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.
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, weāre currently at 14,000 ETH.
Itās 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 thereās 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, thereās 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.
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 āyesā or ānoā 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, itās 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.
Ecosystem profit. There are two questions here:
a) is it worth participating in voting and holding ARB in order to give these users a part of the profit?
b) it is necessary to consider for what purposes resources are required. Specifically, letās give some team this task. Let them calculate how much money is needed and for which Arbitrum initiatives.
Arbitrum did not lose 5,134 ETH, I think this is required at the start of the update, and after some time I believe that we will be able to return this money to the Treasury.
And yes, I agree that this is a very important step for the Arbitrum and many issues need to be worked out. But to do this, you need to work out specific issues.
Overall: it might be worth making a separate proposal and allocating a small amount for research on all these issues. I think a small team will be able to produce a clear report quite quickly, and our discussions, unfortunately, will not lead to any results.
Can you elaborate on what exactly youāre saying for your first point(s)? Are you asking if there are enough current incentives for users to participate in governance for (a) and for (b), what exactly are you asking to be calculated? Are you saying that initiatives should be readjusted according in conjunction?
Sure, Arbitrum is not literally losing 5,134 ETH, but fraudproof validation systems do not have high levels of capital efficiency, and we would prefer not to make ourselves dependent on a random interval of time where the DAO is waiting on bootstrapping funds to be returned. In fact, considering how high the bootstrapping cost is for one validator, it is logical to assume that it may take longer to bootstrap other validators. Based on the fact that 400 of the ETH is being used to reimburse honest parties on the gas costs for 3 years, it can be assumed that the fraudproof validator will be up and running and have the 3600 ETH deposited in the validator contract.
Weāre glad that we can agree that the current Arbitrum infrastructure would not be able to support this.
āā¦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 kindlyā
I disagree. These other programs have no relevance to this proposal, donāt share the same source of funds and donāt jeopardize the existing treasury. The proposal is to spend from revenue not savings.
āAgain, we are losing half of our ETH from the treasury. Another 50% taken from the sequencerā¦ā
This is a very misleading hyperbolic statement. The DAO isnāt losing half its ETH, and drawing from future profits wonāt diminish the current treasury at all.
āAnd finally, thereās the question if our current reputation system would be able to handle this without retroactive changes in the futureā
I am also skeptical of the karma score system but I think youāve 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 isnāt perfected in spec before implementation. And that evolving implementation and spec shouldnāt 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 itās an existential and reputational hazard to the successful operating of the Arbitrum L2.
Absolutely agree. $ARB must be the most important part of the entire Arbitrum ecosystem. And investors have their right to share the protocol incomes. 97% retails got lost money from $ARB token price drop, itās unacceptable and unreasonable.
Hello. This is a very good proposal.
If you announce that you will allocate Arbitrumās sequencer rewards to stakers, it should lead to the acquisition of many new users. Implementing staking is important for expanding the ecosystem. I hope you will continue with the development. At the same time, there are security concerns. I would like you to simultaneously create an environment where you can participate in staking even from a hardware wallet.
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 āactive delegateā as a criteria for rewards eligibility.
Weāve 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!
While i commend the impulse to take all feedback, I still wonder if you could have passed this with some amount as the starting amount to return. Itās still a cool proposal that I support, I think you may be over-correcting as I did not see any large delegates listed in your reasoning.
Based on many conversations with delegates both on the forum and in other venues, my personal view is that this updated version of the proposal is better aligned with the DAOās preferences at this time. Iām happy to revisit as additional feedback emerges.
I donāt know if it corresponds to the DAO, the foundation or the Lab; have they established any usage objective for the ETH received? I find it strange to think that there is no previously defined roadmap for the use of the income.
This is up to the DAO to determine. I would say that we are still in the process of determining what the objective should be. I personally think itās essential that we eventually share the value created by the protocols the DAO controls with token holders. Iāve pulled this decision out of this proposal so that it can be decided on separately by the DAO as outlined here: ARB Staking: Unlock ARB Utility and Align Governance - #69 by Frisson
Resolving voter apathy is key; I also find that making them participate in the income is the way to align both the staker and the voter; but a stake module has complexities that I do not read that have been mentioned, for example, the decrease in the onchain liquidity of ARB; there were efforts by the DAO to achieve depth, the proposed mechanism would reduce liquidity, eliminating depth; and derived problems such as the decrease in the quality of ARB, and the impact on its parameters in lending markets, or even the delisting of these; as well as the increase in volatility, due to decreased onchain liquidity.
Less than 1% of ARB is currently used onchain. I personally think this proposal is likely to improve overall onchain liquidity of ARB by increasing its utility and making voting power compatible with restaking and DeFi. It would be hard to make the current situation worse IMO.
This is the right approach. Nearly everyone seems to be in agreement that staking is the right direction to take. The thornier question of how much reward to distribute is something that can be modeled and tested over time. The important thing is to get the ball rolling.
I like this proposal because sharing revenue with tokenholders is the endgame and we need to take leadership on this front. Even uniswap for example had to delay their revenue sharing program after legal and VCs objected, so we might see objections crop up from legal when we go about implementing the proposal. That makes it all the more urgent that we get a headstart with some nonzero amount of revenue sharing with tokenholders, to clear up any roadblocks.
I see a lot of āleave the DAO to decideā which is kicking the can down the road. What is the process by which the DAO will come to consensus on these issues? Iād like to see more thought into the process by which weāll come up with informed decisions on these questions before it moves for a vote.
I think the issues you highlighted (sequencer fee sharing, delegate rewards, and Karma Score requirement) should be handled by passing a governance proposal that defines the implementation, one proposal for each issue. I plan to help facilitate this process by pulling together a group to work together on each proposal starting with the folks who contributed ideas in this forum thread.
Hey @Frisson;
I agree that it makes sense to share the sequencer revenue with the token holders.
I am surprised that the Foundation has not defined the use of the income.
If utility goes hand in hand with a lock, how would you improve liquidity? You are possibly confusing the possibility of a āliquid token for the userā with the availability of onchain liquidity of ARB; which would be reduced by 1 ARB for every 1 ARB that is part of this initiative.
Following the updates made to this proposal, I am now in full support of this proposal. It should increase voter participation and is an interesting experiment in the realm of L2 goverance tokens.
Really wonder how much of an headache was to put together all feedbacks in this way. Nice work.
So, as it is now, the proposal becomes such that Tally will create the infrastructure and the protocol to support a staking arb capable of distributing sequencer fees, with parameters established by the dao.
I have an additional request if possible. Could it be build in a way that, if we have a certain asset in treasury, it could be plugged in? Would it be possible, and feasible with the current budget?
Dao is moving in a way that we will have potentially a lot of revenue streams in several years. We donāt know which one is gonna generate the most, and in which currency. Adding this optionality could be something useful in future.
We are very pleased with the changes made for this proposal and are in support. One thing that we would like to contribute to further discussion is that staking does not have to be purely comprised of sequencer revenue, there is a discussion to be had about ArbitrumDAO performing liquidity provision in some capacity and distributing fees accordingly as well. This very likely needs further investigation.
I have an additional request if possible. Could it be build in a way that, if we have a certain asset in treasury, it could be plugged in? Would it be possible, and feasible with the current budget?
Dao is moving in a way that we will have potentially a lot of revenue streams in several years. We donāt know which one is gonna generate the most, and in which currency. Adding this optionality could be something useful in future.
Yes, this is the plan. Iāll make it explicit in the proposal.