchain phases.

Our team has been monitoring the continual iterations of this proposal by intaking delegates’ feedback, and it has been great to see the progress towards a more conclusive structure.

Frisson from 0xfrisson.eth

12.8M TOKEN

posted 2 years ago

Thank you for your thoughtful feedback and for all the work you do to contribute to the Arbitrum ecosystem @Camelot.

One thing I’d note is this proposal does not, in and of itself, make any changes to the ARB token. The specific implementation of staking rewards and their integration with governance will be determined via the below process and implemented (if desired by the DAO) via separate governance proposals.

Thank you for your thoughtful feedback and for all the work you do to contribute to the Arbitrum ecosystem @Camelot.

Quoted from Frisson

Parallel workstreams: Staking Rewards and Delegation working groups

In parallel with the development of ARB Staking, we will lead two separate DAO working groups that are focused on aspects of the system that will be implemented after development is complete.

The Staking Rewards working group will focus on how to fund staking rewards. It will develop a recommendation about whether staking rewards should be funded by sequencer fees, MEV fees, validator fees, token inflation, treasury diversification, and/or DAO venture investments and how to implement such rewards.
The ARB Staking & Delegation working group will focus on how to define an active contributor to the Arbitrum DAO, delegate incentives, and voting power distribution. It will collaborate with Tally and Karma to develop recommendations on Karma Score formula, the minimum Karma Score required to be eligible for staking.

The working groups will be formed via an open call for contributors that will be posted after this proposal passes the temp check stage. Each working group will deliver their recommendations in October, so that the recommendations can be turned into DAO proposals and created following the implementation of ARB Staking.

I'd also note that the implementation of Karma for ARB Staking is designed to be modular.

Quoted from Frisson

The implementation of Karma for ARB Staking is designed to be modular. If, in the future, the DAO wishes to add additional or alternative providers to define “active delegate”, it can do so.

Frisson from 0xfrisson.eth

12.8M TOKEN

posted 2 years ago

Thank you for your thoughtful feedback and for all the work you do to contribute to the Arbitrum ecosystem @Camelot.

Quoted from Frisson

Parallel workstreams: Staking Rewards and Delegation working groups

In parallel with the development of ARB Staking, we will lead two separate DAO working groups that are focused on aspects of the system that will be implemented after development is complete.

The Staking Rewards working group will focus on how to fund staking rewards. It will develop a recommendation about whether staking rewards should be funded by sequencer fees, MEV fees, validator fees, token inflation, treasury diversification, and/or DAO venture investments and how to implement such rewards.
The ARB Staking & Delegation working group will focus on how to define an active contributor to the Arbitrum DAO, delegate incentives, and voting power distribution. It will collaborate with Tally and Karma to develop recommendations on Karma Score formula, the minimum Karma Score required to be eligible for staking.

I'd also note that the implementation of Karma for ARB Staking is designed to be modular.

Quoted from Frisson

The implementation of Karma for ARB Staking is designed to be modular. If, in the future, the DAO wishes to add additional or alternative providers to define “active delegate”, it can do so.

Thanks for your support and for your feedback @coinflip. I replied to each of your questions in-line below. Happy to discuss further!

Quoted from coinflip

will the be any additional cost to the DAO for the distirbution of rewards to through these stARB contracts?

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No, there will not be any cost to the DAO for the distribution of rewards through stARB contracts.

Quoted from coinflip

while developed through tally, who will have control and any admin keys for the stARB stacking contract (security council?, tally? foundation?)

jump to post →

stARB will be deployed as an immutable, non-upgradeable contract. The delegation strategies part of the system will be upgradeable via Arbitrum DAO Constitutional Proposal. The only part of the system Tally manages is the rebalancing of underlying assets.

Quoted from coinflip

karma scores could start to hold excessive weight, we are now saying that protest delegates, or delegates who want to take a different approach to exercising their say in governance may not be as worthy to delegate (since those delegating to them don’t receive incentives potentially … when they start)

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The implementation of Karma for ARB Staking is designed to be modular. If, in the future, the DAO wishes to add additional or alternative providers to define “active delegate”, it can do so. You make an interesting point about “protest” delegates, or delegates who do not wish to regularly vote. Maybe there is some quantitative way to define their value to the DAO such that it can be included as a qualifier for rewards.

Quoted from coinflip

it would be good to understand the impacts of a depeg of the stARB token and risks to the ecosystem since it will trade seperately

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One note is that any stARB withdrawal period will be very short and exist only to prevent people from abusing the reward mechanism (i.e. staking right before a reward, claiming a chunk of it, and immediately unstaking). If there is a price difference, arbitrageurs can quickly unstake stARB and sell it as ARB to close the price difference. This easy arbitrage opportunity minimizes price discrepancies and should make it difficult for any potential governance attacker to acquire ARB at a discount.

Quoted from coinflip

will there be a need to additionally support liquidity for this token? will it fragment liquidity and trading for ARB

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I personally don't think there will be a need for general liquidity support for stARB. I do think it's possible that some protocols in the ecosystem will want to request grant funds (when the liquidity incentivies detox is over) for stARB liquidity.

Quoted from coinflip

the idea that if you participate in DeFi your voting power reverts to the DAO for it to deploy seems well a bit counter-intuitive. Would be better for the EVM home of Defi to find a better solution.

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Another option that is baked into this proposal: DeFi applications can support the ability to retain the user’s individual delegation by implementing a Flexible Voting client.

General Operational Concerns While we’re happy to see the discussion open to exploring other sources of yield we have a couple suggestions that we would like to see addressed prior to being pushed on Tally. Instead of the two separate working groups the proposal calls for, we would like to see one working group considering both are exploring staking as it relates to governance. This also complicates the process for reaching a conclusion in the end, and over-governing is a real issue that can hinder the DAO’s timely decision making. The total funding for these groups is also capped at $20,000 with an unspecified time commitment with an unclear end date.

Our suggestions are to slightly raise the prospects for funding, and then set some amount of time for them to reach a conclusion (maybe in accordance with the incentive detox period for simplicity).

Beyond Inflation Moreover, we want to stress that the DAO can explore more options than simply turning on additional inflation for ARB. We at Blockworks don't support pursuing an ARB burn at this point in time. We think an ARB token model should be carefully analyzed and modeled before implementation, and align with key revenue drivers and the long term sustainability of the protocol. While we aren’t beholden to any ideas specifically at this point in time, we would like to hold off on simply increasing inflation right now. It is the simplest solution to bringing value in this mechanism, but it is important to remember the ARB token has large unlocks already, and recent price action has been unfavorable. This solution could also prove to be the most detrimental for setting precedence in the DAO. It might not be best to turn toward inflation when we approach Arbitrum staking or utility accrual for the DAO. There are plenty of granular solutions that can be researched here.

Legal Implications Finally, we just want to remind everyone of the legal implications of this proposal. This proposal uses Uniswap’s fee staker contract design, which is created to be regulatorily-aware in that fee traceability is less obvious. Combining governance rights with value accrual raises concerns under U.S. securities laws. Fee traceability is particularly important, because of noncompliant frontends that are not censored in anyway.If fees are untraceable, then there’s no way to isolate whether tokenholder value came from non-compliant dapps/participants, which may leave the DAO legally liable in some manner. Even if fees can be reasonably traced, then there could be some legal responsibility the DAO faces from not censoring these parties involved with the Arbitrum network. Importantly this may not fully apply to Arbitrum, since Arbitrum is an L2 and not a DeFi application like Uniswap, but it is certainly important to keep in mind.

That said, Blockworks Research will be voting FOR this proposal on Snapshot.

