Arbitrum Foundation's Recommendations for ARDC Deliverables

Arbitrum Research & Development Committee (ARDC)
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Introduction

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The Arbitrum DAO has approved funding for a second phase of the Arbitrum Research & Development Collective (ARDC) for an additional six months, with the possibility of a further six-month extension.

With this in mind, The Arbitrum Foundation has put together a list of potential initiatives that can be undertaken by the Collective (Research, Risk and Security) during their term. The list is not exhaustive and the Supervisory Council (alongside the Collective) may wish to pursue other initiatives as well.

Additionally, contributors in the Arbitrum DAO may find some of the topics interesting and seek to come forward with their own solution.

DAO Revenue Streams

To date, the Arbitrum Foundation and contributors in Arbitrum DAO have a desire to increase the DAO’s revenue, to ensure it remains sustainable into the future. This includes all fees from Arbitrum One/Nova alongside a share of the fees collected by Arbitrum Orbit Chains (i.e., 8% of chain profit). Of course, the diversity of the Arbitrum DAO’s revenue stream remains in its infancy and there are several interesting topics to explore:

  • Chain revenue sustainability

    • If chain revenue from all Orbit chains, including Arbitrum One and Arbitrum Nova, remains the sole source of revenue for the Arbitrum DAO, will it increase to a level that can sustain the Arbitrum DAO’s expenditure?

    • Relevant initiatives: Arbitrum Gas Fees & Sequencer Revenue.

  • Base fee configuration

    • All revenue generated by Arbitrum One, Arbitrum Nova, and Orbit chains are directly linked to the fees paid by users. Is there a recommended configuration for the base fee, which may increase or decrease, to balance revenue returned to the Arbitrum DAO (and the respective chain) while ensuring the user experience is not impacted?

    • Relevant initiatives: Backtesting and Suggestions For Min Base Fee and Adjusting Arbitrum’s Gas Fees.

  • Captured MEV profit from Timeboost

  • Utilize DAO assets

  • Ecosystem programs

    • Performance results and lessons learnt from Ecosystem Programs run by other ecosystems that can be fed into initiatives spun up by the Arbitrum DAO including the GCP (and potentially the AVI if approved by the Arbitrum DAO).

DAO Resource Management

The Arbitrum DAO forms its organizational structure via popular vote. A proposal has the potential to spawn a new committee, startup, or DAO-governed organization. Additionally, many active contributors participate in the Arbitrum DAO as it is fun, interesting, and it has the potential to offer rewards for ad-hoc work.

Resource management should focus not only how to effectively allocate the DAO’s treasury towards initiatives, but how to activate all our contributors, including the respective organizations and full-time staff, and identify how they can all work together in an effective and coherent manner.

  • Communication lines with DAO initiatives

    • The ARDC can offer their services to any initiative approved by the DAO, including committees, startups, or DAO-governed organizations (like the GCP).

    • Communication channels should be available to offer on-demand assistance assuming an initiative’s request is reasonable.

    • Following which, the initiative should work with the ARDC on communicating and amplifying updates on the work done to the wider DAO to maximize awareness and engagement.

  • Decision making frameworks

    • The ARDC could research and consolidate learnings on what other DAOs have done well, and not so well, so that the Arbitrum DAO can leverage these experiences in decision making.

    • This could include aspects like effectiveness and impact of DAO-approved expenditures, general organization structure, special committees, and decision making mechanisms.

  • Compensation packages

    • Re-thinking compensation packages for work completed by contributors in the Arbitrum DAO to ensure long-term alignment. More compensation research, similar to Delphi Digital’s GCP Compensation Structure Memo, could be done on roles that are relatively more commonplace across DAO initiatives. Examples of such roles could include grant managers, operations, council/committee members etc.

    • Aside from base salaries, research and recommendations around bonus-like structures could be helpful for formulating compensation packages as well. For example, Entropy may be allocated up to 1.5M bonus with a 3 year vesting schedule. Can bonus-like structures to reinforce long-term alignment be leveraged more by other initiatives in the DAO?

  • Compensation mechanisms

    • Across the DAO ecosystem, we see a range of ways to structure compensation. For example, some DAOs prioritize retroactive compensation, while others focus on task/bounty based compensation.

    • Going beyond these examples, what are the pros and cons of various compensation mechanisms adopted by DAOs?

  • Rates charged by service providers in the DAO

    • Report on the potential costs to pay service providers who seek business from the Arbitrum DAO.

    • For example, we witnessed the ADPC’s monthly member rate increase from $8k to $20k in the most recent proposal. Is this increase in cost warranted? Was the DAO underpaying the ADPC? Is it now paying the appropriate amount? Or is the Arbitrum DAO overpaying for the service offered?

  • Monitoring compensation & rewards

    • Many contributors in the Arbitrum DAO are earning rewards from different streams and proposals. It may be wise to create a compensation table from public data and keep track of the current reward streams.

