Arbitrum DAO approves ARB staking proposal

Source: Crypto Briefing

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The Arbitrum DAO has passed a temperature check proposal aimed at increasing the utility of the ARB token and enhancing governance security. The proposal received 91% approval from more than 25,000 participants in an on-chain vote, signaling strong community support for the initiative.

The approved proposal will allow ARB token holders to stake and delegate their tokens in exchange for a liquid staked ARB token (stARB). This new token will represent their stake and enable auto-compounding of future rewards, restaking options, and compatibility with decentralized finance applications.

Staking mechanism and governance alignment

The implementation will utilize Tally’s liquid staking token system, which builds on top of Unistaker. The system will be customized to fit Arbitrum’s governance architecture and fee collection mechanism. Future surplus sequencer fees will be used to reward ARB token holders who stake and actively delegate their tokens to “active delegates.”

Active delegates will be defined using a Karma Score, which combines Snapshot voting stats, on-chain voting stats, and forum activity. The Arbitrum DAO will have the power to adjust the Karma Score formula and set the minimum score required for delegates to be eligible for staking rewards.

Addressing token utility and security concerns

Proponents argue the measure is necessary due to the ARB token’s underperformance in value accrual, which they attribute primarily to governance issues. Currently, less than 1% of ARB tokens are actively used within the on-chain ecosystem, and voter participation has steadily declined since the DAO’s establishment.

The proposal also aims to prevent potential governance attacks, addressing concerns over the growing appeal of the Arbitrum treasury as a target. With over 16 million ETH in surplus fees accumulated from Arbitrum One and Nova, the risk of malicious actors attempting to launch governance attacks has increased.

To mitigate these risks, the staking system will return voting power to the DAO if stARB is deposited into restaking, DeFi, or centralized exchange smart contracts that do not maintain a 1:1 delegation relationship. The Arbitrum DAO will have exclusive control over how this voting power is redistributed.

The proposal outlines a modular implementation that allows for future upgrades and integration with other potential Arbitrum staking systems. This flexibility ensures that the staking mechanism can evolve alongside the protocol’s needs.

Estimated costs for the implementation total $200,000 in ARB tokens, covering smart contract development, integration with Tally.xyz, Karma score implementation, security audits, and funding for working groups focused on staking rewards and delegation strategies.

This governance update represents a significant step for Arbitrum in addressing token utility and ecosystem participation challenges. By incentivizing staking and active delegation, the DAO aims to foster greater engagement, improve security, and align token holder interests with the protocol’s long-term success.

Earlier this month, the Arbitrum Foundation secured over 75% votes for a $215 million fund to support gaming projects on Arbitrum over three years through 225 million ARB tokens.

As Arbitrum maintains its position as one of the top Layer 2 solutions on Ethereum, with a total value locked exceeding $2 billion, this staking initiative could play a crucial role in sustaining the network’s growth and ensuring its resilience against potential attacks.

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Author: Vince Dioquino