Yes there needs to be a staking contract – governance is not enough of a reasons for people to invest, especially when DAO governance itself is in a rather infantile state.
Regarding SEC concerns;
Point 1. The SEC doesn’t even have clear guidelines yet to enforce, this was clearly highlighted in recent committee hearing.
Point 2. The Howey test criteria in question here would be ‘the expectation of profit from the work of others’. So if you redirected protocol revenue to staking contract then this would potentially be an issue – even though its not likely to get targeted as there is even less clarity on liability for DAO’s. If the staking rewards came from the protocols own inflation/distribution or minted fund pool – then this would not technically meet the criteria as “profit from others”; rather, it is a form of distributing shares or ‘equity’.
The big problem if there is no reward incentive added;
Currently we have grant funds going out, getting dumped on market against retail buying in exclusively for voting rights. If this continues without change, then market value of Arbitrum will decrease overtime. The big risk here is that voting power then becomes much cheaper, and governance itself can be undermined by temporary buyers or ‘vote buying’ through escrow. From that, there is additional issues that unfold – malicious proposals that favor special interest or large holders; competitors that could acquire cheap voting power and stuff their own proposal through to negatively impact the ecosystem.
The solution is to have ve-token system with timelock for voting power; this gives more power to those that lock in commitment (and therefor exposure) to the protocol and its proposal outcomes. In this way, you mitigate many issues and incentivize governance proposals that are for the greater benefit of the longterm prospects. i.e. if you are locked in for some years, you improve the mindfulness and thoughtfulness of governance proposals – as voters are vulnerable to the outcome.
Unlike how it is currently – vote buying can undermine the DAO completely. That is, people can purchase temporary exposure to create a permanent impact; this is why other DAO’s have went the route of timelock and staking methods – its not about “milking wealth” as some have said, its about the integrity of governance.
If this project is serious about being a DAO, then it needs better protections against the long understood issues that undermine token weighted governance. For now you have downward pressure from liquidating grant funding, and an exposed risk of ‘pay to play’ governance.
All in all, I think a snapshot should be created to vote on introducing a staking contract to better support price appreciation, and ideally combined as a locking contract for voting power. Letting the price fall too low is a risk to governance, and without timelocking for voting power you have another major risk to governance.
Whilst there is a veto panel, that itself undermines the whole point of having a DAO from a security and trustless aspect – there is little point in placing trust in a DAO or blockchain if it depends on also extending that trust to a veto panel of human operators. The point is to remove the dependency on centralized points of failure; this being the corruptible nature of humans in leu of centralized power.
Reward incentives need to be added for token holders otherwise you might as well not have a DAO aspect at all. If no one else wants to formally submit such a proposal with detail, then I will do this myself in a few days.