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: A new financial model for app tokens: How to generate cash flows - a16z crypto