From Incentives to Inflows: A Roadmap for ARB Demand

General
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I’d like to open a constructive discussion about strengthening ARB’s long-term utility and value capture. Across the ecosystem, many excellent programs pay out ARB to bootstrap growth. But when most recipients immediately sell, circulating supply rises while the token’s utility and voting power are diluted. Relying purely on “growth now, value later” has a mixed track record across crypto, and confidence can erode if incentives aren’t paired with concrete mechanisms that return value to ARB holders.

My goal here isn’t to argue against incentives. It’s to explore design choices that make distributed ARB more likely to be held, used, or productively locked, and to create durable, on-chain sinks for ARB over time, rather than be sold. Below are directions worth considering; none are prescriptive, and each would need proper technical, economic, and governance review.

First, a fee-capture and buyback/burn policy. Inspired by the recent discussions around fee routing in other ecosystems, the DAO could define a transparent rule where a portion of net program proceeds or sequencer-related revenues is used to purchase ARB on the open market and burn it (or send to a non-governed sink). To minimize MEV and front-running, purchases could be streamed continuously via TWAP, randomized within ranges, or executed through on-chain auctions with commit-reveal. Clear parameters (caps, triggers, disclosures) would help avoid unintended market impact while signaling a long-term commitment to value return.

Second, native utility for ARB in network operations. If technically feasible and safe, allowing users or apps to pay certain L2 fees in ARB, or auto-convert a small, predictable share of ETH fees into ARB could create structural demand. This need not replace ETH for gas; it can be an opt-in path that gradually deepens ARB’s role without disrupting existing flows.

Third, grants and incentive design that favor holding and utility. Instead of pure upfront distributions, consider vesting with performance-based unlocks, partial locks that must be staked for governance to earn additional unlocks, or milestone tranches tied to usage, security, and retention metrics. Projects could also opt into revenue-sharing terms that denominate a small, predictable slice of fees in ARB or require maintaining ARB liquidity, aligning recipients with the token’s health.

Fourth, governance-aligned locking. A “ve-style” or delegated-staking model where longer locks confer greater governance weight or program access can reduce circulating float while improving decision quality. Rewards for delegates could be funded from non-inflationary sources (e.g., fee revenue earmarks), avoiding reflexive emissions. The goal is to reward stewardship and participation rather than passive holding.

Fifth, ecosystem services priced in ARB. Identity/attestation, developer tooling credits, data availability tiers, oracle subsidies, research bounties, and security audits could be quoted directly in ARB or require temporary ARB staking that burns a small fraction upon redemption. Even modest, recurring sinks add up when they’re woven into everyday developer and user actions.

Finally, treasury operations that reduce direct sell pressure. Where programs require non-ARB working capital, the DAO can prioritize OTC or RFQ conversions with vesting/lockups instead of market dumps, and use hedging frameworks that smooth flows over time. Transparency dashboards that show issuance, sinks, buybacks, and locks would help the community track progress and hold ourselves accountable.

Path forward: if there’s interest, let’s spin up a focused working group to (a) survey technical feasibility, (b) model different parameterizations for buyback/burn and fee routing, (c) propose grant and vesting templates that align with these goals, and (d) draft a temperature-check post leading to a formal governance proposal. Clear milestones, open modeling, and public reporting will matter as much as the mechanisms themselves.

I’m sharing this to voice a concern many of us feel and to invite concrete proposals. If you have alternative ideas, see design flaws in the suggestions above, or want to collaborate on modeling and draft text, please jump in. The objective is simple: pair our growth initiatives with durable, on-chain utility and value return so ARB becomes something builders and users want to hold and use, not just something they receive and sell.

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Hey @Obitrum, thanks for sharing your ideas.

For the buyback & burn - it sounds good on paper, but in reality, it rarely works. I’d rather use the ETH revenue generated from fees to, for example, encourage people to buy and hold ARB (and participate in governance), or to create real utility within an ARB-based economy, etc. Although for the latter, we’d have to start viewing ARB as a currency, not just a governance token. I’m not sure the community is there yet, but personally, I wouldn’t mind that shift.

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I appreciate the author for raising this important discussion. I strongly agree with the core argument: we need mechanisms that reduce ARB’s role as a constant source of sell-pressure and create meaningful, sustainable demand for the token. The status quo—ARB being used primarily as a funding reserve—is ultimately unhealthy and places long-term downward pressure on all holders.

That said, I would like to address one specific point that has repeatedly surfaced in prior conversations: the claim from Offchain Labs that “reinvesting” is inherently more rational than profit-sharing or buybacks.

