Thank you for voicing your opinion - we appreciate the feedback!
Something to consider - between February 1st 2024 and March 1st 2025 over 2 billion ARB tokens will unlock and become liquid from the Offchain team and other seed investors (source: ARB | Token Unlocks - Your Unlock Schedule & Tokenomics Data). The current circulating supply is approximately 1.275B.
That represents a massive influx of new tokens that will hit the market, and this should more than offset the draining of liquidity that you mention as a potential concern. Perhaps it makes sense to also examine the amount of 100-175M ARB we’re suggesting to allocate towards staking and its effects in context against the backdrop of the large token unlocks, that will be happening while staking is live (should this proposal pass).
As for your first point, this staking experiment would likely happen largely in parallel over large token unlocks for ARB, which will increase the circulating supply significantly. Between February 1st 2024 and March 1st 2025 over 2 billion ARB tokens will unlock and become liquid from the Offchain team and other seed investors (source: ARB | Token Unlocks - Your Unlock Schedule & Tokenomics Data). The current circulating supply is approximately 1.275B. We think that this injection of tokens to the market will far offset any potential concerns around liquidity being impacted by the staking proposal.
As to your second point, in our opinion a year is a sufficient amount of time to examine flows and the impact to ARB caused by this staking mechanism through various market conditions. We’re always open to other suggestions!
The @SEEDLatam delegation has decided to vote AGAINST this proposal at the Temperature Check.
After reading the entire proposal and all the debate it has generated, we have decided to vote against it for the following reasons:
We believe that 12 months for an experimental proposal is too long. Perhaps it should be reduced to 6 or 3 months and iterated upon as some results are measured.
1% of the Circulating Supply is a high amount to offer as a stake incentive.
We agree with @Michigan_Blockchain that a minimum APR of 7.8% for users to accumulate the tokens passively will likely attract nearly all token holders. This will result in a loss of liquidity for $ARB across all exchanges and diminish its use as collateral in monetary markets. It is counterproductive to the goal of driving network and ecosystem growth as voted in the STIP incentives.
As @pedrob mentions, there should be some pre-established metrics that this proposal aims to achieve. We would also like to see metrics from other staking programs with different governance tokens, listing the pros and cons.
We also don’t think that adding staking to increase token inflation would add ‘utility’ to Arbitrum’s token.
There are several legal risks and complexities associated with a staking program, which may inadvertently transform ARB staking into an investment contract. It is important to distinguish between staking for the purpose of validating or securing a network and staking solely to receive a financial return.
We’re always down to explore new ways to add utility to Arbitrum’s token, but we simply don’t think that this proposal would achieve that goal. Plus, it needs more detail and a clearer definition of the objectives it seeks to achieve. Lastly, for an experimental proposal, the time and amount involved are quite significant. We also believe we can innovate with more than just staking the ARB token.
I honestly don’t understand the rationale behind the structure of this proposal. I fully understand that there is a problem regarding the current usefulness of the $ARB token (like many others), in addition to governance functions, however it seems unreasonable to me to defend the remuneration of staked $ARB just because it is locked (without the staking operation has any other use other than receiving additional $ARB). We can discuss other types of solutions regarding the usefulness and appreciation of the $ARB token:
It seems perfectly natural to me that the necessary evolution of Arbitrum tokenomics involves the implementation of a token burn system (as happens in ethereum) through which a certain percentage of the profits generated by the sequencer are used for the acquisition and burning of $ARB (such as a stock buyback system), in the proportion necessary for the percentage of burning of tokens to exceed the percentage of their issuance.
A $ARB staked mechanism does make perfect sense in a decentralized sequencing scenario and/or as a system to encourage delegation and participation in voting.
Firstly, thank you for your proposal and keen interest in the Arbitrum ecosystem.
Proposal Synopsis: The proposal seeks to reward ARB lockers through a new staking model aimed at increasing ARB’s attractiveness and composability, without sharing revenue from the platform’s earnings.
Preliminary Stance: While we appreciate innovative efforts to improve the Arbitrum ecosystem, we question the necessity and alignment of such a model with the broader objectives of the Arbitrum DAO and the ARB token. Moreover, the absence of a detailed plan for tracking the progress and effectiveness of the proposal leaves us with significant concerns about its viability.
Evaluation of Necessity
Alignment with Goals: The proposal’s alignment with Arbitrum’s core goals remains unclear.
Relevance to Arbitrum: The necessity of a new staking module is not substantiated by the current data and ecosystem needs.
