[RFC-2] Delegate Incentive System for ArbitrumDAO

Proposals
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Request For Comments: Delegate Incentive System for ArbitrumDAO

Introduction

Encouraging active and efficient participation in governance is crucial to optimizing Arbitrum’s current structure. Therefore, we propose a discussion about introducing an incentive system for delegates whose role in the Arbitrum ecosystem is vital.

It is crucial to discuss establishing an incentive system that provides delegates with constant, attractive, and predictable rewards. To scale governance, it is essential to maintain delegate activity, who, through their voting power, guide and define the course of governance.

Challenges and Issues with DAOs

One of the current challenges in DAOs is to promote the active participation of community members in governance. For this, a community member must invest time and resources, which strengthens governance and prevents possible attacks by malicious actors both on-chain and off-chain. Such attacks could be directed at the general protocol, governance resources, or decisions contrary to the community’s interests.

Not only is participation and its quality crucial, but also diversity in terms of the number of voices present in governance. A frequent and known problem in most governance is the challenge of maintaining these characteristics.

Current State of Arbitrum Governance

Since its launch in April to the present (4 months), Arbitrum governance has 137,183 delegates (remember that many delegate themselves), of which about 900 have submitted their delegate statement.

Regarding the voting of delegates in both Snapshot and Tally, we can observe the following numbers:

There is a significant difference in the number of voters between Snapshot and Tally. This could be due to various reasons, such as a need for more knowledge about on-chain voting, the cost of the vote (although Arbitrum is very cheap), user interface issues, and airdrop farmers.

General participation in the forum has also been considered, where the delegates debate and form opinions.

Number of comments per proposal:

Some considerations about the metrics presented:

  • The difference between the number of delegates, Snapshot, and Tally voters could be due to multiple challenging factors.
  • The number of comments on the proposals does not necessarily reflect the quality of the comments.
  • It is not easy to establish a parameter to determine whether delegates voted with knowledge and awareness of what was being voted on.
  • Very few delegates publish the reasoning behind their vote.
  • The interpretations of these metrics can be very subjective.

Note: Please let us know if there is any error or omission.

The start of the Arbitrum DAO has been positive, and it is vital to maintain and increase delegate participation. For this reason, we raise this debate in the forum. A good incentive system for delegates is crucial to maintain and increase their commitment and participation at this early stage. Establishing this base infrastructure in the DAO is critical to Arbitrum success.

Characteristics that the incentive system should have

We believe that an incentive system should have the following fundamental principles:

  • Transparency: The incentive system must be transparent and open to all delegates. The selection criteria, rules, and rewards must clearly and effectively communicate.
  • Fairness: The incentive system must treat all delegates fairly and equitably, without bias or unjustified preferences. Participation, meaningful contributions, and compliance with ethical and conduct rules should be the main criteria for allocating incentives.
  • Long-term sustainability: The proposed economic incentives must be sustainable and viable in the long term. They must establish monitoring and evaluation mechanisms to ensure that the incentives promote commitment, participation, and sustainable community growth.

An incentive system should include:

  • Participation rewards: The system should recognize and reward delegates who contribute constructive ideas, meaningful comments, and innovative solutions in decision-making and governance activities. Delegates should receive additional points or tokens based on the quality and impact of their contributions.
  • Recognition and Visibility: The system should highlight and publicly recognize the most committed and active delegates. Periodically, it should publish a participation and merits report in which the achievements and contributions of the most outstanding delegates will be exposed.
  • Metrics and monitoring: The system should establish clear and measurable parameters to evaluate the impact of incentives on delegate participation and commitment. Monitor the growth and diversity of the delegate community in terms of new members and active participation.
  • Continuous improvement: The system should not be rigid; on the contrary, it should be flexible and open to constant improvement: It should evolve over time and according to the needs of Arbitrum DAO and its delegates.
  • Dispute and slashing: The system must have a dispute and slashing system either to cut incentives to delegates who do not meet the requirements or so that anyone can report a delegate. Note: this is only to slash the incentives.

Implementing a delegate incentive system in ArbitrumDAO can boost active participation, commitment, and sustainable community growth. Following transparency, fairness, and long-term sustainability principles and establishing fair rewards for participation, recognition, visibility, metrics, monitoring, continuous improvement, disputes, and slashing can foster more significant commitment and strengthen governance in Arbitrum.

It is essential to consider other challenges and considerations, such as the need to attract committed members without relying solely on economic incentives and the importance of maintaining clear and straightforward communication to promote the community effectively. Addressing these considerations comprehensively is crucial to ensure the long-term success of the proposed incentive system.

