Arbitrum DAO Passes Proposal to Enhance ARB Token Utility and Security

The Arbitrum DAO has passed a proposal aimed at enhancing the utility and security of the ARB token. This proposal was approved by 91% of more than 25,000 participants in an on-chain vote.

The Arbitrum DAO has passed a proposal to enhance the utility and security of the ARB token through a new staking mechanism.

This proposal, approved by 91% of over 25,000 participants in an on-chain vote, will introduce a system that promises to boost both governance security and token value.

Breaking Down Staking and Delegation

The approved initiative enables ARB token holders to stake and delegate their tokens in exchange for a new liquid staked ARB token, denoted as stARB. This token serves as a representation of the staked ARB and offers several benefits within the ecosystem.

These benefits include auto-compounding of rewards, options for restaking, and compatibility with decentralized finance (DeFi) applications.

While the proposal grants the Arbitrum DAO the ability to activate fee distribution to ARB stakers, the current iteration does not include turning on the so-called “fee switch.” This suggests that the DAO may be reserving the right to implement fee distribution at a later stage.

Highlighting Governance and Security Issues

The proposal, submitted by Tally’s Chief Revenue Officer 0xFrisson, begins by presenting pressing issues with the current structure of the ARB token.

Less than 1% of ARB tokens are actively used on-chain, and only 10% are engaged in governance, despite the large supply of 400 million tokens. The new system aims to address these shortcomings by aligning incentives and increasing active participation.

The system will utilize a Karma Score to define "active delegates." This score will combine Snapshot voting statistics, on-chain activity, and forum engagement.

The Arbitrum DAO will have the authority to adjust the Karma Score formula and set the minimum score required for delegates to qualify for staking rewards. This measure is intended to enhance governance effectiveness and prevent potential attacks on the Arbitrum treasury, which holds over 16 million ETH in surplus fees.

The estimated cost for implementing this proposal is 200,000 ARB tokens. This budget will cover smart contract development, integration with Tally[dot]xyz, Karma score implementation, security audits, and funding for working groups focused on staking rewards and delegation strategies.

Ensuring Governance Control and Adaptability

Staking stARB into restaking, DeFi, or centralized exchange smart contracts that do not maintain a 1:1 delegation ratio will trigger a return of voting power to the DAO. This mechanism ensures that the DAO retains control over how voting power is redistributed, thereby enhancing overall security.

The proposal also outlines a modular implementation strategy, allowing for future upgrades and integration with other staking systems. This flexibility is designed to ensure the long-term adaptability of the Arbitrum protocol as it evolves.

Impact on ARB Token Value

Since its launch in March 2023, ARB opened at approximately $1.30 and experienced a peak of $2.20 in January 2024.

However, it is now trading at $0.5438, more than 50% below its launch price. In contrast, Bitcoin has surged by 150% during the same period.

Despite this setback, Arbitrum remains the largest Ethereum Layer 2 (L2) solution by total value locked (TVL), with $2.7 billion in TVL.