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The Arbitrum DAO has adopted a temperature control proposal aimed at increasing the utility of the ARB token and improving governance security. The proposal received 91% approval from over 25,000 participants in an on-chain vote, indicating 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 leverage Tally’s liquid staking token system, which is based on Unistaker. The system will be customized to match Arbitrum’s governance architecture and fee collection mechanism. Future surplus sequencer fees will be used to reward ARB token holders who stake their tokens and actively delegate to “active delegates.”

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

Addressing concerns about the utility and security of tokens

Proponents argue that the measure is necessary due to the ARB token’s lackluster performance in accretion, which they attribute largely 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 inception.

The proposal also aims to prevent potential governance attacks, and to address concerns over the growing attractiveness of the Arbitrum treasury as a target. With over 16 million ETH in excess fees collected 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 when stARB is deposited into resttaking, 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 allows the staking mechanism to evolve with the needs of the protocol.

The estimated cost of implementation is $200,000 in total ARB tokens. These costs include smart contract development, integration with Tally.xyz, implementation of Karma scores, security audits, and funding for working groups focused on staking rewards and delegation strategies.

This governance update is an important step for Arbitrum to address the challenges of token utility and ecosystem participation. By incentivizing staking and active delegation, The DAO aims to encourage greater engagement, improve security, and align the interests of token holders with the long-term success of the protocol.

Earlier this month, the Arbitrum Foundation received over 75% of the vote for a $215 million fund to support gaming projects on Arbitrum over three years with 225 million ARB tokens.

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

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