Success Metrics: The lack of a detailed plan for tracking progress is a point of concern, with reliance on an unspecified third-party service provider.
Performance History: Plutus, while established, has not yet demonstrated great product-market fit within the Arbitrum space with its product offerings (not having weight on this proposal just something to note). The proposal is, in our opinion, half-baked in that it does not detail any assessment or iteration of the staking model, only a single implementation of the code and execution of the emissions.
Credentials and Conflicts: Potential conflicts of interest arise as Plutus stands to benefit from the proposed changes to ARB tokenomics.
Benefit Analysis: The creation of a composability contract is recognized, but without a commitment from any team to use such a feature, its immediate benefit is unclear.
Value Proposition: The benefits to the ecosystem are speculative and indirect.
Funding Appropriateness: The plan to fund from the treasury without a minting function is noted, though the overall use of funds could be better targeted.
Concerns and Considerations
A wealth of data on single-sided staking models already exists, making the proposed data collection redundant.
This ‘modern’ approach to staking does not align with the traditional purpose of staking, which was centered around network security. In our opinion, it has little to no function in the ecosystem and does nothing practical. Ultimately, it is used to obfuscate the purpose of reducing selling and increasing meaningless yield.
The absence of a robust mechanism for monitoring success poses a significant risk to the proposal’s implementation and success.
Over 100 million ARB tokens could be more strategically invested in initiatives with direct benefits to the ecosystem.
Tie ARB tokenomics directly to sequencer revenue to ensure a sustainable and fair economic model. Consider direct ARB emission linked to sequencer revenue or potentially a token burn system.
Submit a detailed plan for data monitoring and analysis of the staking model, clearly defining success and failure metrics.
Eliminate the locking mechanism, which appears unnecessary.
Propose a working group or service provider to fully research and analyze such a mechanism, collecting previous data, forecasting impact, and building out a concrete monitoring and assessment plan.
We currently do not support the proposal due to several unresolved issues. However, we are open to revising our stance if substantial changes addressing our concerns are made, particularly those improving emissions philosophy and detailing a monitoring and assessment framework of the staking model.
Castle Capital appreciates the efforts put forth by Plutus and the benefits they aim to establish within the Arbitrum ecosystem. We are voting Against the proposal due to the reasons stated above.
We hope that our feedback is received as a constructive contribution, aiding the further enhancement and success of the Arbitrum ecosystem.
Thank you for presenting the proposal. I took some time to reflect on it due to personal commitments. While the idea of introducing a staking module to ARB is intriguing, its viability seems questionable without an established revenue model. Merely rewarding stakers with ARB from the Treasury appears to be an effort to artificially boost its utility. It’s concerning that this could primarily benefit large ARB holders like Plutus DAO, potentially skewing governance. Generally, intertwining economic and political motives can be problematic. The proposal may inadvertently centralize power among major ARB holders, a direction we might want to reconsider. A dual staking model—staking for both incentives and governance—sounds more balanced, but even then, staking rewards may not be suitable at this juncture. Given these considerations, we can’t endorse the proposal from Gains Network in its current form.
We sincerely appreciate all the feedback we’ve received so far! Spurred by discussion and feedback, we wanted to post some clarifications here on how we plan to move forward if the proposal passes.
Firstly, this ongoing Snapshot is broadly meant to gauge the interest for ARB staking and get a ballpark for the amount that people feel would be reasonable for it. Should this pass, we believe it would be proof that there is a sufficient amount of interest for ARB staking.
The actual implementation and execution are both something that have not been decided yet - these will both be finalized in a later Snapshot vote. Should this current proposal pass, we’re looking to organize and put together a group of interested individuals to work on the final implementation, and then eventually progress to a DAO vote that finalizes the implementation and other practicalities (budget, coding, audits etc).
This is to say that we believe that creating and passing a staking model through the DAO is a multi-step process, and we’re keen to get it done in a way that’s collaborative and inclusive. After this first Snapshot, we’ll also be putting together a matrix to publicly address feedback we’ve received during the process from the discussion on the forums here and in other conversations!
After thorough analysis and consideration of community feedback, we are voting against the proposed ARB staking mechanism. This decision is informed by a confluence of insights from notable community members, including Michigan Blockchain and SEEDLatam, as well as an analysis of the potential ramifications for the ecosystem.
