Enable RARI Staking

[coolhorsegirl]

Abstract

RARI governance is undergoing an upgrade via turning on protocol fees (RRC 28) and via the token upgrade (RRC 30). We believe turning on staking should be a third component of this governance upgrade.

We propose to unlock RARI utility and improve the governance and security of the RARI protocol by implementing RARI staking, without yet turning on fee distribution to token holders. Through RARI staking, token holders who delegate to active governance participants will be able to capture value. The proposal will also implement a liquid staked RARI token (stRARI) via the Tally Protocol that enables any future rewards to auto-compound, is (re)stakeable, and is compatible with DeFi. Separately, we will work with the RARI DAO to decide how to fund rewards and how to split rewards between token holders and delegates.

Motivation

Motivation to enable staking for RARI DAO is two-fold: (1) improve governance participation and (2) improve security of RARI DAO.

Enable staking to improve governance participation

RARI token utility is low and as a result, the RARI token is struggling to accrue value.

• Governance power is the only source of fundamental demand for RARI, while there are multiple sources of new supply (unlocks, treasury spending, etc.).
• The ability to restake RARI or use it on DeFi is not compatible with governance. Voting power breaks when RARI is deposited into smart contracts.

Right now, ~12.4% of RARI (that which does not belong to “Holders” on the below graph) is being used in the onchain ecosystem, meaning it cannot be used in governance. This robs the DAO of voting power that can be used to reach quorum and protect against malicious attacks.

From CoinMarketCap

The RARI token is struggling as a governance mechanism. The veRARI token model deterred participation because it adds complexity and commitment, discouraging those who may not want to lock up their tokens. Without staking, the DAO is also disallows RARI token holders that want to use these tokens in DeFi from voting.

With the recent move from veRARI to RARI for governance voting, RARI DAO is looking to incentivise active governance participation. Delegation has tripled since DAO launch in 2020, especially with the help of the Delegate Launchpad Proposal (RRC 9), but more tokens have not been used in voting.

Enable staking to improve security of RARI DAO

The strongest defense against attacks on a decentralized system is active governance participation and a broad, engaged delegate base. Staking plays a crucial role in achieving this by incentivizing users to commit their tokens and participate in governance. By turning on staking rewards and tying them to active participation in governance (via delegation to oneself or to someone else), the system can foster a more resilient and well-distributed decision-making process, which enhances overall security and stability within the DAO.

The RARI DAO treasury currently holds 4.67 million $RARI (worth over $7.19 million USD) from its initial allocation and will continue to generate revenue through the new fee structure. The DAO has the flexibility to decide how to use this revenue, with one suggestion being to allocate a portion for staking rewards. Separate from this current proposal, the DAO could consider setting aside a dedicated pool to enhance these rewards and incentivise early participation since staking rewards may be low initially.

As a result, it is becoming economically attractive for a malicious actor to launch a governance attack on the DAO treasury. The potential profit of attacking the DAO treasury is increasing as more RARI accumulates in the treasury, while the cost of attacking the DAO through purchasing RARI for its voting power is not increasing proportionally to defend against attacks. A more developed version of this dynamic exists in the ENS which is actively fighting off governance attacks (documented here) and in Compound, which fell victim to this type of attack recently (documented here). Had Compound enabled staking, which could have redistributed voting power to the DAO, it would not have been economically worth attacking the DAO because the increased cost of acquiring enough voting power through staking would have outweighed the potential rewards of the attack. Staking would have created a more robust defense by tying voting power to economic commitment, making it much more expensive and difficult for a malicious actor to gain control over governance decisions.

RARI Staking unlocks utility and aligns governance by creating a mechanism to stream future rewards from DAO-generated sources like protocol fees, token inflation, and treasury diversification to token holders who are delegated to an active governance participant. RARI Staking makes RARI usable in restaking and DeFi by returning voting power locked in contracts to the DAO.

Specifications and Steps to Implement

System architecture

RARI Staking enables RARI utility while allowing the DAO to retain governance power. It includes a few modular components that come together to power the system.

RARI Staking via the Tally governance staking system

• Has the power to distribute fees proportionally to token holders who have delegated voting power to an active governance participant.