Conclusions

The above serves as a starting point, and we invite the community to debate and improve these incentive programs to meet the needs and goals of ArbitrumDAO. It is vital to confirm the necessary infrastructure to ensure the success of Arbitrum at this early stage.

Other governance such as MakerDAO, Aave, and Optimism have incentive programs. We must learn from the mistakes of other governance and establish the best possible system to attract builders, users, protocols, projects, institutions, Etc., to maximize the benefits of the Arbitrum chain.

It is essential to professionalize and keep our delegates active! If you are in favor or against establishing an incentive system for delegates, express it in the forum. If you have an idea on this topic, comment on this post.

Next Steps

SEED Latam and L2 en Español are working hard on formulating a concrete proposal to establish a transparent incentive system. However, this RFC can only progress with the participation and contributions of the ArbitrumDAO community and the most outstanding delegates.

It is essential that all members interested in the success and development of the ecosystem actively participate in the forum and provide their opinions and perspectives on an incentive system for the delegates.

The diversity of ideas and viewpoints will enrich the final proposal and ensure that all relevant needs and considerations are considered.

Once enough feedback and contributions from the community have been gathered and analyzed, the proposal will be polished and adjusted to reflect the interests and objectives shared by all participants optimally.

The ultimate goal is to have a well-designed, transparent, and fair incentive system that motivates delegates to participate in Arbitrum’s governance actively and significantly contribute to the growth and success of the ecosystem.

Check the other RFCs here.

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Thank you for the proposal @cattin

I am generally in favor of incentivising delegates who have demonstrated positive contribution in the DAO via

  • voting
  • communicating rationale
  • commenting on proposals
  • adding feedback on grant requests
  • attending governance calls
  • making proposals which gain consensus

Another thing to note here is that often delegates with ‘sufficient’ voting power are compensated in examples of DAOs listed here, at the same time delegation shuffling does not occur frequently enough such that new or emerging delegates have the opportunity to contribute and earn from the DAO. I suggest a robust evaluation system based on a code of conduct as well as using QF to match delegate voting weights with those who have received delegation from unique wallets. The general principle should be that whales delegate their tokens to a matching pool and retail is encouraged to delegate in order to get a better signal of broad support.

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I think delegate compensation is essential. Delegates should not be expected to work for free, and indeed are unlikely to do so in the long term. Furthermore, compensation would allow delegates to justify spending more time on Arbitrum, which is ultimately good for the entire ecosystem.

With that said, I suspect most would agree that delegates should get paid. The tricky part is how to pay them. It’s easy to imagine a system where the same set of delegates voting to pay themselves forever leads to governance capture, thus removing the incentive to work that the compensation was designed to create in the first place.

Excited to contribute to this discussion. Thanks for posting @cattin!

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We should definitely offer incentives to the delegates. Here, we can learn from DAOs like Maker and Aave; they have programs such as recognized delegates to incentivize them. This could definitely be one approach, but we should also remain open to various alternatives or frameworks.

Thanks for the forum post, @cattin, and the Seed Latam community.

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The how-to is definitely the trickiest part, I really like @jengajojo suggestion of doing so through QF, but I also think we have to consider based on which metrics/parameters we would compensate delegates - and given that some metrics might be subjective, it could be difficult to implement this in a fully trustless way. Apart from this, I think that whatever scores are assigned to candidates should be reset after some time, just to prevent candidates that once were very active to keep on receiving incentives after they stop contributing, if that makes sense. This is why we also proposed having governance epochs, which could complement this but is not strictly needed.

So to summarize this, imo we should try to make this as trustless as possible, but also ensure that we can have sybil resistant metrics to base our rewards on.

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DAOs absolutely should be looking to fund and incentivize contributors, but, as the saying goes “show me the incentives and I’ll show you the outcome.” As was seen with MakerDAO up until the return of Rune in 2022, delegates were compensated based on their voting weight and in turn, the forum was overrun with pontification and debate while none of the delegates were held responsible for protocol metrics, KPIs, or growth.

If Arbitrum is serious about delegate compensation, it should start the design process from the ground up and focus on what specific actions is the community hoping to incentivize from these expenditures. Voting and posting are unlikely to be the most important avenues to drive material impact for each dollar spent on participation.

