Arbitrum's "staking" proposal sparks controversy: ARB is going to be issued?

By Azuma, Odaily

On the evening of October 30th, the proposal proposed by PlutusDAO on launching the ARB staking function of the Arbitrum governance token began to vote, and the proposal set up five options: "100 million ARB incentive", "125 million ARB incentive", "150 million ARB incentive", "175 million ARB incentive", and "no incentive".

At present, the "175 million ARB incentive" option proposed by PlutusDAO has the highest vote rate, with a high support rate of 87.56%.

! [Arbitrum's "staking" proposal sparks controversy: ARB is going to be issued?] ](https://img-cdn.gateio.im/webp-social/moments-69a80767fe-37f50651b5-dd1a6f-69ad2a.webp)

ARB additional issuance? It's just a misunderstanding!

Odaily found that the current rumors in many communities about PlutusDAO's proposal are somewhat different from the facts - some Arbitrum community users believe that the ARB tokens used for staking incentives come from the Arbitrum DAO's 2% annual inflation minting power, so they interpret it as an additional issuance of ARB tokens, but this is not the case.

Odaily found that the misunderstanding was caused by the fact that some users still had an impression of the proposal in September, but in fact PlutusDAO had extensively revised the proposal in October.

As shown in the diagram below, this is how the initial proposal for the September release was depicted:

! [Arbitrum's "staking" proposal sparks controversy: ARB is going to be issued?] ](https://img-cdn.gateio.im/webp-social/moments-69a80767fe-db16a9a3ec-dd1a6f-69ad2a.webp)

"The Arbitrum DAO has the right to mint 2% of the total supply of ARB annually as inflation and use it as the DAO sees fit. This feature is already present in the ARB token contract, and the option to mint tokens for the first time is March 15, 2024, as the minting feature can only be called once a year. PlutusDAO proposes to remint 1.75% of the total supply of ARB and distribute it as a staking incentive over a year."

In the final version of the October vote, the proposal description was revised to read:

! [Arbitrum's "staking" proposal sparks controversy: ARB is going to be issued?] ](https://img-cdn.gateio.im/webp-social/moments-69a80767fe-eaa70e2b8e-dd1a6f-69ad2a.webp)

"Arbitrum DAO's funding reserves are growing rapidly, but this growth is not currently shared with ARB token holders. Arbitrum DAO holds 3.54 billion ARB tokens in its treasury address, and the recent unclaimed 64 million ARB airdrops have also been transferred to treasury addresses. The Arbitrum DAO is very well funded, and all surplus revenue will be attributed to the DAO, including Layer 2 sequencer revenue."

"We think ARB needs a staking mechanism... It is also recommended to request 1.75%, 1.5%, 1.25%, or 1% of the supply of ARB reserves from the Arbitrum DAO's treasury as an incentive budget to distribute these tokens to ARB's stakers within 12 months."

By comparing the above two versions of the proposal, it can be seen that the source of staking incentives has been changed from "inflation minting" to "treasury payment", so there will be no new ARB issuance - this does not mean that the Arbitrum DAO will not be inflation minted for other reasons, and the two things are completely independent.

How will the actual circulation of ARB change?

Combined with some calculations of PlutusDAO, we can briefly estimate the change in the circulation of ARB after the proposal is approved.

In the short term, it is foreseeable that a large number of ARB holders will consider staking for incentive income, which may effectively reduce the actual circulating supply of ARB.

According to the different specific incentive levels, the income expectations corresponding to different pledge rates are as follows. Odaily predicts that if the final incentive level is 1.75%, the ARB pledge rate will most likely exceed 50% (corresponding to an annualized return of 27.45%), which means that the circulating supply of ARB can be reduced by more than 50% in the short term.

! [Arbitrum's "staking" proposal sparks controversy: ARB is going to be issued?] ](https://img-cdn.gateio.im/webp-social/moments-69a80767fe-61b0abb52e-dd1a6f-69ad2a.webp)

In the medium term (within a year), with the continuous release of incentive shares, the actual circulation of ARB will theoretically increase, but PlutusDAO has designed a "soft and hard" lock-up control mechanism to hedge against this growth. Specifically, stakers can choose different staking periods, corresponding to different levels of incentive coefficients, and the longer the staking time, the higher the rate of return; At the same time, early unstaking will result in a penalty of up to 60% of the principal amount (the penalty is linearly related to the remaining duration).

In the long term (one year), since PlutusDAO's proposal only involves a one-year period of staking activity, the circulating supply of ARB will inevitably usher in growth (current circulation + incentive circulation) with the end of staking. However, this can also be addressed through a continuation proposal, where PlutusDAO wants to use the first year of the staking cycle as a trial, and whether or not it continues in the future will be subject to availability.

ARB utility upgrade

OverviewPlutusDAO's proposal, which is essentially to give ARB a new utility on the basis of governance - to share the benefits of the Arbitrum DAO.

According to ARB's tokenomics model, the use of the fund reserves in the Arbitrum DAO should have been governed by the community (i.e., ARB holders), so the current support rate for the proposal is still more favorable to the proposal.

However, it should be clear that this round of voting on Snapshot is only Arbitrum DAO polling on the proposal, and the subsequent real on-chain voting needs to be completed on Tally, and the specific time plan is as follows.

• Forum posting, soliciting comments and feedback (completed);
• Heat check and poll (ongoing, 1 week);
• Formal launch of the AIP, call for voting (to be conducted, 3 days);
• Official on-chain voting on Tally (to be conducted, 14 days);
• Deployment execution.

This also means that even if this round of polls passes, it will take more than half a month for the proposal to land at the earliest, and whether it can be officially voted on the chain on Tally is the biggest test for the proposal.