From a tokenholder and DAO-governance perspective, this argument is incomplete for several reasons:

1. Reinvestment effects are opaque, hard to measure, and vulnerable to internal conflicts of interest

The outcomes of “reinvestment” are generally indirect, long-term, and difficult to quantify. Tokenholders cannot easily verify whether reinvested capital is used efficiently or whether it truly benefits the DAO.

Moreover, without explicit safeguards, reinvestment opens the door to potential internal value transfer, self-serving budget allocations, or decisions that primarily benefit Offchain Labs or affiliated leadership rather than ARB holders.

This is not an accusation—only the recognition that opaque reinvestment structures increase the risk of misaligned incentives.

2. A balanced model is possible — reinvest and share profits

This is not a binary choice. Many successful protocols strike a middle ground: a portion of revenue reinvests into growth, while another portion returns value to tokenholders.

Arbitrum can adopt the same: part reinvestment, part buybacks / profit-sharing.

This aligns incentives across builders, Offchain Labs, and tokenholders.

3. Pure reinvestment shifts value away from ARB holders toward Offchain Labs

Reinvest-only models effectively divert value belonging to ARB holders and the DAO toward initiatives selected and influenced by Offchain Labs. While ecosystem investment is important, a model that excludes tokenholder value accrual is not fully aligned with the interests of the DAO’s actual owners — ARB holders.

4. A pure governance-token model creates “winner-takes-all” dynamics

In a token with no economic rights, influence naturally concentrates among a few actors with coordination advantages.

By contrast, profit-sharing or buyback models equalize rights proportionally to token ownership, making the system more economically fair and transparent.

A call to the community

ARB token economics matter. We should not allow the comfort of the “just reinvest” narrative to obscure the fundamental reality that ARB holders are the base layer of the Arbitrum DAO.

If the DAO disregards the interests of its own stakeholders, it risks losing the very foundation that sustains it.

As the saying goes: water can carry a boat — and it can overturn it.

For Arbitrum to thrive long-term, we must prioritize a token model that respects and rewards its holders, rather than assuming infinite tolerance for sell-pressure and no need for economic alignment.

I encourage the community to treat ARB demand, utility, and value-accrual as core priorities for the DAO’s future.

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Buyback & burn or profit sharing doesn’t make sense right now because the impact on ARB’s price would be too small to matter.

There’s a reason why growth companies don’t issue dividends, but rather reinvest profits.

Reinvesting profits can generate much bigger returns. Buybacks and profit sharing are for the mature phase, not the growth phase. We’re definitely not there yet.

I appreciate the enthusiasm, but I think that energy would be better spent exploring growth ideas (see the Firestarter topic) instead of pushing for buybacks or profit sharing.

Arbitrum’s current position (as the leading L2 chain) shouldn’t be taken for granted. We need to grow our user base, TVL, and onchain activity. Otherwise competitors will surpass us, and the chain’s revenue and profit will go down. And there won’t be much left to share.

Let’s prioritize growth.

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@TempeTechie Thanks for sharing your view — I agree that growth is critical. But I think several of the assumptions behind your argument don’t fully hold in a token-based system:

  1. “Growth companies don’t pay dividends, they reinvest” doesn’t cleanly apply to Web3. In Web2, reinvestment benefits shareholders because they own equity with clear claims on future cash flows. In Web3, a governance token like ARB is not equity: tokenholders typically have no legal claim on revenue or profits. So even if the protocol “reinvests and grows,” that benefit does not automatically flow through to ARB holders. The premise that “reinvestment → higher tokenholder returns” is not guaranteed here.
  2. Being in a growth phase doesn’t mean buybacks/profit sharing are off the table. In practice, many leading protocols have combined aggressive growth with some form of value accrual. Healthy token economics are part of the growth engine, not something that only appears in a “mature” endgame. A balanced approach — some reinvestment + some value returned to tokenholders — is often more sustainable than an all-or-nothing reinvest-only stance.
  3. Framing it as “growth vs buybacks” is a false binary. No one is arguing to spend the entire treasury on buybacks or distributions. The point is to avoid a model where ARB is only a source of sell pressure and never a beneficiary of success. A partial allocation to holders and a partial reinvestment budget can coexist and actually strengthen long-term growth.
  4. “If we don’t grow, there’s nothing to share” skips over the real risk. Yes, lack of growth is a risk — but lack of token value accrual is also a major risk. If ARB holders are constantly diluted to fund others, with no clear path to value capture, you get: weaker holder base, lower governance participation, and less confidence from builders. Ignoring token economics today is exactly what can cause the market to “move on” later.

So I fully support prioritizing growth — but not by indefinitely postponing any serious discussion of ARB token economics. ARB holders are the foundation of Arbitrum DAO; if their incentives are never aligned, the system becomes fragile over time.