There are many avenues to pursue here, and it is worth potentially funding a small group to explore, flesh out, and propose more detailed options to the community for feedback and discussion (similar to the Uniswap bridge committee), but there is one I’ve been thinking about for a while…

Compensating “Delegates” for strategic need allocation

Instead of funding contributors to vote and post across the forum, empower small groups of delegates with clear mission alignment and KPIs to work for and deliver on behalf of the DAO. In exchange for real ownership and responsibility, the community should see an increase in output and dedication from these incentivized parties.

Instead of funding actors solely to participate in governance, the community outlines top strategic needs (growth, operations, engineering, security, etc.) and builds an incentive system by which domain experts can provide advice, guidance, and proposals for the betterment of the protocol.

Each strategic need is allocated a budget for “delegates” and, potentially, a budget for “grants”. The delegates, like other councils and committees as outlined in the constitution, will be publicly elected based on:

  1. Their prior work history & expertise
  2. Commitment / alignment with the DAO
  3. Proposed course of action and KPIs to be delivered during the term

Each delegate is then judged across two parallel considerations:

  1. Their delivery and execution of the strategic need (as outlined in the election process)
  2. Their otherwise participation in the forum and consistency of voting on proposals

Though this is a very high-level overview, the DAO could use this structure to compensate “delegates” while ensuring they are spending time and effort furthering Arbitrum based on their expertise and putting in real work alongside governance participation.

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Your approach is interesting, and I agree that we need to focus on the strategic allocation of resources and skills.

The experience with MakerDAO serves as a good reminder of how incentives can impact behavior and outcomes within an ecosystem. The fact that delegates focused on the weight of their votes rather than taking responsibility for metrics and protocol growth highlights the need for a more careful approach in incentive design.

The idea of allocating specific resources and budgets to strategic needs is intriguing. This could enhance efficiency and focus on key areas for protocol growth and success. By tying delegate compensation to the delivery and execution of these strategic needs, a direct link is established between tangible results and rewards. This has the potential to more effectively align delegate incentives with the community’s long-term goals and the protocol itself.

Choosing delegates based on their work history, experience, and commitment to the DAO also seems like a prudent way to ensure that the right individuals are involved in key positions. Additionally, considering their participation in forums and voting provides a balance when evaluating their commitment to both strategic decisions and overall participation.

It’s important to note that while the overall structure you’ve outlined seems solid, its precise implementation might require a more detailed analysis and consideration of potential implications. For instance, defining how the success of “strategic needs” will be measured and how the delivery and execution of delegates will be evaluated is crucial. Furthermore, it could be beneficial to think about mechanisms to prevent the concentration of power in the hands of a few delegates.

Your focus on aligning incentives towards strategic needs and selecting delegates based on their work history, experience, and commitment is a valuable approach to enhance the effectiveness and direction of a DAO. We are taking note of this.

Thank you for your contribution to this conversation; I find it highly significant for advancing the creation of more robust incentive systems aligned with community goals.

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With this, you are trying to solve one of the BIGGEST and HARDEST problems DAOs have nowadays. So you have my full support.

Specially in this

For example, what will be the key metric or KPI to define when a Delegate is doing a ‘decent job’ vs a ‘great job’ ?

Great work @seedlatam

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Hi @cattin, @noturhandle from Butter. Excited to see an initiative like this at Arbitrum.

We recently ran a 3-month Incentivized Delegate Pilot at Aave, so we wanted to add another voice of support for delegate compensation as a useful feature of DAO Governance.

Not only is it important to compensate individuals for their time and increase the pool of individuals that can sustainably participate in governance full-time, but it’s also a valuable tool for exercising fine-grained control over the incentives driving decision-making in a DAO.

If a DAO isn’t explicitly defining the incentives that drive governance, they’re being defined elsewhere on its behalf. As you acknowledge, it’s not a silver bullet—too many incentives can drown out the signal from voters, undermining the process.

You can read the analysis from the Aave pilot here.

Happy to share our experience and findings if useful. You can reach us on Twitter.

Look forward to reading the proposal.

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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.

While we are definitely supporting of the idea that delegate incentives are a huge step forward toward attracting devoted contributors to Arbitrum’s governance, we’re also not oblivious to the fact that introducing delegate incentives comes multiple challenges attached.

There are several considerations to be made while attempting to set up a system that is fair and inclusive, incentivises just the right actions to create impact, is sybil-resistant, and easy to keep track of.