Materials linked: A16z on fee traceability: https://a16zcrypto.com/posts/article/application-tokens-economic-model-cash-flows/

Thank you for chiming in, always a pleasure to see you in the forum :slight_smile:

Let me quickly clarify a few things.

Quoted from olimpio

This is natural selection. Current delegate voting power representation is a direct reflection of what Arbitrum users want. Let’s not forget that voting power comes directly from holders who choose whom they want to represent them, and that (most) delegates are getting votes this way.

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I definitely see your point. And to be clear again: nothing against you, or for what it matters anybody that is a delegate without directly contributing to a protocol. Just, since i contribute to a few, i have a keen eye toward them, because to me protocols are the core of arbitrum ecosystem; and since their presence in this forum and in governance is not as big as it should be (obviously, in my opinion) I would like to see an outcome in which this presence is not furtherly reduced.

Quoted from olimpio

suggesting a cap or redirect based on a subjective criteria like “protocol representation” is, in my opinion, not a good idea, and a bad precedent overall.

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Also to be clear, this is not what I am suggesting nor what I had in mind. I don't think we should put a cap to what people should get as delegation, nor I ever thought was a valid idea; on the other hand, i think there could be a gamification for which we try to direct the delegation in what we see as the "best" way (could be: decentralization of delegates, activity of delegates, frequency of votes of delegates, etc). This is effectively where single opinions start to matter on the "how" we should do it.

I am quite enjoying this convo: is pretty clear we have some different ideas on the topic, likely because we are in different camps, and I really think you would be a tremendous contributor in the working group for the definition of active delegators. Even if you could not be active day to day in there, async messages like this one can still bring a lot of value to the discussion imho :smile:

olimpio from olimpio.eth

8.1M TOKEN

posted 2 years ago

I voted "for" on this proposal.

There was notably a very big effort put in place to condense and equalize all feedback received by delegates on this proposal. It had unsuccessfully been attempted before by Plutus.

I voted "for" on this proposal.

There was notably a very big effort put in place to condense and equalize all feedback received by delegates on this proposal. It had unsuccessfully been attempted before by Plutus.

Would have been also OK by setting parameters beforehand (i.e. what does an active delegate mean and how to calculate it, and source of staking rewards) but it clearly was an intelligent decision to decompress this idea and start proposing/developing -if approved- at least the structure (which is what this is). It seems at this point that the proposal will pass, having most top delegates voted favourably.

This could lead to increased governance participation, another new use case to ARB besides governance (no small utility given the size of the DAO and ecosystem anyways), and to keep exploring new ideas. Also, I believe the cost/return is reasonable, at least whe compared to other previous costs incurred by the DAO.

Keen to follow discussions via the working groups to fine tune the details on incentives and participation mechanics.

Feedback for on-chain voting: having not met the proposed estimated timeline, I encourage Frisson and Tally to more granularly present a future roadmap, if possible, to include all relevant and more in-depth milestones.

Quoted from JoJo

BUT, I have a big caveat to this: we need to create a definition of active delegates that doesn’t hinder protocol representations. One of the potential byproduct of certain parameters could be, for example, that users might redelegate from protocols to others just because the protocols are active, but not as much for the metrics of the program, to allow users to get the yield.

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This is natural selection. Current delegate voting power representation is a direct reflection of what Arbitrum users want. Let's not forget that voting power comes directly from holders who choose whom they want to represent them, and that (most) delegates are getting votes this way.

If users redelegate from protocols to individual users or organizations in the sake of pursuing better yield because their protocols are not voting - I do not personally see any issue with that. Protocols have an incentive to revamp their activity.

Except a few whales that delegate to themselves (BTW, also extremely valid) suggesting a cap or redirect based on a subjective criteria like "protocol representation" is, in my opinion, not a good idea, and a bad precedent overall. What's to say someone else will not come along with another criteria and swing votes their way?

Free market, free delegates, free will, free delegations, and decentralized choosing. Token holders are in the end who decide who represents them and why, and they are free to change it.

In any case, thank you @JoJo, comments like yours are what's needed to keep/start discussions and what moves the DAO forward. These are just my initial thoughts, open to more opinions. Cheers!

Camelot

12.5M TOKEN

posted 2 years ago

Camelot is voting ABSTAIN the “ARB Staking” proposal.

We are supportive of finding utility for the ARB token, and consequently do not wish to directly vote "against", but we strongly believe that any proposal for staking should NOT be combined with a specific governance scoring system. Any fundamental changes to the ARB token design, such as staking, should be thoroughly discussed and assessed entirely on its own merit and evaluations, especially before attaching any new (and untested) governance mechanisms to it. Once there is clarity and alignment on the utility of the ARB token, then further applications should be discussed.

Camelot is voting ABSTAIN the “ARB Staking” proposal.

We appreciate the effort and rationale for proposing this use of the Karma points system, or any other system the working group might adopt to define an “active delegate”, and we see how it can be used productively in the context of the proposed plan. But we believe that there should be a more in depth discussion about the necessity to bundle together both the staking and the governance initiatives. At the same time, any system would require further analysis and adaptations to ensure its incentives are well aligned with the DAO.

In conclusion, any proposal for the utility of the ARB token needs to be treated as an entirely separate discussion and should not be combined with a brand-new governance scoring system. A fundamental change to the ARB token creates significant regulatory, incentive, and ecosystem risks that need to be carefully understood and considered. The Karma system, or any other adopted, has the potential to be a useful tool to further active and effective delegations and voting, but this can be critiqued and assessed in the context of its own separate proposal, but they should not be combined.

JoJo from jojothecow.eth

2.6M TOKEN

posted 2 years ago

I'm voting "for" on this proposal.

As stated before, I really praise @Frisson for being able to put together this many conflicting feedbacks together: he was able to find the perfect solution by saying: we build the skeleton, let's make the dao fill it (amount of rewards, source of rewards, active delegate definitions etc). I think this will be an initial powerful signal for markets, and also a way to increase governance. While the 2 don't necessary belong together, I am personally fine with that.

I'm voting "for" on this proposal.

BUT, I have a big caveat to this: we need to create a definition of active delegates that doesn't hinder protocol representations. One of the potential byproduct of certain parameters could be, for example, that users might redelegate from protocols to others just because the protocols are active, but not as much for the metrics of the program, to allow users to get the yield. This can happen because for example they don't comment too much on the forum, or don't vote all proposals. While we want to obviously incentivise the participation of protocols in governance, we also have to remember that the main job of protocols is making arbitrum a great place for users through developing dapps and other stuff. Let's avoid to kill the representation they currently have.

To be more detailed, this is the current situation. image|690x401 The current top 4 delegates, making a total of more than 60M votes (or between 33 to 50% of the average amount of votes we have in each proposals) are from non protocol type of entity. And don't get me wrong: l2beat, gauntlet, olimpio, wintermute, they are all great delegates well aligned with arbitrum. But we can't imho create a system that would lower even more protocols' representation in our governance. It would be a bad outcome.

Thanks for your support and for your feedback @coinflip. I replied to each of your questions in-line below. Happy to discuss further!

Quoted from coinflip

will the be any additional cost to the DAO for the distirbution of rewards to through these stARB contracts?

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No, there will not be any cost to the DAO for the distribution of rewards through stARB contracts.

Quoted from coinflip

while developed through tally, who will have control and any admin keys for the stARB stacking contract (security council?, tally? foundation?)