Reflection on Community Insights
@Michigan_Blockchain raises valid points regarding the sustainability of the proposed staking rewards and the potential for creating a precedent that may not align with the long-term interests of the Arbitrum ecosystem. The substantial increase in circulating tokens, estimated between 7.8% to 13.7%, could lead to unintended consequences, such as liquidity drain and reduced usage as collateral, which could stifle the ecosystem’s natural growth and health.
Liquidity and Collateral Impact: A significant APR might lead to increased outflow of $ARB from exchanges and lending platforms, contrary to our goals of fostering liquidity and utility in the ecosystem.
Inflationary Pressures: The proposal introduces a significant inflation rate to fund the staking rewards, which could impact the value of $ARB. Further thorough analysis of its impact on $ARB tokenomics is required before implementation. Impact on Ecosystem Dynamics: An attractive APR for staking may divert funds from other productive uses within the ecosystem, such as providing liquidity or participating in lending markets. This could lead to a contraction in the available liquidity for $ARB, potentially impeding the healthy functioning of the ecosystem.
Suboptimal Allocation of Resources: Allocating treasury funds to incentivize token holding does not directly contribute to ecosystem growth in the same way that supporting dapps and user engagement does. The previously supported STIP proposal drove users toward dapp utilization, a more effective use of resources that bolstered ecosystem vitality.
The proposed staking model for the Arbitrum DAO, reminiscent of veToken systems, aligns with DeFi protocol governance but raises concerns at the chain level. Such models prioritize long-term holding and governance influence, which, while effective for DeFi, might not be as suitable for a chain-level DAO that requires more dynamic and broad-based governance to adapt to a wider array of network-wide decisions and rapid protocol evolutions. This misalignment could lead to governance inertia or concentrated power, contrary to the more fluid and distributed decision-making that a layer-two solution like Arbitrum might necessitate for its diverse stakeholder base.
In conclusion, while incentivizing long-term holding is a noble goal, the proposed staking mechanism is not the optimal path forward. We should seek to provide utility to $ARB in ways that foster organic growth and participation in the ecosystem, and not merely through inflationary incentives.
It’s ranked choice voting - designed so that users can express their preference better instead of just one binary choice. You can read more about it in Snapshot’s docs here: Voting types - snapshot. This is the same method of voting that was used for deciding the total STIP amounts as well.
Having evaluated the positions, I’ll be voting against ARB staking at this stage.
Generally, I’m opposed to pay-to-hold staking mechanisms, by which the staker isn’t providing any value other than not selling. I’m open to the idea of some revenue distribution to ARB holders, however like any growth-stage startup, I feel that financial resources should go towards growth, not towards shareholders.
The below response reflects the views of L2BEAT’s governance team, composed of @krst and @Sinkas, and it’s based on the combined research, fact-checking and ideation of the two.
When the proposal was first published, we raised our concerns regarding minting tokens to fund a staking program. Since this aspect of the proposal has been modified and now it’s just about funding the proposal through the treasury, we’ll be voting in favour during temp-check.
However, we believe that there needs to be additional discussion about the parameters of the staking mechanism (especially the APR it offers) and ultimately these parameters should be controllable by the DAO. Moreover, the DAO should receive regular updates on the performance of the staking mechanism and its’ impact on the Arbitrum ecosystem. The proposer mentions the Arbitrum Coalition as a potential partner in this effort, but there should be a clear commitment that even if the Coalition proposal does not pass, some reporting will still be provided.
Lastly, we see this as an experimental initiative, and a result we’ll be voting to fund it with a smaller, rather than bigger amount to start with.
We support the general idea of experimenting with ARB staking and look forward to participating in its conception. Whilst several details need to be explored throughout the implementation process, we believe that if ARB staking is done in a way that is aligned with the ecosystem, then it can generate significant value.
However, we also have some important concerns, in particular regarding 1) the current ARB delegation limitations, and as pointed out by @AbdullahUmar 2) the possible draining of other staking activities (LPing/lending…).
With that being said, we believe those issues could be circumvented through a collective research effort, and we’ve consequently chosen to vote in favour of this proposal on Snapshot.
Important to note, our vote is based on the context that this proposal is an “initial temp check” as pointed out by the Plutus team, which will serve as an important catalyst to mobilise the research efforts to discover a full spec for ARB staking. Therefore, our current vote does not reflect our final position once the full implementation and budget have been confirmed in a subsequent proposal.
agree here, supporting idea, and when all features are finalised, I will decide on support for complete proposal
giving away 1% doesn’t seem to be much, but there is a question if funds can be used better