    • If a contributor is earning a significant amount relative to others; it may be a sign that the DAO is overpaying for services or needs to decentralize workload amongst contributors.

Incentive Frameworks

The Arbitrum DAO has passed several proposals focused on providing ARB to ecosystem projects who want to reward users interacting with their protocols. We are aware that contributors are working on new frameworks for future incentive frameworks. Additionally, the Arbitrum Foundation, with significant support from the ARDC, has identified misuse of funds and we have managed to retrieve nearly all funds to date.

Governance Optimization & Potential Capture

The Arbitrum DAO is controlled by its tokenholders who have the authority to vote on proposals or to delegate their voter power to others. To date, the Arbitrum DAO has an active voterbase and respectable voter participation for proposals, but there is still much progress to be made as the DAO continues to decentralize.

  • Redelegation mechanisms

    • Technical viability to automatically exclude a delegate’s voting power if they have failed to vote on the past N proposals over a fixed time period of ~M months.
    • What is the ideal outcome, in terms of voting power distribution, for protocols that attempt to encourage ARB token holders to periodically re-delegate their token voting power?
    • What are some potential redelegation protocols that can be implemented that satisfy an ideal outcome in terms of voting power distribution?

  • Experimental voting blocs

    • Effectiveness of new voter blocks (i.e., Event Horizon) and how the DAO can expand on this strategy to empower underrepresented delegates.

    • Potential experiments on how voting blocs can be used to represent different parts of the ecosystem.

    • For example, 10 million ARB can be delegated to a voting bloc that represents a collective of ecosystem projects or a guild of NFT artists.

  • Decisions by the DAO

    • Delegates have voted on ~329 temperature checks and ~51 proposals with an average of 4.4 proposals per week over the course of 1 year and 8 months.

    • There is a risk of voter fatigue amongst the delegates and it is a good time to revise the type and size of proposals that should be voted on by the DAO.

    • How can the DAO optimize its decision making process to reduce the number of proposals reaching the delegates, but ensure the emerging decision making bodies are accountable to the DAO?

  • Governance sentiment & proposal feedback

    • We have witnessed proposals be shared via google docs to get comments from delegates. Is there a method to formalize this process and enable contributors to comment on proposals line by line?

    • Some proposal authors are often confused by the DAO’s sentiment as delegates offer different opinions. Are there methods to better capture sentiment throughout a proposal’s lifecycle to help authors gain more confidence about their proposal?

    • Can AI be leveraged here?

  • What constitutes an attack on governance and the voting system?

    • Many examples of attacks include Balancer’s Humpy the Whale, capture of Tornado Cash governance via malicious upgrade and the Risk-Free Value Raiders.

    • A common pattern is that a single voter’s voting power significantly increases and outweighs all other voters, but the attacker still adheres to the rules of the voting protocol.

    • Which brings up the moral question on whether this is indeed an attack or a legitimate use of the voting protocol.

    • Can we derive some rules of thumbs, or guidance, on what may be considered an attack on governance?

Technical Upgrades & Protocol Level Risks

The Arbitrum DAO has the responsibility to approve all upgrades to Arbitrum One and Arbitrum Nova. All upgrades are technical in nature and due to the rapid progression of the Ethereum ecosystem, an upgrade is typically the implementation of a state-of-the-art protocol. We should strive to ensure the Arbitrum DAO and all delegates are well-equipped to understand software upgrades before they are expected to vote on its approval.

  • Support decision making process

    • Executive summaries to convert technical upgrades into a digestible format for delegates.

    • Curation of a checklist that all technical proposals should adhere to before it is approved by the Arbitrum DAO (i.e., audited? Code pushed to appropriate repos? etc).

    • Office hours to allow delegates to chat with ARDC and ask questions about upcoming technical upgrades.

    • Educational videos to explain the nuances of a technical upgrade.

  • Systematic process for review

    • A modified proposal lifecycle with explicit deadlines to help provide additional and digestible information to delegates. Including office hours, executive summaries, etc.

  • Incorporating an opportunity during the proposal lifecycle for proposal authors, DAO-governed organisations (including the Arbitrum Foundation), and contributors, to collaborate on the review process with in-line comments on proposals.

  • BoLD

    • Is the 3600 ETH for an assertion bond a sufficient threshold to secure the system? Should it be higher/lower?

    • Is it worth implementing an NFT-like system that allows the Arbitrum DAO to appoint defenders without the need for a large economic bond and it is slashable if the appointee abuses their position?

    • What is an acceptable resource execution ratio (ratio of costs between attackers and defenders of Arbitrum).

    • How effective are the “service fees” and “defender bounty rewards” to incentivise teams to enlist as proposers, either as a back up to the AF’s validator and/or as a defender to help the AF in the event of an attack?

    • An explanation (documentation or video) on how the smart contract code works for BoLD.

    • Relevant initiatives: AIP BOLD Security Analysis.