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Quoted from coinflip

karma scores could start to hold excessive weight, we are now saying that protest delegates, or delegates who want to take a different approach to exercising their say in governance may not be as worthy to delegate (since those delegating to them don’t receive incentives potentially … when they start)

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Quoted from coinflip

it would be good to understand the impacts of a depeg of the stARB token and risks to the ecosystem since it will trade seperately

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Quoted from coinflip

will there be a need to additionally support liquidity for this token? will it fragment liquidity and trading for ARB

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Quoted from coinflip

the idea that if you participate in DeFi your voting power reverts to the DAO for it to deploy seems well a bit counter-intuitive. Would be better for the EVM home of Defi to find a better solution.

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Another option that is baked into this proposal: DeFi applications can support the ability to retain the user’s individual delegation by implementing a Flexible Voting client.

Our suggestions are to slightly raise the prospects for funding, and then set some amount of time for them to reach a conclusion (maybe in accordance with the incentive detox period for simplicity).

That said, Blockworks Research will be voting FOR this proposal on Snapshot.

Materials linked: A16z on fee traceability: https://a16zcrypto.com/posts/article/application-tokens-economic-model-cash-flows/

Thank you for chiming in, always a pleasure to see you in the forum :slight_smile:

Let me quickly clarify a few things.

Quoted from olimpio

jump to post →

Quoted from olimpio

suggesting a cap or redirect based on a subjective criteria like “protocol representation” is, in my opinion, not a good idea, and a bad precedent overall.

jump to post →

olimpio from olimpio.eth

8.1M TOKEN

posted 2 years ago

I voted "for" on this proposal.

There was notably a very big effort put in place to condense and equalize all feedback received by delegates on this proposal. It had unsuccessfully been attempted before by Plutus.

I voted "for" on this proposal.

There was notably a very big effort put in place to condense and equalize all feedback received by delegates on this proposal. It had unsuccessfully been attempted before by Plutus.

Keen to follow discussions via the working groups to fine tune the details on incentives and participation mechanics.

Quoted from JoJo

jump to post →

Free market, free delegates, free will, free delegations, and decentralized choosing. Token holders are in the end who decide who represents them and why, and they are free to change it.

In any case, thank you @JoJo, comments like yours are what's needed to keep/start discussions and what moves the DAO forward. These are just my initial thoughts, open to more opinions. Cheers!

Camelot

12.5M TOKEN

posted 2 years ago

Camelot is voting ABSTAIN the “ARB Staking” proposal.

JoJo from jojothecow.eth

2.6M TOKEN

posted 2 years ago

I'm voting "for" on this proposal.

Frisson from 0xfrisson.eth

12.8M TOKEN

posted 2 years ago

After gathering more feedback from delegates, I’ve made two important changes to this proposal.

I explicitly clarified that, in parallel with the development of ARB Staking, Tally will lead two separate DAO working groups that are focused on aspects of the system that will be implemented after development is complete. The working groups will be formed via an open call for contributors that will be posted after this proposal passes the temp check stage. Each working group will deliver their recommendations in October, so that the recommendations can be turned into DAO proposals and created following the implementation of ARB Staking.

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After gathering more feedback from delegates, I’ve made two important changes to this proposal.

The Staking Rewards working group will focus on how to fund staking rewards. It will develop a recommendation about whether staking rewards should be funded by sequencer fees, MEV fees, validator fees, token inflation, treasury diversification, and/or DAO venture investments and how to implement such rewards.
The ARB Staking & Delegation working group will focus on how to define an active contributor to the Arbitrum DAO, delegate incentives, and voting power distribution. It will collaborate with Tally and Karma to develop recommendations on Karma Score formula and the minimum Karma Score required to be eligible for staking.

I added to the cost of the proposal and broke the cost out into separate categories. I added $60,000 USD in ARB for an audit and $20,000 USD in ARB to pay for the working groups. We were originally hoping to work with the ARDC to audit the proposal, but received feedback that this may not be feasible. The final cost of the audit including documentation will be published on this thread. Any leftover funds from the $60,000 audit budget will be returned to the DAO.

100

SEEDGov from cattin.seedlatam.eth

7.8M TOKEN

posted 2 years ago

edited 2 years ago

Hi @Frisson

We would like to share some final thoughts based on the amended proposal and the recent research of the ARDC.

Quoted from Frisson

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Hi @Frisson

We would like to share some final thoughts based on the amended proposal and the recent research of the ARDC.

Quoted from Frisson

In the future, we believe it would make sense to integrate the delegate incentives program with ARB staking so that, instead of getting delegate incentive funds from the ARB treasury, they come directly from DAO revenue. However, delegate incentives are not included in the scope of this proposal. Implementation of delegate incentives into ARB Staking will be decided on at a future date by the DAO.

As we have stated in the ARDC research on the proposal in question:

Quoted from SEEDGov

We would like to mention that from our perspective the Delegate Incentive Program (DIP) focuses on improving participation in governance more qualitatively than quantitatively. This means that in the first instance, one of the main goals of the program is to professionalize delegates so they can keep focusing on building for ArbitrumDAO.

We see the ARB Staking program as a solution to increase the number of delegated tokens, but despite contemplating issues such as the “Karma Score”, it’s hard to consider it as a possible replacement for the DIP because we would be ceding control of the incentives to a mere mathematical formula when today the DIP not only contemplates votes or the number of comments in the forum but also analyzes the impact of the latter, also ensuring that no one can “take advantage” of it.

It should also be mentioned that simply limiting delegate incentives to a mere “commission” of the Arbitrum DAO revenue could take away the predictability of the incentive itself, which defeats the purpose of the DIP. Despite this, we agree that interesting synergies can be generated between both programs: We could implement a mixed model in the future, where for example the top 50 delegates (according to the DIP table) get a fixed monthly amount in ARB as now and then in parallel a commission model like the one you have proposed for all the delegates is applied.

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Quoted from Frisson

ARB Staking unlocks financial utility and aligns governance by creating a mechanism to stream rewards in the future from DAO-generated sources like sequencer fees, MEV fees, validator fees, token inflation, and treasury diversification to token holders who are delegated to an active governance participant. ARB Staking makes ARB usable in restaking and DeFi by returning voting power locked in contracts to the DAO.

Here we will bring up another related comment we made in that post:

Quoted from SEEDGov

This is good information, extrapolating the new daily average mentioned here we would get about 1,800 ETH per year vs. the 12,000 ETH estimated in Frisson’s original proposal and vs. the 9,200 ETH per year that the DAO obtained in the 100 days pre-blobs.

Assuming that 50% of this revenue is distributed, that would be about 900 ETH ($2,250,000 at $2,500) among about 324,000,000 delegated ARBs ($162,000,000 at $0.5) leaving us with an estimated 1.4% APY.

It seems that further revenue sources could be needed to improve this stream and make the Staking more attractive, we are confident that in the future there will be more DAO-generated streams as proposed about MEV fees, validator fees, token inflation, the gas fee increase, treasury diversification initiatives and Orbit Chains fees.

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The information gathered by the ARDC indicates that we should work together to provide sufficient sources of revenue for the Staking program, as in principle the fees obtained from the sequencer may be relatively low compared to the capital staked. While it is true that today those who delegate tokens get 0% APY, it would be important to consider that the initial estimations have changed significantly.

Quoted from Frisson

We define an active delegate using Karma Score. The DAO will define the Karma Score requirement for being considered an active delegate. Karma Score is a combination of delegate’s Snapshot voting stats, onchain voting stats and their forum activity. To accurately calculate forum activity score, delegates are required to prove ownership of their forum handle by signing a message with their delegate address and posting on the forum. The current Karma score formula is below, which can be adjusted by the DAO going forward:

((100) * ((Forum Activity Score * 1) + (Off-chain Votes % * 3) + (On-chain Votes % * 5))) / (Sum of Weights times Max Score Setting * 1)

It could be interesting to align the Scoring requirements with the current delegate program, although the process to obtain a Total Participation Score in DIP is different, it is important that as a DAO we are clear about what an active delegate means.