Some things to consider

  • How do we choose which delegates the DAO incentivises?
    • If based on their voting weight, what about smaller delegates that struggle increasing their voting power but are very active and valuable contributors? We’ve seen in the past that delegator apathy is real (relevant discussion on Optimism).
    • If based on other quantifiable metrics (e.g vote participation), how do we avoid sybils participating in governance simply for the incentives? We see with the #GovMonth experiment that providing incentives for participation not necessarily translates to quality of the outcomes.
    • If based on qualitative KPIs, which will those be and who will keep track of them?
  • How big of a budget do we allocate towards delegate incentives?
    • In order for incentives to actually have an impact on delegates’ behaviour, it needs to be significant enough for them to be motivated and well-compensated for their contributions, but also small enough to avoid unnecessary expenditure of the treasury. What is the right balance? An example, so everyone has a good reference point, is that if we decide to incentivise the 30 top delegates (top by whichever metric we choose), and we allocate $5,000 USD/mo for each delegate, that comes out to $1,8M USD/year, which seems like a fair amount to efficiently run a DAO.
  • How is the budget broken down between delegates we incentivise?
    • Is it a flat amount for all delegates after a certain threshold or calculated separately for each delegate as a percentage of the total amount allocated for incentives? Flat amount removes the overhead of calculating, but introduces discrepancies between delegates.
  • Are the incentives going to be decided on and distributed on a regularly basis (e.g. monthly), or on a more long-term duration (e.g. each quarter).
    • We should try to avoid incentivising a delegate, only to realise they’ve been inactive for a big part of their “tenure”. On the other hand delegates should have some predictability of delegate rewards if they’re supposed to be able to allocate significant amount of time & resources for governance responsibilities.

Delegate Expectations

We think that an important aspect of the delegate incentives discussion is delegates’ responsibilities. Right now, with delegates simply volunteering their work, we can’t really have expectations when it comes to their participation in the forums, calls and in voting. However, if and when incentives are introduced, delegates will be compensated for their work, and therefore the community will rightfully expect them to participate responsibly to a reasonable extent.

Some expectations from delegates who receive compensation include, but are not limited to:

  • Participating in votes
  • Continuous engagement in discussions happening in the forums and/or Discord.
  • Participation in community calls and attendance of other community initiatives.
  • Making themselves available for community questions and/or feedback.

We also need to keep in mind that there might be delegates who do not wish to burden themselves with the aforementioned responsibilities. For those cases, we need to provide the ability for them to opt-out of the incentives, regardless of how “big” of a delegate they are.

Deciding on Arbitrum’s Approach

There’s a lot to learn from other protocols which have tried to tackle the same issue and we can use that knowledge to avoid making the same mistakes they made. We think it’s important to first highlight the problems with current approaches and all the things to consider when structuring an incentive system, and then collaboratively work on a novel system that incorporates only the best aspects of other approaches and new ideas.

We think that the idea of compensating delegates for strategic needs suggested by @benhoneill is interesting and should be discussed more in-depth. We also want to bring Hop’s approach to the attention of interested parties as we believe it’s a good solution to remove the need for an individual, group or entity to take up the overhead of calculating the incentives to be paid out to each delegate.

Hop’s Approach to Delegate Incentives

Hop Protocol uses a formula to calculate each delegate’s incentives. Each month, delegates must self-report their vote participation and communication participation percentages using some specific formula. For more information, you can view the amended HIP 4 proposal here.

Hop’s approach is coming short on some things, like the fact that voting and proposals aren’t created out of thin air, and it takes work and time to make them happen in the first place. It also doesn’t take into account discussions happening outside the forums, e.g in community calls, on Discord, or privately. Lastly, it doesn’t, and can’t really, take into account the qualitative aspect of the participation.

However, what’s interesting is that there’s no single individual, group, or entity that has to take up the overhead of tracking and calculating, which would come at a cost to the DAO. It’s an optimistic process which can be cross-checked if someone is believed to be cheating. Each delegate only has their own calculations to do, which does create some overhead, but it’s small enough to be bearable (and it’s also something they’re doing in the context of their work as delegates - given they want to get compensated).

Moving Forward

We’d like to invite the community to discuss the challenges of designing an incentive system and which approach could better work for Arbitrum during L2BEAT’s weekly office hours every Thursday , at 3pm UTC/11pm EST.

You can grab the respective link for each week’s call by adding L2BEAT’s Governance calendar to your calendar.

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How many delegates are there for each different area? Would love if someone could share that info

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yes right we are here to support :stuck_out_tongue: :stuck_out_tongue: :stuck_out_tongue: :stuck_out_tongue: :stuck_out_tongue:

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