Thanks for all the hard work put forward by the ARB Staking Working Groups!
When the staking proposal was originally put forward the idea of explicitly linking chain growth and its subsequent revenue to ARB token holders was welcoming as it created much needed alignment.
However, with the final recommendations of the working group it’s clear that this alignment is now lacking (no immediate revenue share from Timeboost or Sequencer fees) and we don’t find much justification in throwing ARB from the treasury towards a staking contract to create ‘utility’ and ‘yield’, even if the intended goal is to encourage delegations. We are also unsure that targeting a annual yield rate for ARB Stakers (in ARB) is the correct approach here due to highly dynamic variables that affect the rate (staking %, price, market yield, etc.). Instead ‘if’ we go down the route of rewarding Stakers with ARB, we think it would be better for the DAO to consider an annual inflation rate that is allocated to ARB Stakers. As the DAO is effectively selling a share of the ecosystem’s future growth and revenue in exchange for the economic security delegates and Stakers provide.
Lastly, we do also echo some of Entropy’s edge case concerns, however, this is just inherent to most staking designs and potential solutions can very quickly undermine the decentralization of staking setups.
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This is a personal comment and doesn’t necessarily reflect the views of the SEEDGov governance team.
After reviewing the findings of the Working Group dedicated to Rewards Source, I align with @WintermuteGovernance in agreeing that inflation is the best option to provide rewards to stakers and increase the amount of voting power actively participating in governance. The other options are subject to variability, which is not desirable as it would make it difficult to provide stable income to stakers. Consequently, this could undermine the primary objective of giving the token utility and strengthening voting activity if the incentives are not attractive enough.
That said, enabling or disabling the issuance mechanism is a decision of significant importance (both at the protocol level and due to its potential impact on the community). As such, it’s crucial to take the necessary precautions before proceeding.
Before making this decision, it would be prudent to first test whether the staking system functions as expected and achieves the desired effects in governance. By doing so, we can ensure that when inflation is activated, there will be as much certainty as possible that it won’t need to be reversed (as we know, DAOs are slow, and disabling it could take weeks).
In summary, utilizing treasury funds could be a viable alternative to test the staking system over a 6-month to 1-year period. This approach would allow us to evaluate the code’s robustness and the system’s efficiency in incentivizing the delegation of VP to active governance participants. Only then should we consider activating the inflation mechanism.
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Inflationary rewards are a good and stable mechanism to reward stakers.
But there is one further thing we can do that aligns with all of the above goals. It’s time to start using the revenue. Revenue is unstable and we shouldn’t make risky commitments, but we need to demonstrate long term commitment to the use and value of the Arb token. We must use some revenue to buy Arb tokens. They don’t need to be burned or distributed, we buy them and put them in the treasury.
There is no greater mechanism to build trust and confidence than buying our own token.
Save Arbitrum, build the treasury, buy the token!
Now staking is much closer, we might want to rework this formula.
Basically, we just need to replace the DIP CR+DF Score with the DF Score alone, as they are merged now in the current DIP format here:
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