Quoted from Frisson

Users can verify Karma score calculations independently.
The DAO will have the ability to block Karma Scores if it believes they are being calculated incorrectly.
If Karma scores fail to arrive or the scores are blocked by the DAO, ARB Staking will distribute rewards to all stakers regardless of whether they are delegated to an active governance participant until the situation is resolved.

Regardless of the score requirements defined by the DAO, it would be good to be able to block any score individually if someone detects a delegate trying to raise his participation score in the forum with comments of little value.

Quoted from Frisson

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We agree on the need to create these working groups for the reasons explained above. The proposal in the current format is interesting and we hope that in a joint effort the remaining details can be decided upon. We are aware of the importance of generating mechanisms to provide an additional use case for the token as well as increase the number of delegated ARBs.

Frisson from 0xfrisson.eth

12.8M TOKEN

posted 2 years ago

After gathering more feedback from delegates, I’ve made two important changes to this proposal.

100

After gathering more feedback from delegates, I’ve made two important changes to this proposal.

The Staking Rewards working group will focus on how to fund staking rewards. It will develop a recommendation about whether staking rewards should be funded by sequencer fees, MEV fees, validator fees, token inflation, treasury diversification, and/or DAO venture investments and how to implement such rewards.
The ARB Staking & Delegation working group will focus on how to define an active contributor to the Arbitrum DAO, delegate incentives, and voting power distribution. It will collaborate with Tally and Karma to develop recommendations on Karma Score formula and the minimum Karma Score required to be eligible for staking.

100

SEEDGov from cattin.seedlatam.eth

7.8M TOKEN

posted 2 years ago

edited 2 years ago

Hi @Frisson

We would like to share some final thoughts based on the amended proposal and the recent research of the ARDC.

Quoted from Frisson

110

Hi @Frisson

We would like to share some final thoughts based on the amended proposal and the recent research of the ARDC.

Quoted from Frisson

As we have stated in the ARDC research on the proposal in question:

Quoted from SEEDGov

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Quoted from Frisson

Here we will bring up another related comment we made in that post:

Quoted from SEEDGov

jump to post →

Quoted from Frisson

((100) * ((Forum Activity Score * 1) + (Off-chain Votes % * 3) + (On-chain Votes % * 5))) / (Sum of Weights times Max Score Setting * 1)

Quoted from Frisson

Users can verify Karma score calculations independently.
The DAO will have the ability to block Karma Scores if it believes they are being calculated incorrectly.
If Karma scores fail to arrive or the scores are blocked by the DAO, ARB Staking will distribute rewards to all stakers regardless of whether they are delegated to an active governance participant until the situation is resolved.

Quoted from Frisson

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Frisson from 0xfrisson.eth

12.8M TOKEN

posted 2 years ago

edited 2 years ago

Hello Arbitrum delegates,

I edited the original post, as well as the title of this thread, to reflect our updated proposal.

We received three major categories of constructive feedback on this proposal.

Hello Arbitrum delegates,

I edited the original post, as well as the title of this thread, to reflect our updated proposal.

We received three major categories of constructive feedback on this proposal.

Delegates including @swmartin @pedrob @BlockworksResearch and others are not ready to come to consensus on committing 50% of future surplus sequencer fees to staking. While there is strong agreement that the DAO will share rewards in some form with token holders in the future, we need more time to develop a plan for treasury diversification and sustainable operations before moving forward with the plan originally outlined in this proposal.
Delegates including @JoJo @cp0x @Englandzz_Curia @Mehdi_eth @SEEDGov and others have strong ideas on how staker rewards and delegate incentives should work in the context of ARB Staking that go beyond the original scope of this proposal.
Delegates including @fred @0x_ultra and others were concerned about the details of how we proposed to implement Karma to define “active delegate” as a criteria for rewards eligibility.

We’ve rewritten the proposal to account for this feedback by making the following changes.

Instead of directing 50% of future surplus sequencer fees to stakers, we leave the DAO to decide later how to fund rewards.
Instead of directing 1% of staking rewards to delegates, we leave the DAO to decide how to fund delegate incentives via staking. We note that additional mechanisms like a per delegate voting power cap can be introduced to ensure ARB Staking does not lead to increased centralization of voting power.
Instead of pre-setting a Karma Score requirement, we leave the DAO to decide this in the future. We also enable the DAO to change the Karma Score formula in the future. We implement multiple guardrails to ensure the implementation of Karma score is robust and decentralized.

We plan to contribute actively to all of these work streams in the future (deciding how to fund rewards, deciding how to incentivize delegates via staking, deciding on Karma Score requirement and formula). In the meantime, we will implement the staking system so that it can be funded in the future. We will also implement an ARB LST (tARB) via the Tally Protocol so that ARB can be used in restaking and defi while returning voting power to the DAO.

In addition to the above changes based on delegate feedback, we made a change to the overall cost. Previously, we proposed to fund the work via a retroactive payment of 100,000 ARB to help cover the cost of development. Instead, we propose to fund the work at the beginning via an onchain proposal for $120,000 USD in ARB. We priced the ARB in USD to account for price volatility. We increased the cost slightly to account for the development of Karma decentralization guardrails. We shifted to requesting funding at the start of the development process because we think it is important for the DAO to have some skin in the game if it approves development, especially given the proposal no longer includes a decision to distribute 50% of surplus sequencer fees to stakers.

The first post in this thread contains the latest version of the proposal.

Thank you very much for your feedback and contributions to the proposal so far. Looking forward to continuing the conversation!

BlockworksResearch from blockworksresearch.eth

2.00 TOKEN

posted 2 years ago

edited 2 years ago

The problems outlined in our response show the following:

There is a very large opportunity cost to this proposal at this point in time. The DAO is in need of a proper treasury management strategy, and voting this into place complicates that even further. We already have multiple ongoing ecosystem funding initiatives and incentive programs that make planning around treasury management difficult, ceding 50% of our sequencer revenue, one of the few sources of diversity we have is a risky move to put it kindly.

109

The problems outlined in our response show the following:

There is a very large opportunity cost to this proposal at this point in time. The DAO is in need of a proper treasury management strategy, and voting this into place complicates that even further. We already have multiple ongoing ecosystem funding initiatives and incentive programs that make planning around treasury management difficult, ceding 50% of our sequencer revenue, one of the few sources of diversity we have is a risky move to put it kindly.

Quoted from Arbitrum

The Arbitrum Foundation is requesting 5,134 ETH from the ArbitrumDAO to cover the following costs:

3600 ETH to run the first BOLD-enabled proposer for Arbitrum One,
634 (555 + 79) ETH budget to counter one BOLD challenge,
500 ETH as service fees for active BOLD proposers (excluding the Arbitrum Foundation), and,
400 ETH to reimburse honest parties on their L1 gas costs for 3 years.

Again, we are losing half of our ETH from the treasury. Another 50% taken from the sequencer this year could be a very risky move. For reference, we're currently at 14,000 ETH.
It's also not just about profit, the goal of the post is to incentivize activity within the DAO. There are plenty of incentive misalignments that could possibly occur if we enact this too soon. And then there's the question if our current reputation/karma metrics good enough to handle an event like this? These are all questions that need be answered prior to pursuing this. Retroactive changes are prevalent in this DAO, and for the future we would like to minimize those events.
And finally, there's the question if our current reputation system would be able to handle this without retroactive changes in the future. Because of the incentive misalignments we have outlined are possible, we would need a better reputation scoring metric for the future to rate delegate performance. The equation outlined in the proposal is not satisfying.