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I think it’s important that we start exploring some form of ARB utility, because without it the token doesn’t automatically benefit from all the great growth happening across the ecosystem. I completely agree that growth should stay front and center and Arbitrum’s momentum is something we absolutely want to keep accelerating, however I think there could be a good balance with adding a utility layer that allows ARB to benefit from the ecosystem momentum. This doesn’t have to be anything heavy, just simple and growth ideas like optional ARB gas for chains and/or mandatory for staking, or staking models that preserve governance. These types of utilities can strengthen alignment between ARB and the ecosystem without taking away from reinvestment or developer support. So yes, let’s keep prioritizing growth, but I think it’s healthy to explore utility that lets ARB participate in that success over time.

Additionally, if the DAO does not have any intent of bringing a utility to ARB, thats fine too but many ARB token holders would want to know this.

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I really appreciate this write-up because it puts words to something many people have been quietly feeling for a while. ARB is being used actively across the ecosystem, although most of the tokens that leave the treasury circle right back into the market almost immediately. It creates a strange imbalance where programs keep growing yet the token that holds everything together does not gain the same depth of purpose.

The ideas you laid out feel like a healthy starting point rather than a fixed script, and that is exactly what this conversation needs. The buyback and burn angle is interesting, not because it magically fixes anything, but because it gives the community a steady loop where value that comes from the ecosystem actually finds its way back into ARB. As long as it is done gradually and with clear rules, it could create a sense of stability that is often missing in token economies.

I also like the thought of giving ARB more practical use inside the network. Even a small, optional role in fees or operations builds a habit of treating ARB as part of how the chain runs rather than just a reward token. If it is implemented carefully, it can sit alongside ETH without creating friction.

The locking and governance angle also feels promising, although it would need careful design so it doesn’t pressure smaller participants out of the process. Still, rewarding committed governance rather than short-term voting would improve the quality of decisions and gradually tighten the circulating supply.

Your point about pricing certain ecosystem services in ARB is one I haven’t seen discussed often, but it makes sense. Even small, recurring use cases add up over time. It nudges builders to keep ARB in their toolkit rather than treating it as something to sell on arrival.

On treasury operations, the suggestion to smooth out conversions and avoid sudden market drops is reasonable. It shows that the DAO can make responsible choices without hiding anything from the community.

I support the idea of forming a small working group to explore this properly. The individual pieces need proper modeling and debate, but the direction you’re pointing toward feels healthy for the long-term life of the token and the ecosystem. If we can pair growth with real utility and predictable value flow, ARB becomes something people want to hold because it plays a role, not just because it was distributed to them.

Happy to help however I can as this moves forward.

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Hey there! Yes I think you have a valid point in that buyback and burns are a bit of a souble edged sword and the funds could be used elsewhere. However if we distribute our core ETH holdings to existing ARB holders (as the example you ahve provided), I think it would cause people to hold ARB until the ETH, only until it is fully distributed, after which we are back at square one, with no extra uses for ARB and no reason to continue to hold it.

Just “participating in governance” does not sound like a really compelling reason for people, especially retail, to buy and hold our token, not when we have close to no incentives to do so. Actively emitting so much ARB on a monthly basis is also not doing us any favors to convince new buyers that the price would not go down due to sheer over supply off the token.

Could you also ellaborate more on the second part where you mention where the community would not be at that point yet? I think if the initiative is taken to make arb behave more like a currency would drive immense value and purpose to ARB in the short and long term, giving us more than just a governance / reward emission token.

I look forward to our continued engagement on this topic, glad to have received your feedback!

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Hey there! I will write down numbers with the respective addresses to your points made

I think the reinvestment of buybacks of the ARB token to be burned is as transparent as it gets. The idea is to purchase ARB tokens from various dexes directly using the Arbitrum treasury funds and burn them in the same transaction. We have a money printer that constantly prints excess ETH, I am suggesting a straightforward way to use it to our advantage.

Yes that is what im trying to push for with this post!

I dont see how the value would be shifted back to offchain labs, perhaps you could elaborate more on this point of view?

While I do agree to some extent, I think there are some arguements that can be made for governance to be concentrated. While it reduced the total pool of ideas, it also speeds up the process of governance and ultimately getting things done. I have no objections to the distribution of ARB tokens and its current holders at the momment.

I appreciate the reponse, however it seems to be clearly AI written and the content of the reply is mostly unrelated or not constructive to theh discussion I have put forth. I welcome you to give me some honest feedback and I’ll be happy to respond then!

