How much APR is your ARB vote worth?

The ARB Wars:

A number of proposals have gone up recently, whose premise is a lack of governance participation:

1. Tally would like to centralize a stARB asset through their staker vaults, seeking to distribute Sequencer Fees or MEV to ARB Stakers, citing decrease in % of Delegated ARB.
2. Delegates are voting to give themselves more compensation, to increase participation.
3. Delegates are voting to give each other more votes from the Treasury.
4. Delegates are voting to decrease the quorum, due to a difficulty in passing proposals, due to a lack of participation.

You know who doesn’t have any difficulties in voter turnout?

• Curve / Convex
• Velodrome
• Aerodrome

Tally at least sees the problem clearly – If you want people to vote, then financialize governance delegation.

Tally’s Staker is a great design, but it’s not a revolutionary structure. While it does incentivize new delegations, the yield source will be shared amongst all of them, and the delegate hierarchy is likely to be reinforced.

Let me repeat that: Tally’s Staker reinforces the Delegate Hierarchy.

Is an Arbitrum Delegation a lifetime appointment?

Why should Pantera or Blockworks worry about competing to provide ARB yield to their constituents, if they can share Sequencer Fees on Tally, and keep their delegation power?

What Arbitrum needs is a War amongst DeFi Protocols (and Delegates), to create a new standard where protocols trade Yield for Delegation, and power goes to the protocols who are providing the most value and utility to ARB holders.

Tally’s Error:

Tally sees multiple staking systems as “complimentary”, which is most accurate when Tally Staker is used for all of the staking systems:

“We anticipate that multiple Arbitrum staking systems will be developed over time, perhaps to incentivize decentralized block production in BoLD or to create an efficient MEV market in Time Boost. We view multiple staking systems as complementary. Each system would ask the staker to do different work for Arbitrum, take different risks, and pay out different rewards. Having multiple systems lets ARB holders pick between different risk/reward payoffs and specialize in different types of work to secure the system.”

Another quote from Tally:

“DAO-generated sources like sequencer fees, MEV fees, validator fees, token inflation, and treasury diversification to token holders who are delegated to an active governance participant.”

All of the yield sources mentioned above are permissioned - (Not sourced by DeFi).

Tally benefits by funneling delegation through their Staker Vaults, but they are running into a blocker:

Flexible Voting must be implemented on stARB, because without it, all Vault depositors would be required to vote for the same delegate.

This complication arises because of how ERC20Votes functions, and because stARB is facilitating delegation for multiple delegates, rather than each delegate providing their own yield source.

1. Entropy is leading ARB Incentive Distribution.
2. 35% are capable of producing ARB yield.
3. 15% are capable of producing ARB Treasury Management Vaults.
4. 45% will need to form partnerships to survive.

Tally is offering a tool, and the potential for a share in Sequencer Fees, which will be diluted amongst that Delegate Hierarchy, and will not require them to compete to provide better yield.

But it doesn’t have to be this way.

Nerite’s Solution:

@CupOJoseph, who is building Nerite – a Friendly Fork of Liquity v2 on Arbitrum, is not waiting for stARB to arrive.

@NeriteOrg has two functions in ActivePool.sol which transform the ARB Collateral deposit into a reservoir for ARB delegation.

These two functions allow Nerite to accumulate ARB voting power as users make deposits.

• Users gain access to leverage, and yield through the USND stability vault.
• Nerite ascends the ranks of Arbitrum Delegates.

Nerite has built this without Tally, or Flexible Voting, or Sequencer Fees – and other DeFi Protocols will follow suit.

If it’s a War, then who loses?

As governance power becomes correlated to yield, the ARB Delegate Hierarchy will begin to restructure itself:

• DeFi Protocols that can produce Native Yield Sources will gain dominance.
• DeFi Protocols that print their way into recognition will gain dominance.
• Delegates who do treasury management, will need to roll out ARB strategies.
• Delegates who do not offer their constituents yield, will lose favor, and will need to form alliances to survive.

The ARB Wars will lead toward a greater alignment between governance power, DeFi, and ARB utilization.

We could see a handful of other byproducts of increased financialization:

1. Governance capture by protocols, like Convex and Curve.
2. Governance capture by whales, like Humpy.
3. Governance capture by CEXs, like RobinHood, Coinbase, or Binance.
4. A reliance on new delegates to direct grants toward public goods.

These complexities are possible now, and the ARB Wars will take place without any changes being made to the ARB Governance system -- but it's best to go forward with eyes open.

Delegation Vaults are a new narrative. Our best approach is to accelerate this competition by creating an ecosystem-wide initiative to involve as many protocols as possible.

DRIP as a Catalyst:

@EntropyAdvisors just passed the DeFi Renaissance Incentives Program [DRIP], which will distribute ARB incentives toward a specific asset or activity for each quarter in the next year.

Entropy has opened up to the Community to submit Seasons, and AlphaGrowth is prepared to lead an “ARB Delegation Vaults” Season.

This article has been written for the coordinating protocols mentioned below, as well as Entropy, Arbitrum DAO and Offchain Labs.

The ARB Wars DRIP Campaign is a three month period exclusively devoted toward:

• Integrating Delegation into DeFi Protocols.
• Diversifying Yield Sources for Arb Delegation.
• Co-Marketing and Co-Incentivization to amplify these opportunities.
• Activating Governance Engagement through deposits.
• Increasing the total % of Delegated ARB.

DRIP incentives will provide the coordination necessary for protocols to make the switch to integrated ARB Delegation Vaults.

We have spoken with the following protocols, and they are already in alignment:

The ARB Wars are coming, and a DRIP Season is the best way to rally the troops.