Arbitrum Community Greenlights Staking Mechanism

The Arbitrum community passed a revamped proposal to launch staking for ARB holders on Nov. 6.

The approved plan will use ARB from the project’s treasury to fund staking rewards, for which two-thirds of the community supported an allocation of 100M tokens.

Arbitrum earmarked the tokens to fund staking rewards for the next 12 months, with users able to lock their tokens for up to 365 days to earn greater yields. Early exits will incur penalties of up to 60%, depending on the duration of the remaining lock period.

Arbitrum estimates stakers will earn annual yields of 15.69% if 50% of ARB’s supply is staked.

ARB staking yield projects. Source: Arbitrum.

A third of voters opposed funding staking with treasury assets. Arbitrum said it won’t redistribute sequencer revenue to stakers at this time due to legal concerns.

New Utility

The introduction of a staking mechanism would offer native yields and non-governance utility to ARB holders for the first time.

In March, Arbitrum launched ARB in a high-anticipated airdrop that distributed 12.75% of the token’s supply to users, equating to an initial market cap of $1.5B. The price of ARB has since fallen 17% from $1.30 to $1.08, including a 5% downturn over the past 24 hours, according to CoinGecko.

Arbitrum’s community pushed back against a previous proposal advocating for staking rewards to take the form of newly-minted ARB, which would inflate the token’s supply.

“While staking mechanisms are familiar and a mainstay across DeFi, sustainable models and their impact on the token in question have been scarcely studied," the proposal said. “These staking mechanisms are often poorly designed and have rampant inflation that negatively affects the token.”

Arbitrum also hopes to establish the “Arbitrum Coalition'' to gather data and analyze the performance of the staking system, among other research. The coalition would be tasked with making recommendations on how to ensure the sustainability of Arbitrum’s staking program after the initial 12-month campaign.

The proposal notes that Arbitrum’s treasury holds 3.54B ARB, including $69.4M worth of unclaimed tokens from its airdrop.