(100 * ((Forum Activity Score * 1) + (Off-chain Votes % * 3) + (On-chain Votes % * 5))) / (Sum of Weights * Max Score Setting * 1)

With this equation, there exists some possibility where users are rewarded for being consistent voters and not on the quality of their voting and decision making. We need to incentivize cooperation, not just saying "yes" or "no" to various proposals. The weighting in the equation is skewed toward offchain and onchain voting. Furthermore, the Forum Activity score that we currently use does not take into account other granularities.

Again, it's not just about the profit, it is about the opportunity cost, the timing, our current infrastructure, AND the decrease in surplus fees due to Dencun.

BlockworksResearch from blockworksresearch.eth

2.00 TOKEN

posted 2 years ago

At Blockworks, we find this proposal to be a novel solution to boosting participation and incentivizing delegate performance, but we do not believe accounts for the Dencun upgrade, which has decreased the surplus fees, and thus the estimates given appear liberal. As we've stated publicly, during a bear market, surplus fees could potentially fall further, which might negatively impact both delegates and ARB stakers.

While increasing the number of active voters is positive, it is important to ensure that this also enhances the quality of governance. The focus should remain on meaningful participation rather than solely capturing sequencer revenues. Concentrated staking among the top delegates could lead to perverse incentives from parties that have large delegations. There is a possibility that a group of delegates may exhibit high participation and voting rates, but deliver mediocre quality responses, incentivized by delegate incentives and ARB staking to secure positive value. This is especially possible since the proposal recommends that onchain voting and offchain voting be weighted as higher than delegate forum participation. Currently, delegate forum participation is the best proxy we have for cooperation amongst delegates. It also might be worth noting that in the lifetime of a delegate, priorities change, and thus we may need to make this more dynamic in some manner for both the end of a delegation and the beginning.

110

Ultimately -- and most importantly --- enforcing a proposal like this too soon might detract from treasury improvement as the DAO would begin to lose one of the only other tokens it holds: ETH. The DAO is already questionably positioned here since it is losing a half of its Ethereum in bootstrapping BoLD for its fraudproof validator. While we think the proposal is novel, it might be best to push back a proposal like this until some clarity is achieved on treasury sustainability.

110

Mehdi_eth from zkmehdi.eth

54.0K TOKEN

posted 2 years ago

This is a great proposal, and the subsequent discussion was also insightful.

The benefits I see here are:

127

This is a great proposal, and the subsequent discussion was also insightful.

The benefits I see here are:

Increased incentives to engage more in the DAO governance. I personally consider myself an example of this. (You will see me more engaged in the DAO discussions.)
Adding utility for the $ARB token and joining the revenue-sharing narratives in the bull market. However, as others have mentioned, the DAO revenue is currently insufficient in Which I am Fine with This.

However, I want to express my concern regarding the Karma calculations of 80, as others have mentioned this. There is a risk of voting power centralization tied to a small number of delegates. Clearly, just a UI warning would not be enough to help with VP decentralization. There need to be incentives to delegate VP to smaller delegates at the smart contract level. As a small delegate, I would be more incentivized to participate in the DAO discussions then.

Regarding timing and attack incentives, @bendi raised great points. Things can change quickly, especially after ETH ETF approvals. Generally, asset prices move sideways 80% of the times and form strong trends 20% of the time. A rising trend in $ETH prices could justify an attack on Arbitrum DAO now that there is a clear conviction that ETH is long-term bullish due to the ETF. Attackers can also be sophisticated actors by borrowing some ARB tokens on DeFi protocols and hedging their position on PERP markets, making it easier to attack the DAO than we might think. Therefore, we need a plan to avoid possible black swan events.

I also want to point out some positive effects and sentiment around $ARB holders when Arbitrum chains get congested and fees start to increase due to a Most anticipated event such as LayerZero TGE. In such events, $ARB holders will feel more satisfaction as they benefit directly from the earned revenue. I experienced the same feelings after the implementation of EIP-1559 when the $Shiba memecoin congested the Ethereum network and burned a notable amount of ETH.

Frisson from 0xfrisson.eth

12.8M TOKEN

posted 2 years ago

edited 2 years ago

Hello Arbitrum delegates,

I edited the original post, as well as the title of this thread, to reflect our updated proposal.

We received three major categories of constructive feedback on this proposal.

Hello Arbitrum delegates,

I edited the original post, as well as the title of this thread, to reflect our updated proposal.

We received three major categories of constructive feedback on this proposal.

Delegates including @swmartin @pedrob @BlockworksResearch and others are not ready to come to consensus on committing 50% of future surplus sequencer fees to staking. While there is strong agreement that the DAO will share rewards in some form with token holders in the future, we need more time to develop a plan for treasury diversification and sustainable operations before moving forward with the plan originally outlined in this proposal.
Delegates including @JoJo @cp0x @Englandzz_Curia @Mehdi_eth @SEEDGov and others have strong ideas on how staker rewards and delegate incentives should work in the context of ARB Staking that go beyond the original scope of this proposal.
Delegates including @fred @0x_ultra and others were concerned about the details of how we proposed to implement Karma to define “active delegate” as a criteria for rewards eligibility.

We’ve rewritten the proposal to account for this feedback by making the following changes.

Instead of directing 50% of future surplus sequencer fees to stakers, we leave the DAO to decide later how to fund rewards.
Instead of directing 1% of staking rewards to delegates, we leave the DAO to decide how to fund delegate incentives via staking. We note that additional mechanisms like a per delegate voting power cap can be introduced to ensure ARB Staking does not lead to increased centralization of voting power.
Instead of pre-setting a Karma Score requirement, we leave the DAO to decide this in the future. We also enable the DAO to change the Karma Score formula in the future. We implement multiple guardrails to ensure the implementation of Karma score is robust and decentralized.

The first post in this thread contains the latest version of the proposal.

Thank you very much for your feedback and contributions to the proposal so far. Looking forward to continuing the conversation!

BlockworksResearch from blockworksresearch.eth

2.00 TOKEN

posted 2 years ago

edited 2 years ago

The problems outlined in our response show the following:

There is a very large opportunity cost to this proposal at this point in time. The DAO is in need of a proper treasury management strategy, and voting this into place complicates that even further. We already have multiple ongoing ecosystem funding initiatives and incentive programs that make planning around treasury management difficult, ceding 50% of our sequencer revenue, one of the few sources of diversity we have is a risky move to put it kindly.

109

The problems outlined in our response show the following:

There is a very large opportunity cost to this proposal at this point in time. The DAO is in need of a proper treasury management strategy, and voting this into place complicates that even further. We already have multiple ongoing ecosystem funding initiatives and incentive programs that make planning around treasury management difficult, ceding 50% of our sequencer revenue, one of the few sources of diversity we have is a risky move to put it kindly.

Quoted from Arbitrum

The Arbitrum Foundation is requesting 5,134 ETH from the ArbitrumDAO to cover the following costs:

3600 ETH to run the first BOLD-enabled proposer for Arbitrum One,
634 (555 + 79) ETH budget to counter one BOLD challenge,
500 ETH as service fees for active BOLD proposers (excluding the Arbitrum Foundation), and,
400 ETH to reimburse honest parties on their L1 gas costs for 3 years.