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I aprreciate your follow up. If you want to compare ARB tokenomics to something like a growth company, I think we should be extropolate that and treat all ARB tokens as a form of equity to the network, just like shares in a company. I agree that profits should be reinvested into the ecosystem for growth, however with our current model, where we are not only reinvesting profits but using ARB emisions as a driver for growth, is equivalent to using shares in a company to reward users. With our current rate of emissions people who recevies any ARB would do only one thing : SELL SELL SELL.

If you think we should reinvest profits into growth ideas, I fuly agree! But firstly lets lock the coffers on ARB tokens and at the least retain value for current arb holders. Giving someone a radioactive token with value would just result it them dumping it on the open market the first chance they get to do so.

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Yep, although this is clearly AI, I 100% agree with the points you have made.

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Hi there! The goal here would be to change that reality before they come to the realization and dump their bags, further pushing prices down. Yes, I think that allowing ARB to be used as a gas alternative would be one of the fundamental ways that the treasury can act as a sink for ARB on the open market, actively reducing the price impact of the heavy emmsions that we have commited to and are ongoing. Our narrative should be the growth of ARB the token and Arbitrum the layer 2, I think just having ARB be used as a governance token sidesteps ARB from alot of narratives due to its extreme niche as only a vote that can be used in the DAO.

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100%, I feel like most of the ARB holders to date are just tired of seeing the token lose value, and while it sucks to be where we are at now, Im thinking of ways to possibly reignite the narrative for ARB as a viable token to buy and HODL. we see the potential that Arbitrum have as the leading L2 chain on many metrics, but because none of those metrics can be tied back to our token in any tangible way, it just continues to bleed agaisnt ETH and the broader market.

This is the second time people in this thread has mentioned using ARB as fees, I too feel like it could be a viable step to take to enable holders of ARB to derive day to day VALUE from their holdings of ARB.

Thanks for the support! As im kind of new to the ARB Forums as well, anyone with the intention to help me on this journey is welcomed. If there are some practical steps I can take towards implementing ARB token as a gas fee option, please do let me know as I’m keen on going down that rabbit hole and see where it leads.

As a conclusion to all of my address to the people that spent time to comment on my post above, I sincerely thank you for engaging with me and it has been interesting reading the different points of views, if there is any support from a major delegator to the DAO on the idea of using ARB as gas fees, please show your support here as well and I would greatly appreciate it if for someone to would guide me through the process of furthering this discussion. Otherwise, I look forward to more replies and will try my best to reply to all of them.

:victory_hand: ArbitrumMaxi

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There is one point in this discussion that caught my attention, and I wanted to share it openly in case it adds something to the conversation.
Across different ecosystems, it’s common to see that tokens behave very differently in bull markets and bear markets.
And many times, the mechanisms that truly define a token’s deeper utility are not tested during expansive phases, but rather during more contractive periods.

In moments of growth (bull), liquidity and natural activity allow incentives to work smoothly, activity increases, and the design appears sufficient.
By contrast, when the market becomes more demanding and liquidity tightens, it becomes more apparent whether a token has:

  • structural demand,

  • mechanisms that remove tokens from circulation in a sustained way,

  • or some form of economic resilience.

In general, tokens that lack some of these elements tend to be the ones that suffer the most in downturns, regardless of the ecosystem’s technological quality.
That’s why I wondered if part of this discussion could also include the question: how does ARB sustain itself in less favorable phases of the cycle, not just in expansive ones?

I’m not talking about guaranteeing a price or turning ARB into a stable asset, but about exploring ideas such as:

  • partial reserve models,

  • economic backstops,

  • counter-cyclical mechanisms,

  • or forms of collateralization that offer some stability without distorting governance.

Another area that could be explored is the creation of concrete uses within the ecosystem that are payable exclusively in ARB, such as identity, attestations, developer tools, or certain premium access features.
Even small but recurring services can create genuine, non-speculative demand.

I also wonder whether it could make sense to consider agreements with real-world businesses and services that may want to offer discounts if payment is made in ARB.
For example, sectors like hospitality, experiences, or digital services, where simple models such as “discount if you pay in ARB” are easy to implement and could expand the token’s utility beyond the purely crypto domain.

The idea would be something complementary, meant to add utility without interfering with what already works well in the ecosystem.

It may also be helpful to explore ideas that maintain the token’s usefulness under different market conditions, both in expansive phases and more contractive ones. This could open up opportunities for ARB to have functions that persist across different scenarios.

I’m curious to know if anyone has modeled, considered, or explored mechanisms of this kind.
If not, I’m glad to continue the conversation and learn from those with more experience in the ecosystem.

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From Governance Token to Utility Token: Evolving ARB Beyond Governance