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.