Will Arbitrum ($ARB) Staking Help Worst-performing Token of 2024?

Leading Ethereum layer two (L2) blockchain Arbitrum (ARB) is set to introduce ARB staking by the end of 2024 which will increase the utility of the ARB token.

On August 16, 2024, the Arbitrum DAO passed a preliminary proposal that received 91.5% approval from over 25,000 participants.

The proposal will be subject to a final vote in October 2024. Until then, the Arbitrum DAO will develop ARB staking smart contracts and create committees to discuss the implementations in detail.

As of August 16, 2024, the ARB token was the worst-performing cryptocurrency among the top 100 tokens in 2024.

The ARB has lost over 65% year-to-date, recently slumping to an all-time low of $0.43 on August 5, 2024.

Community members believe that added utility could drive demand for the ARB token and arrest the Arbitrum crypto price slide.

Table of Contents Table of Contents

1. What is The ARB Staking Proposal?
2. How Will ARB Staking Work?
3. Is ARB Staking Live?
4. Industry Reaction to Arbitrum's Proposal
5. Will ARB Staking Help Raise Arbitrum Token Price?
6. FAQs
7. References

Show Full Guide

Table of Contents

1. What is The ARB Staking Proposal?
2. How Will ARB Staking Work?
3. Is ARB Staking Live?
Show Full Guide
4. Industry Reaction to Arbitrum's Proposal
5. Will ARB Staking Help Raise Arbitrum Token Price?
6. FAQs
7. References

What is The ARB Staking Proposal?

In late June 2024, Frission, head of marketing at on-chain governance protocol Tally, proposed at the Aribitrum governance forum to introduce staking using ARB tokens on Arbitrum L2.

The proposal also suggested the implementation of liquid staked ARB token (stARB) via the Tally Protocol.

Frisson said that the proposal would unlock the utility of the ARB token via staking and restaking use cases.

Shield Against Governance Attacks

Additionally, Frission argued that the proposal would increase voting participation on Arbitrum and make the network less vulnerable to governance attacks.

“​​The Arbitrum DAO treasury has accumulated over 16 Million $ETH in surplus fees from Arbitrum One and Nova. As a result, it is becoming economically attractive for a malicious actor to launch a governance attack on the DAO treasury,” said Frisson.

“The potential profit of attacking the DAO treasury is increasing as more ETH accumulates in the treasury, while the cost of attacking the DAO through purchasing ARB for its voting power is not increasing proportionally to defend against attacks,” added Frisson.

The Arbitrum DAO treasury earns revenue for L2 base gas fees, L2 surplus gas fees, and L1 surplus gas fees when users transact on the Arbitrum One and Arbitrum Nova chains. As of August 16, 2024, Arbitrum DAO treasury held ETH worth $43.86 million earned from gas fee payments.

Concerns of governance attacks were highlighted after the crypto lending protocol Compound (COMP) experienced a governance attack in July 2024.

A group of COMP holders known as the “Golden Boys” successfully passed a proposal to direct Compound Treasury funds to an affiliated project by accumulating COMP voting tokens from the open market, although the situation was later resolved amicably.

How Will ARB Staking Work?

Tally’s governance token staking system was proposed to be used for ARB staking.

According to Tally’s blog, when a user stakes their governance token using Tally, they receive a liquid staking token (LST) in return. LSTs are free to be used for decentralized finance (DeFi) activities and restaking, while the staked tokens accrue rewards over time.

Governance token stakers can choose to delegate their voting power to themselves or to delegates. Undelegated and unused voting power is returned to the Arbitrum DAO. The DAO can determine how to use this voting power via a governance proposal

The proposed ARB staking will introduce a scoring system called “Karma Score” which will be used to verify delegates.

A delegate’s Karma Score will be a combination of their Snapshot voting stats, on-chain voting stats, and forum activity.

Note that the fee distribution mechanism to ARB stakers was not discussed in the preliminary proposal.

Is ARB Staking Live?

No, ARB staking is not live, as of August 16, 2024. The ARB staking proposal has not been fully approved yet.

The ARB staking vote conducted in August 2024 was simply a preliminary vote or a “Temperature Check.”

The purpose of the Temperature Check is to share a proposed idea and receive initial feedback from the community.

The approved ARB staking Temperature Check bestowed a $200,000 budget to the Tally team to develop smart contracts for ARB staking, Tally integration, and Karma Scores, and to fund other related operations.

A full ARB Staking implementation proposal will be presented to the community in October 2024.

Industry Reaction to Arbitrum’s Proposal

Overall, the public feedback for the ARB staking proposal has been positive.

Gauntlet calls ARB staking proposal a “progressive step”

“Gauntlet views this proposal as a progressive step toward increasing future optionality in the development of ARB utility and the potential for revenue sharing within the Arbitrum ecosystem,” said crypto research firm Gauntlet on the Arbitrum governance forum.

“Tally is a critical tool for the Arbitrum DAO, and the ability to host ARB governance staking on the same platform where token holders delegate and delegates vote is an added benefit to the scope of this proposal,” added Gauntlet.

Blockwork Research flags legal risks

Elsewhere, Blockwork Research, which voted “For” using 7 million ARB tokens, was concerned about the proposal’s legal implications.

“Combining governance rights with value accrual raises concerns under U.S. securities laws,” said Blockwork Research.

“Fee traceability is particularly important, because of non-compliant frontends that are not censored in any way.

“If fees are untraceable, then there’s no way to isolate whether tokenholder value came from non-compliant dapps/participants, which may leave the DAO legally liable in some manner,” added Blockwork Research.

Camelot votes abstains from voting

Meanwhile, representatives of Arbitrum-based decentralized exchange Camelot used 6.6 million ARB tokens to vote “Abstain”.

Camelot representatives urged “more in-depth discussion” on the proposals to create the Karma scoring system for delegates and the idea of combining staking and governance.

“​​Any proposal for the utility of the ARB token needs to be treated as an entirely separate discussion and should not be combined with a brand-new governance scoring system,” said Camelot.

“A fundamental change to the ARB token creates significant regulatory, incentive, and ecosystem risks that need to be carefully understood and considered,” added Camelot.

Will ARB Staking Help Raise Arbitrum Token Price?

The proposed staking utility for the ARB token is seen as a positive development by the Arbitrum community.

ARB token price has been on an incessant slide — down 70% — since its March 2023 debut. Token holders hope that the added utility and attractive yield will increase market demand for the ARB token.

For the time being, persistent token unlocks have been the main drag on Arbitrum crypto prices.

92.65 million ARB tokens — 2.77% of circulating supply — were released on August 16, 2024, as a part of its monthly unlocks to team and investors, data on Token Unlocks showed.

Arbitrum will see another 92.65 million ARB tokens released on September 16, 2024. More will follow in the months to come.

The ARB token is one of the prime examples of venture capital-backed “low float, high fully diluted valuation” that has been criticized as uninvestable by members of the crypto community.

As of August 16, 2024, only 33.3% of ARB’s total supply was currently in circulation.

Questions are being asked as to how Arbitrum will fund staking rewards if the ARB staking proposal is passed later in 2024.

“While we aren’t beholden to any ideas specifically at this point in time, we would like to hold off on simply increasing inflation right now.

“It is the simplest solution to bringing value in this mechanism, but it is important to remember the ARB token has large unlocks already, and recent price action has been unfavorable,” said Blockwork Research on the Arbitrum governance forum.

“It might not be best to turn toward inflation when we approach Arbitrum staking or utility accrual for the DAO,” added Blockwork Research.

FAQs