Again, we are losing half of our ETH from the treasury. Another 50% taken from the sequencer this year could be a very risky move. For reference, we're currently at 14,000 ETH.
It's also not just about profit, the goal of the post is to incentivize activity within the DAO. There are plenty of incentive misalignments that could possibly occur if we enact this too soon. And then there's the question if our current reputation/karma metrics good enough to handle an event like this? These are all questions that need be answered prior to pursuing this. Retroactive changes are prevalent in this DAO, and for the future we would like to minimize those events.
And finally, there's the question if our current reputation system would be able to handle this without retroactive changes in the future. Because of the incentive misalignments we have outlined are possible, we would need a better reputation scoring metric for the future to rate delegate performance. The equation outlined in the proposal is not satisfying.

(100 * ((Forum Activity Score * 1) + (Off-chain Votes % * 3) + (On-chain Votes % * 5))) / (Sum of Weights * Max Score Setting * 1)

Again, it's not just about the profit, it is about the opportunity cost, the timing, our current infrastructure, AND the decrease in surplus fees due to Dencun.

BlockworksResearch from blockworksresearch.eth

2.00 TOKEN

posted 2 years ago

110

Mehdi_eth from zkmehdi.eth

54.0K TOKEN

posted 2 years ago

This is a great proposal, and the subsequent discussion was also insightful.

The benefits I see here are:

127

This is a great proposal, and the subsequent discussion was also insightful.

The benefits I see here are:

Increased incentives to engage more in the DAO governance. I personally consider myself an example of this. (You will see me more engaged in the DAO discussions.)
Adding utility for the $ARB token and joining the revenue-sharing narratives in the bull market. However, as others have mentioned, the DAO revenue is currently insufficient in Which I am Fine with This.

At SEEDGov, we find this proposal interesting. Activating a Staking protocol aligned with increasing participation in governance is a great idea. We share the idea that with Quorum lowering down we are facing a potential attack to our DAO and it’s our job to prevent that by having robust and solid governance. With that said, we believe there is a fundamental problem being addressed indirectly rather than directly.

Arbitrum DAO has been generating significant selling pressure on the ARB, which, as we all know, has had a strong negative impact on the governance token's price. Therefore, creating utility for the token while reducing selling pressure could be an effective mechanism to prevent its devaluation.

The idea of an LST is attractive and can bring positive effects such as increased competitiveness of our token. However, we believe that before moving forward, it would be responsible to obtain more precise data on how staking would impact the on-chain liquidity of the token. Also, on the opportunity cost of locking up a large percentage of the tokens and how it would affect a treasury that is mostly in ARB.

It would also be good to have data from an outcome analysis perspective. Considering the hypothetical returns that were calculated, how much do you expect to be staked? Do you think the current percentage of revenue is attractive enough to achieve the desired objectives?

Also, as a mention, with the Treasury Management proposal being discussed it would be wise to do some impact calculations and possible overlaps. (Considering that although both proposals can coexist, the STMG's motivation is to generate the necessary yield to cover the gap between the DAO's income and outflows, so that any direct allocation of income affects the STMG's objectives in the long term.)

Quoted from Frisson

Our staking implementation directs 1% of surplus fees to delegates to sustain the ongoing growth and development of Arbitrum, a large portion of which is driven by the DAO. In its current form, ARB staking is not meant to replace the delegate incentives program , but rather to complement it with a smaller source of incentives that are programmatically tied to ongoing network operations. In the future, we believe it could make sense to integrate the delegate incentives program with ARB staking so that, instead of getting delegate incentive funds from the ARB treasury, they come directly from DAO revenue.

We strongly support the idea of using the surplus fees to enhance governance within our community, but yet we think the mechanism could be improved and be more meritocratic based on real contributions. Thinking loudly considering the idea to avoid overlap, start working on a framework that allows us to merge criterias and create a horizontal scoring system that works both for the Delegate Incentive Program and this proposal is the way to go for this.

In this way, mechanisms can be established to direct incentives in favor of those who delegate voting power to members of the community who make significant contributions. It would also be interesting to encourage delegation to actors with little VP but who still actively contribute to Arbitrum DAO. This is aligned with what the Foundation proposed with the (Re)delegation Week.

132

Hey @Frisson ,After discussing with you on the governance call, here are the full details of what I'm thinking:

I suggest that the yield for delegates with a lower number of ARB but meeting the active delegate criteria should be higher than for those with many delegates. Currently, there's an incentive program for those with at least 50k ARB. This adjustment will support active delegates who contribute meaningfully to Arbitrum and encourage low ARB delegates to be active. It would also help distribute voting power more fairly and enhance DAO security. The proposal mainly benefits delegators, so this change would also compensate active delegates.

Here is an example of categorized model that I could think of right now:

Tier-based Approach

The Tier-based approach divides delegates with Karma scores above 80 into tiers based on their ARB delegates. The highest yield is given to those with the lowest ARB delegates. This method is fair because it rewards active delegates, even if they hold fewer ARB. It encourages smaller delegates to participate more in the DAO to build a reputation and have a chance to participate in the delegate incentive program. It is also simple and easy to understand. However, defining tiers can be difficult and may lead to disagreements. Additionally, some delegates might try to adjust their ARB holdings to fit into a more favorable tier.

Example:

Tier delegate Criteria: Delegate with the lowest amount of ARB holdings with a Karma Score > 80.

Tier 1 (lowest ARB delegate/highest yield)
Tier 2
Tier 3
Tier 4…

Voting Power Ranges

The Voting Power Ranges approach groups delegates based on their ARB holdings. Lower ARB ranges receive a higher yield. This method provides more detail by dividing delegates into different groups, ensuring fair distribution. It balances rewards between active participants with a low number of delegates and those with a larger number of delegates. However, this approach is more complex and involves more calculations. Determining the exact ranges can also be contentious.

Example:

Voting Power Ranges:

0-1000 ARB
1001-10,000 ARB
10,001-50,000 ARB
50,001-100,000 ARB
100,001-500,000 ARB
More than 500,000 ARB

Weight Distribution

The Weight Distribution method assigns weights to different ARB holding ranges. Yield is distributed based on these weights, with lower ARB ranges having higher base weights. This ensures a proportional distribution. This method is flexible and easy to adjust. Smaller ones receive a higher yield. However, the calculations are more complex and require precise formulas.

Example:

Weight Distribution

0-1000 ARB: Base weight 3.0
1001-10,000 ARB: Base weight 2.5
10,001-50,000 ARB: Base weight 2.0
50,001-100,000 ARB: Base weight 1.5
100,001-500,000 ARB: Base weight 1.0
More than 500,000 ARB: Base weight 0.5

142

Quoted from Frisson

132

Hey @Frisson ,After discussing with you on the governance call, here are the full details of what I'm thinking:

Here is an example of categorized model that I could think of right now:

Tier-based Approach

Example:

Tier delegate Criteria: Delegate with the lowest amount of ARB holdings with a Karma Score > 80.

