In a move that could set a new precedent in the Ethereum Layer 2 (L2) ecosystem, Arbitrum is set to accept a proposal that would introduce staking functionality for its native token, ARB.
This development is significant as it could make Arbitrum the first ETH L2 to offer staking rewards to token holders.
The proposed staking mechanism involves a collaboration with Tally to create stARB, a liquid staking governance token. Users will be able to stake ARB tokens to receive stARB while retaining their existing governance delegation rights.
stARB allows users to gain governance authority through staking, while also using their ARB tokens in DeFi or potentially for restaking. However, the explicit relinquishment of voting power when staking stARB into DeFi protocols may be a matter of debate. The rationale behind this design choice remains unclear.
As the Arbitrum DAO’s ETH reserves increase, so does the potential for governance attacks. However, the cost of defending the network through ARB voting power does not increase proportionally. Providing an additional benefit for the ARB token could increase network security by increasing the cost for attackers.
The Arbitrum DAO treasury currently holds $45 million worth of ETH from excess fees on Arbitrum One and Nova. The DAO has the option to initiate fee sharing from revenue generated by sequencers and MEV, and stARB will automatically combine these rewards.
While the Snapshot proposal has received overwhelming support with a 99% approval rating, it still requires an on-chain Tally vote. If that vote is similarly successful, the Tally app proposal is expected to go live in October following an audit.
*This is not investment advice.