The Arbitrum DAO approved a proposal to create a staking mechanism for the ARB token on Nov. 6.

The vote follows a community debate on whether to activate staking or not for a number of months now and failed to reach a consensus on the matter for weeks due to disagreements over how the yield would be generated.

Treasury-based rewards

A key point of contention was whether to mint new ARB tokens as rewards for staking. A significant majority of the Arbitrum community was against the idea of diluting the token’s supply.

Ultimately, the latest proposal chose to exclude the option to mint new tokens from the proposal, securing a favorable vote. The proposal will allow ARB token holders to stake their tokens and earn yields directly from the Arbitrum treasury via a 12-month smart contract.

Approximately 1% of the total ARB supply (100 million tokens) will be allocated for staking rewards, with projected annual percentage yields ranging from 7.84% to 78.43%. The percentage will be based on the amount of staked tokens.

Arbitrum’s staking model stands out by offering direct treasury-based yields, in contrast to conventional methods, which often use network fees to reward stakers.

Narrow margin

Roughly  66% of the community voted in favor of the new proposal; however, a notable 33% dissented regarding the use of treasury funds for staking incentives.

Some of these community members argue that staking rewards should be created by minting new tokens, while others are against the idea of staking altogether.

The debate surrounding the use of treasury funds reflects the diverse opinions within the Arbitrum community. The approval indicates a majority consensus in favor of the proposal but acknowledges the concerns of a significant minority.

Next steps

With the proposal finally approved, the DAO will select a service provider, create reward contracts, and appoint an external auditor for the staking system in the coming weeks.

A two-week review period will be initiated to gather community feedback and address the concerns and suggestions from stakeholders.

This approval comes at an opportune time for the Arbitrum ecosystem, poised to navigate market fluctuations. Arbitrum staking may offer a fresh use case for ARB and contribute to a potential market upswing.