Tier 1 (lowest ARB delegate/highest yield)
Tier 2
Tier 3
Tier 4…

Voting Power Ranges

Example:

Voting Power Ranges:

0-1000 ARB
1001-10,000 ARB
10,001-50,000 ARB
50,001-100,000 ARB
100,001-500,000 ARB
More than 500,000 ARB

Weight Distribution

Example:

Weight Distribution

0-1000 ARB: Base weight 3.0
1001-10,000 ARB: Base weight 2.5
10,001-50,000 ARB: Base weight 2.0
50,001-100,000 ARB: Base weight 1.5
100,001-500,000 ARB: Base weight 1.0
More than 500,000 ARB: Base weight 0.5

142

Thank you for your thoughtful analysis, @pedrob

I addressed a few relevant points in my response to Sam here: https://forum.arbitrum.foundation/t/arb-staking-use-surplus-fees-to-align-governance/25084/12?u=frisson

Quoted from pedrob

So, if we take that recent vote, the threshold someone would need to consider to attack the DAO is 213M $ARB (and I believe a realistic estimate would indicate that the value is higher, as in the event of an attack on the DAO, more $ARB that is usually not active in governance would likely vote).

jump to post →

I disagree with this framing on multiple levels. First, I would say that $213M is small compared to the potential upside of attacking the DAO, which controls all of the TVL on Arbitrum One and Nova, in addition to the $50M (and growing) of ETH in the treasury. Second, it is difficult to defend against such an attack in the manner you describe because once an onchain proposal voting period starts, it is no longer possible to delegate tokens that vote on that proposal (you have to delegate before the voting period starts to participate in the proposal).

Quoted from pedrob

Finally, I know this is not the main point, but I disagree with this narrative. I do agree that using the revenue to incentivize participation in governance is positive and will increase the security of the DAO. However, I disagree with the notion that there are no incentives to delegate the ARB token. In fact, the only incentive that exists today for holding it is to participate in governance or delegate that participation. I believe we need to strengthen this aspect.

jump to post →

I'm not sure I understand this point. Where does the current incentive to delegate come from? Delegating your ARB tokens does not come with any rewards that I'm aware of. On the other hand, it does take time (especially if you are doing it productively and pay some attention to what your delegate is doing).

162

This opinion is solely my own and does not represent the views of SEEDGov, with whom I collaborate as an Advisor for LTIPP.

hey @Frisson thank you very much for the proposal. Overall, I like it and agree with the general principle that using DAO revenue to incentivize participation in governance is an excellent idea and should be implemented.

The problem I see, and I agree with all the points raised by @swmartin , is one of timing. It seems a bit premature, as the DAO is not yet mature and does not have a clear revenue flow to distribute.

I think it hits the mark in pointing out:

Quoted from swmartin

We are about to “spend” half our ETH holdings on BoLD validator bootstrapping, which will also require a 4% yield on 3600 ETH bonds into perpetuity. Additionally, we need a treasury management program to generate passive yield on DAO holdings to achieve long term sustainability, and this proposal does the opposite. It continues to drain the DAO of its resources rather than build it up over time (Mantle is an example of an L2 that has done a superb job on this front).

jump to post →

As shown in the graph shared by Entropy, the revenue from the sequencer has dramatically declined since the approval of EIP-4844 (note that the spike at the end is due to the LZO airdrop):

At this moment, the DAO does not have a defined plan on how to spend the ARB and revenue to maintain a healthy treasury for the medium and long term. Therefore, I believe the DAO should stop approving large expenditures (in this case, 50% of the profit is being requested) until a treasury manager is appointed or a treasury management strategy is defined.

On the other hand,

Quoted from Frisson

The number of unique voters participating in the DAO has been steadily declining since DAO launch. As a result, it is becoming economically attractive to attack the DAO treasury.

Although it is true that the number of unique voters has declined, the amount of $ARB delegated for voting has remained stable. I don't say this is positive, as the supply has increased significantly in recent months, so the expectation would be that $ARB participating in governance should increase by the same percentage.

However, I disagree that it is urgent or that it has become “economically attractive” to attack the DAO's treasury. In the latest tally proposal, which was relatively controversial (due to heated last-minute discussions), 213M $ARB and approximately 15,900 addresses voted.

What I mean by this: I agree with the proposed value and the idea of using sequencer revenue to encourage participation in governance. In the medium term, this should be something implemented. However, I don't think it is urgent, and the DAO is not yet mature enough to handle this expenditure.

Quoted from Frisson

Currently, there is no direct incentive to delegate ARB tokens. ARB staking introduces a direct incentive to stake and delegate.

swmartin

31.7M TOKEN

posted 2 years ago

I really like the underlying goal of trying to fend off governance attacks, increase ARB utility, and encouraging active participation in governance. However, I see some problems...

If we tie the token to insignificant revenue values, we introduce the risk of people valuing ARB relative to its revenue generation and could face compression of multiples. We see this in the perps landscape, with governance tokens that share revenue trading in line with the yield they generate. Even if we ignore the drastic decrease in DAO revenue since ArbOS Atlas 20 / 4844, $25M (50% of last years revenue, which is still overstating it because Base fees made up a significant portion of revenue over that period) on an $8B FDV token doesn't look great... I understand it's only on delegated ARB so it would look more attractive, but these dynamics will change quickly if there is yield attached to delegating tokens. If we do see price come down as a result of this proposal, it could actually make it cheaper to conduct a governance attack while also hurting the value of the DAO treasury.
Is it actually a good idea in practice to tie delegators/delegates yield to sequencer revenue? This could misalign incentives - fees will likely creep higher and higher over time as voters/governors/delegates look to increase their yield by increasing fees, which could lead to a worse UX and developer experience on Arbitrum.
We are about to "spend" half our ETH holdings on BoLD validator bootstrapping, which will also require a 4% yield on 3600 ETH bonds into perpetuity. Additionally, we need a treasury management program to generate passive yield on DAO holdings to achieve long term sustainability, and this proposal does the opposite. It continues to drain the DAO of its resources rather than build it up over time (Mantle is an example of an L2 that has done a superb job on this front).
Are we sure the Karma score can't be gamed in any way? We need to be 100% sure on this one, as it will become an integral part of Arbitrum governance if implemented and is very novel in nature.
In general, DAO expenses are growing while revenue declines. We need non-native assets to weather a bear market to ensure we aren't forced into selling ARB at depressed prices.

213

I really like the underlying goal of trying to fend off governance attacks, increase ARB utility, and encouraging active participation in governance. However, I see some problems...

If we tie the token to insignificant revenue values, we introduce the risk of people valuing ARB relative to its revenue generation and could face compression of multiples. We see this in the perps landscape, with governance tokens that share revenue trading in line with the yield they generate. Even if we ignore the drastic decrease in DAO revenue since ArbOS Atlas 20 / 4844, $25M (50% of last years revenue, which is still overstating it because Base fees made up a significant portion of revenue over that period) on an $8B FDV token doesn't look great... I understand it's only on delegated ARB so it would look more attractive, but these dynamics will change quickly if there is yield attached to delegating tokens. If we do see price come down as a result of this proposal, it could actually make it cheaper to conduct a governance attack while also hurting the value of the DAO treasury.
Is it actually a good idea in practice to tie delegators/delegates yield to sequencer revenue? This could misalign incentives - fees will likely creep higher and higher over time as voters/governors/delegates look to increase their yield by increasing fees, which could lead to a worse UX and developer experience on Arbitrum.
We are about to "spend" half our ETH holdings on BoLD validator bootstrapping, which will also require a 4% yield on 3600 ETH bonds into perpetuity. Additionally, we need a treasury management program to generate passive yield on DAO holdings to achieve long term sustainability, and this proposal does the opposite. It continues to drain the DAO of its resources rather than build it up over time (Mantle is an example of an L2 that has done a superb job on this front).
Are we sure the Karma score can't be gamed in any way? We need to be 100% sure on this one, as it will become an integral part of Arbitrum governance if implemented and is very novel in nature.
In general, DAO expenses are growing while revenue declines. We need non-native assets to weather a bear market to ensure we aren't forced into selling ARB at depressed prices.

