ARB Staking: Use Surplus Fees to Align Governance

It’s worth revisiting Ben’s post :slight_smile: ^

3 Likes

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:

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:

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.

4 Likes

I disagree with this statement.
Even though I am a delegate with a lot of delegations, I believe that this idea can easily be used to generate income for sybils. Hundreds of accounts are created with a minimum of ARB.
Therefore, this part needs to be carefully considered.

Likewise, this will lead to the dominance of the sybils

1 Like

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.)

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.

5 Likes

Hey @Frisson , I have some questions that should be resolved prior to such a relevant implementation as the one you propose:

I don’t 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.

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.

5 Likes

This is a meaningful step forward in terms of incentive alignment between token holders, governance participants and Arbitrum, while continuing to enhance the economic security and sustainability of the ecosystem.

Great job on Karma Score and clarity on how it will work, however there is a need to also align to active delegates and passive delegates. Publishing the scores or appreciating the work of top delegates big and small should be done, allowing community to know whom the can delegate or redelegate.

Great work.

17 Likes

This proposal is a win win at multiple levels. But how will you balance between the rating / ranking for big and small delegators should also be thought of?

11 Likes

I support the idea of using the surplus fees to enhance governance within the community, but yet the mechanism could be improved and be more meritocratic based on real contributions.

7 Likes

The proposed represent a meaningful step forward in terms of incentive alignment between token holders, governance participants and Arbitrum, while continuing to enhance the economic security and sustainability of the ecosystem. Also we need to also apply thoughts on a more holistic skin in the game approach beyond token holdings and governance participation. Angles on token holding, creating MVP, engaging token and token holders within the ecosystem e.g. staking or LP which will give long term value to the holders and automatically creating interest in governance and decentralization through delegation of self delegate.

8 Likes

Aligning on all aspects together will be challenging, but an approach / plan to make this happen should be thought though. I like this suggestion and the similar ones that are made by others.

6 Likes

This is a meaningful step forward in terms of incentive alignment between token holders, governance participants and Arbitrum, while continuing to enhance the economic security and sustainability of the ecosystem.

Great job on Karma Score and clarity on how it will work, however there is a need to also align to active delegates and passive delegates. Publishing the scores or appreciating the work of top delegates big and small should be done, allowing community to know whom the can delegate or redelegate.

Great work.

3 Likes

I like this suggestion of Skin in the game. Its gives new dimension to the approach aligning token holders to the ecosystem.

4 Likes

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Summary

The proposal suggests using 50% of surplus sequencer fees for ARB staking to enhance governance. This would incentivize ARB holders to stake and delegate their governance power, aligning their interests with the ecosystem’s success and ensuring productive use of surplus fees for community benefit.

Supportive Opinion

I support this proposal as it strengthens Arbitrum’s economic security and governance, encouraging active participation and aligning token holders’ interests with the ecosystem’s long-term health.

1 Like

Additionally, if the Timeboost proposal is accepted

then you can also give 50% of this income to stakers, it can significantly increase profitability.

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.

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.

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.

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.

1 Like

I am 100% in favor of staking rewards.

But I oppose any and all complex mechanisms to promote “meritocracy”. The problem with this well intentioned idea is that people will have to start deciding who and what does and does not have merit. This is either a quagmire or an inevitable corruption. What actions have merit? Probably those taken by me and my friends and definitely not those taken by people who aren’t my friends. So give me and my friends all the money.

The DAO should not be picking winners. Either reward all stakers or even better just buy back and burn ARB.

But if we can’t buy back and burn then we will need a means to align stakers for the long term. Which really just means discouraging insta sell yield farming. So let’s discourage dumping with multi-week warm up and cool down periods.

These are simple systems with a history of success. No need to reinvent a wheel that only spins for the good people(that I pick).

2 Likes

The proposal represents step forward in terms of incentive alignment between token holders, governance participants and Arbitrum, while continuing to enhance the economic security and sustainability of the ecosystem.

What exactly is the problem?
We now have a lot of ARB on wallets that lie like dead weight.
If it is possible to make even a small profit with it, this is a plus for the token.
But it must be done, as in the Uniswap proposal, which obliges not only to stake, but also to delegate these tokens, and only then make a profit.