  • Timeboost

    • What is the optimal time window for operating the auction and the exclusive access the searcher gains to the express lane?

    • What is the ideal express lane boost? Should it remain as a 200 ms head start of the normal lane?

    • A searcher will not get access to the pending transactions before a block is produced (i.e., every 250 ms), what impact will this have on the ability for searchers to find backrunning opportunities? And what type of strategies will be required?

    • How effectively will timeboost’s auction mechanism capture MEV profits and return it back to the Arbitrum DAO?

    • Commentary on whether Timeboost impacts the user experience for transactions on the normal lane.

    • Relevant initiatives: Timeboost Risk Analysis and Timeboost Security Analysis.

  • Orbit & Fast Withdrawals

    • Commentary on the threat model if the DA-committee for any AnyTrust chain can be re-used to support fast withdrawals which is now available to all Orbit chains.

    • Recommended configuration for new Orbit chains to maximize security, revenue income while keeping fees lower for users.

    • Strategies, and/or incentive schemes, to encourage more validators to be available for Orbit chains and reduce the number of chains with a single validator (i.e., 1/1 DA committee).

    • Exploration into the concept of DAO-governed Chains and whether it is desirable to enable Orbit Chains to opt-in to Arbitrum DAO governance.

    • Educational material on popular customizations of Orbit Chains alongside the risks (if any) they bring to users.

  • Stylus

    • Report on missing tooling and overall developer experience required to help developers build secure rust smart contracts.

    • Are there any unique risks introduced with WASM compared to the EVM? And what risks should developers be concerned with when implementing a smart contract with Stylus?

    • Given that the EVM and WASM are interoperable, when is it advantageous to implement a solidity or a rust smart contract?

    • Strategies for increased awareness of Stylus amongst the developer relation community and how to onboard the next 1 million rust developers.

Security Council Elections Process Improvements

Since the inception of the Arbitrum DAO Constitution, the DAO has undergone 3 Security Council elections over a span of 18 months. Each election has seen candidates with diverse backgrounds and technical competencies apply and subsequently elected with 2 rounds of voting. The ARDC could evaluate key learnings from the past 3 cycles, and provide recommendations on how the DAO could improve the elections process to ensure that elected Security Council members are in the best position possible to safeguard the DAO and the protocol.

  • What makes an ideal Security Council candidate?

    • We may immediately believe the pre-requisite for this role is to be a security expert, but there are many other skills required such as the ability to make sound judgements, highly available to react, and trusted by the community.

    • How should the community think about these trade-offs when casting their vote?

    • Should there be a test in place to prove that a candidate is qualified for the role?

  • Potential changes to Security Council Elections

    • Should we change the election cycle to every 9 months? Or 1 year? To minimize governance fatigue and ensure continuity?

    • Does the voting decay mechanism perform its role to force voters to cast their vote early? Or can it still be leveraged to allow voters to maximize the utility of their vote by waiting until the last minute?

    • What is the viability to implement an additional voting block, perhaps ecosystem stakeholders, to widen the range of voters who can help elect the Security Council?

  • Expanding the role of the Security Council

    • Security Council members currently play a passive role as they are only called upon during an emergency or to sign non-emergency actions.

    • Companies are increasingly being elected to serve on the Security Council who may have capacity to do tasks for the Arbitrum DAO.

    • In a future, where all members are companies, what type of tasks and responsibilities can the Security Council take on for the Arbitrum DAO?

  • Perils and benefits of a veto-only Security Council

    • L2Beat’s roadmap for a Stage-2 Rollup requires Security Council members to eventually lose the power to perform emergency upgrades and instead have the right to veto verifiable bugs.

    • Is it in Arbitrum’s best interest to weaken the Security Council’s ability to react in an emergency situation?

    • Is there a transition path towards weakening the Security Council’s ability over time that allows Arbitrum to eventually become a stage-2 rollup?

    • Are there alternative models to enable emergency upgrades for the Security Council while also restricting their power? Can we come up with a different approach to what is currently required to become a Stage 2 rollup on L2Beat.

    • There is a blog post that discusses some of the issues that arise, but a more exploratory study is encouraged.

Conclusion

In conclusion, the Arbitrum Foundation expresses its enthusiasm for supporting the initiatives and efforts undertaken by the ARDC and is committed to providing constructive feedback through its observer role on the supervisory council.

The recommendations outlined above are intended as non-prescriptive suggestions, highlighting a range of impactful areas that, in our view, merit consideration by the ARDC. Of course, given the extensive nature of the recommendations, it is also interesting for anyone in the community to pick up and work on. There remains so many interesting questions on how the Arbitrum DAO, the Arbitrum Ecosystem, and Rollups in general, will evolve into the future.

Following the elections, the Foundation looks forward to continued engagement with the ARDC and its members, aiming to collaborate effectively to ensure that the ARDC’s contributions meaningfully advance the DAO’s progress and strategic objectives.

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