I think this proposal is just too ahead of its time. If we had $200M of stables and ETH in the treasury, I'd be all for this. However, I believe that Arbitrum is still too early in its growth stage to consider revenue share with token holders / delegators.

Thank you for your thoughtful analysis, @pedrob

I addressed a few relevant points in my response to Sam here: https://forum.arbitrum.foundation/t/arb-staking-use-surplus-fees-to-align-governance/25084/12?u=frisson

Quoted from pedrob

jump to post →

Quoted from pedrob

jump to post →

162

This opinion is solely my own and does not represent the views of SEEDGov, with whom I collaborate as an Advisor for LTIPP.

The problem I see, and I agree with all the points raised by @swmartin , is one of timing. It seems a bit premature, as the DAO is not yet mature and does not have a clear revenue flow to distribute.

I think it hits the mark in pointing out:

Quoted from swmartin

jump to post →

As shown in the graph shared by Entropy, the revenue from the sequencer has dramatically declined since the approval of EIP-4844 (note that the spike at the end is due to the LZO airdrop):

On the other hand,

Quoted from Frisson

The number of unique voters participating in the DAO has been steadily declining since DAO launch. As a result, it is becoming economically attractive to attack the DAO treasury.

Quoted from Frisson

Currently, there is no direct incentive to delegate ARB tokens. ARB staking introduces a direct incentive to stake and delegate.

swmartin

31.7M TOKEN

posted 2 years ago

I really like the underlying goal of trying to fend off governance attacks, increase ARB utility, and encouraging active participation in governance. However, I see some problems...

If we tie the token to insignificant revenue values, we introduce the risk of people valuing ARB relative to its revenue generation and could face compression of multiples. We see this in the perps landscape, with governance tokens that share revenue trading in line with the yield they generate. Even if we ignore the drastic decrease in DAO revenue since ArbOS Atlas 20 / 4844, $25M (50% of last years revenue, which is still overstating it because Base fees made up a significant portion of revenue over that period) on an $8B FDV token doesn't look great... I understand it's only on delegated ARB so it would look more attractive, but these dynamics will change quickly if there is yield attached to delegating tokens. If we do see price come down as a result of this proposal, it could actually make it cheaper to conduct a governance attack while also hurting the value of the DAO treasury.
Is it actually a good idea in practice to tie delegators/delegates yield to sequencer revenue? This could misalign incentives - fees will likely creep higher and higher over time as voters/governors/delegates look to increase their yield by increasing fees, which could lead to a worse UX and developer experience on Arbitrum.
We are about to "spend" half our ETH holdings on BoLD validator bootstrapping, which will also require a 4% yield on 3600 ETH bonds into perpetuity. Additionally, we need a treasury management program to generate passive yield on DAO holdings to achieve long term sustainability, and this proposal does the opposite. It continues to drain the DAO of its resources rather than build it up over time (Mantle is an example of an L2 that has done a superb job on this front).
Are we sure the Karma score can't be gamed in any way? We need to be 100% sure on this one, as it will become an integral part of Arbitrum governance if implemented and is very novel in nature.
In general, DAO expenses are growing while revenue declines. We need non-native assets to weather a bear market to ensure we aren't forced into selling ARB at depressed prices.

213

I really like the underlying goal of trying to fend off governance attacks, increase ARB utility, and encouraging active participation in governance. However, I see some problems...

If we tie the token to insignificant revenue values, we introduce the risk of people valuing ARB relative to its revenue generation and could face compression of multiples. We see this in the perps landscape, with governance tokens that share revenue trading in line with the yield they generate. Even if we ignore the drastic decrease in DAO revenue since ArbOS Atlas 20 / 4844, $25M (50% of last years revenue, which is still overstating it because Base fees made up a significant portion of revenue over that period) on an $8B FDV token doesn't look great... I understand it's only on delegated ARB so it would look more attractive, but these dynamics will change quickly if there is yield attached to delegating tokens. If we do see price come down as a result of this proposal, it could actually make it cheaper to conduct a governance attack while also hurting the value of the DAO treasury.
Is it actually a good idea in practice to tie delegators/delegates yield to sequencer revenue? This could misalign incentives - fees will likely creep higher and higher over time as voters/governors/delegates look to increase their yield by increasing fees, which could lead to a worse UX and developer experience on Arbitrum.
We are about to "spend" half our ETH holdings on BoLD validator bootstrapping, which will also require a 4% yield on 3600 ETH bonds into perpetuity. Additionally, we need a treasury management program to generate passive yield on DAO holdings to achieve long term sustainability, and this proposal does the opposite. It continues to drain the DAO of its resources rather than build it up over time (Mantle is an example of an L2 that has done a superb job on this front).
Are we sure the Karma score can't be gamed in any way? We need to be 100% sure on this one, as it will become an integral part of Arbitrum governance if implemented and is very novel in nature.
In general, DAO expenses are growing while revenue declines. We need non-native assets to weather a bear market to ensure we aren't forced into selling ARB at depressed prices.

ARB Staking: Unlock ARB Utility and Align Governance

ARB Staking: Unlock ARB Utility and Align Governance

ARB Staking: Unlock ARB Utility and Align Governance

Constitutional / Non-Constitutional

Abstract

Motivation

Rationale

Specifications and Steps to Implement

System architecture

Karma integration

Parallel workstreams: Staking Rewards and Delegation working groups

Integration with future Arbitrum staking systems

Estimated Timeline

Overall Cost

Disclaimer

ARB Staking: Unlock ARB Utility and Align Governance

ARB Staking: Unlock ARB Utility and Align Governance

ARB Staking: Unlock ARB Utility and Align Governance

Constitutional / Non-Constitutional

Abstract

Motivation

Rationale

Specifications and Steps to Implement

System architecture

Karma integration

Parallel workstreams: Staking Rewards and Delegation working groups

Integration with future Arbitrum staking systems

Estimated Timeline

Overall Cost

Disclaimer

ARB Staking: Unlock ARB Utility and Align Governance

ARB Staking: Unlock ARB Utility and Align Governance

ARB Staking: Unlock ARB Utility and Align Governance

ARB Staking: Unlock ARB Utility and Align Governance

ARB Staking: Unlock ARB Utility and Align Governance

ARB Staking: Unlock ARB Utility and Align Governance

Constitutional / Non-Constitutional

Abstract

Motivation

Rationale

Specifications and Steps to Implement

System architecture

Karma integration

Parallel workstreams: Staking Rewards and Delegation working groups

Integration with future Arbitrum staking systems

Estimated Timeline

Overall Cost

Disclaimer

Constitutional / Non-Constitutional

Abstract

Motivation

Rationale

Specifications and Steps to Implement

System architecture

Karma integration

Parallel workstreams: Staking Rewards and Delegation working groups

Integration with future Arbitrum staking systems

Estimated Timeline

Overall Cost

Disclaimer

On Timing & Attack Incentives

On Timing & Attack Incentives

Impacts on Token Valuation

Defining "active participation" and Gameability

On Timing & Attack Incentives

On Timing & Attack Incentives

Impacts on Token Valuation

Defining "active participation" and Gameability

DAO Redelegation Strategy

DAO Redelegation Strategy

Parallel workstreams: Staking Rewards and Delegation working groups

Parallel workstreams: Staking Rewards and Delegation working groups

Parallel workstreams: Staking Rewards and Delegation working groups

Parallel workstreams: Staking Rewards and Delegation working groups

Parallel workstreams: Staking Rewards and Delegation working groups

Parallel workstreams: Staking Rewards and Delegation working groups

Summary

Supportive Opinion

Summary

Supportive Opinion