The Arbitrum community is arming itself against a hostile takeover. A new proposal hopes to increase participation in its DAO. It's also meant to avoid the fate that recently befell the compound DAO.
Arbitrum's decentralized autonomous organization, the steward of Ethereum's largest rollup blockchain, sitting $1.8 billion worth of crypto.
Some of its members are considered prime targets for attack. But not from hackers.
Members of the digital cooperative are now voting on key changes to Arbitrum's native token, ARB, to protect its treasury from a different kind of threat: a hostile takeover.
According to one, support for the changes is overwhelming An informal poll It ends on Thursday.
“Voter participation in The DAO is steadily declining,” said Frisson, a pseudonymous spokesperson wrote that In the Governance Forum of Arbitrum DAO. At the same time, “it is becoming financially attractive for a malicious actor to launch a governance attack on the DAO treasury.”
Like other rollups, Arbitrum is a blockchain within a blockchain, offering users a cheaper way to access Ethereum. According to DefiLlama data, it is the largest of Ethereum's rollups, with more than $2.7 billion in its DeFi ecosystem.
Arbitrum is the largest rollup on Ethereum, and the fifth largest blockchain overall.
For the most committed blockchain evangelists, decentralized autonomous organizations, or DAOs, are what cryptocurrencies are all about for business: a fully digital, borderless alternative to traditional, government-issued money. No government can shut down.
Of course, they struggled. Few are truly decentralized, with the largest token holders often forming an oligopoly. Some have folded under pressure from regulators. Members rarely participate. And that indifferent commitment was exploited by attackers.
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In July, Compound, an Ethereum-based lending protocol, was the target of a $25 million governance attack for precisely these reasons.
Arbitrum is now the latest crypto giant trying to avoid the same fate.
Make it cents
A list of major crypto collaborations trying to address member apathy include MakerDAO, the issuer of the DAI stablecoin, and Lido, the largest protocol in decentralized finance with more than $25 billion in user deposits. Dephylla.
All involve a version of the same basic idea: Make members' time valuable.
Recently members of Lido Approved A six-month pilot program that pays “representatives” who vote on behalf of others, much like politicians in a representative democracy.
Under the controversial leadership of founder Rune Christensen, MakerDAO is pursuing a top-down revamp called Endgame, which aims to stimulate woodworking collaboration.
Standard savings account-style options, along with “gamified” alternatives that offer higher reward for higher risk, will give users new ways to earn a return on their tokens, Christensen said. News last month
Both reward users who choose to participate in MakerDAO governance.
The cost of voter apathy
Apathy has real consequences.
Last month, a group calling itself The Golden Boys bought enough of Compound's governance token to swing the votes that came before the collaboration that manages the lending protocol.
Golden Boys voted to transfer $25 million in tokens held by the compound to their own protocol. They returned the tokens after the compound leaders agreed to share protocol revenue with specific DAO members.
Frisson cited “assault” in his arbitrum proposal.
“The potential profit from attacking the DAO treasury increases as more ETH accumulates in the treasury,” he wrote.
“There's a more evolved version of this dynamic [Ethereum Name Service] and compound DAOs, both of which are actively fighting governance attacks.”
The Ethereum Name Service allows users to convert their crypto addresses – a string of letters and numbers – into common names and titles. It is also managed by a co-operative society.
raising
A formal vote on the arbitration proposal is not expected until October.
However, if it passes, people holding ARB will be able to “stake” or lock up their tokens in exchange for a modest annual reward.
A staked ARB can be used to vote on proposals before collaboration. Arbitrum leaders hope that this reward will encourage ARB investors to become active members of the DAO or delegate their voting power.
But there are more profitable ways to use ARB in DeFi besides locking them for voting purposes.
To address that opportunity cost, Frisson proposed issuing IOU tokens for stacked ARB. Those IOUs, “liquid” staked tokens in crypto parlance, trade like an ARB, making it possible to acquire a stake – and, participate in arbitrum governance – while at the same time lending the token elsewhere.
As originally written, the proposal would fund the rewards using half of the fees generated by the arbitrum SequencerIt posts chain transactions to Ethereum.
Skeptics He asked Did the proposal create a conflict of interest, in which delegates approved measures that would make arbitrage more expensive, maximizing their own profits at the expense of blockchain users?
ARB Token's 'Speculative Premium'
Frisson dismissed the idea and said he would convene a working group to determine when to begin distributing staking rewards, as well as their source.
Another critic Said This, conversely, can reduce the value of ARB.
“We introduce the risk that people will value the ARB relative to its income generation,” they said.
“If we see the price go down as a result of this proposal, it will make the governance attack cheaper while actually hurting the value of the DAO treasury.”
Ben DeFrancesco, CEO of ScopeLift — the company that helped create the new stacking feature — pushed back.
“What's more, the current value of the ARB token has a speculative premium that could erode if investors had 'real' numbers to calculate,” he said. Said.
“Currently the incentives to have an ARB are purely speculative. Also, they are fickle.
Alex Gilbert News' is a New York-based DeFi correspondent. You can contact him [email protected].