The DAO

• Has the power to turn on fee distribution and send fees to RARI Staking
• Controls how voting power is distributed to delegates, including delegation strategies for unused voting power

stRARI (Tally Protocol LST)

• Auto-compounds potential rewards if they are turned on in the future
• Provides token holders a liquid position
• Returns voting power to the DAO when stRARI is deposited into restaking, DeFi, and centralized exchanges. The RARI DAO exclusively has the ability to determine how this voting power is distributed/redelegated via a governance proposal. The DAO will decide how to set up the initial redelegation logic for stRARI.

Implementation details and eligibility for rewards

The Tally governance staking system builds on top of Unistaker. We will customize Unistaker for RARI’s governance architecture and fee collection mechanism. We will implement RARI Staking in such a way that it can accept arbitrary fee sources as rewards. We will also require that tokens be delegated to an active delegate.

We define an active delegate using Karma Score. The DAO will define the Karma Score requirement for being considered an active delegate. Karma Score is a combination of delegate’s Snapshot voting stats, onchain voting stats and their forum activity. To accurately calculate forum activity score, delegates are required to prove ownership of their forum handle by signing a message with their delegate address and posting on the forum. The current Karma score formula is below, which can be adjusted by the DAO going forward:

((100) * ((Forum Activity Score * 1) + (Off-chain Votes % * 3) + (Onchain Votes % * 5))) / (Sum of Weights times Max Score Setting * 1)

Karma Score will be included in RARI staking via a smart contract that writes data onchain from the Karma API. We will include several guardrails to ensure that this aspect of the implementation is robust and decentralized:

• Users can verify Karma score calculations independently.
• The DAO will have the ability to block Karma Scores if it believes they are being calculated incorrectly.
• If Karma scores fail to arrive or the scores are blocked by the DAO, RARI Staking will distribute rewards to all stakers regardless of whether they are delegated to an active governance participant until the situation is resolved.

In the future, we believe it would make sense to integrate delegate incentives with RARI staking so that, instead of getting delegate incentive funds from the RARI treasury, they come directly from onchain revenue.

Tally will build RARI staking into our existing RARI DAO platform, so that users can easily stake and delegate in one place.

Estimated Timeline

• Post proposal on forum for feedback: early September
• Post onchain proposal on Tally for funding: mid September
• Begin development: end of September
• Submit onchain proposal on Tally including full RARI Staking implementation: October

Cost

$100,000 USD in RARI of funding to cover the costs of development, including the following funding categories:

• $50,000 USD in RARI: Develop RARI Staking smart contracts
  • Implement staking contracts
  • Integrate RARI’s current and potential fee mechanisms
  • Integrate Karma Score requirement
  • Enable the DAO to block Karma Scores if it believes they are being calculated incorrectly
• $20,000 USD in RARI: Integrate RARI Staking into Tally.xyz
• $30,000 USD in RARI: Integrate Karma into RARI Staking
  • Develop and deploy a smart contract to store key stats and Karma scores onchain
  • Create a system to record stats onchain and store detailed delegate data off-chain (using Arweave or IPFS) for easy verification
  • Continuously improve scoring algorithms to adapt to evolving RARI community needs
  • Provide technical support to delegates experiencing issues with their statistics
  • This is inclusive of a Karma integration valued at 15,000 USD/year

Separate to this proposal, we will submit an onchain proposal with the full RARI Staking implementation at the conclusion of the development process. In this onchain proposal, we will include a transfer of funds. No money needs to be paid before the work is complete.

Disclaimer

This proposal should not be relied on as legal, tax, or investment advice. Any projections included here are based on our best estimates and presented for informational purposes only.

[bitblondy]

Thanks for the proposal and the corresponding explanations. Governance staking definitely seems like a beneficial mechanism.
I’m not sure, however, in how far this if different to the current implementation, or whether we would need a completely new setup.

@coolhorsegirl Do you represent RARI foundation or a service provider, who is suggesting to implement this?

[Jose_StableLab]

Thanks for this proposal.

We should definitely be aware of governance security and these staking contracts are a smart and innovative way to do so.

I have one question. In the initial scheme, upon staking of the RARI token, would the staker be able to delegate the voting power to whoever delegate they see fit, or does the voting power go directly towards the DAO and it’s the DAO which chooses where does this voting power ultimately go?

[coolhorsegirl]

Hey Jose, thanks for your question.

The staker has the first opportunity to delegate where they see fit. If they choose not to delegate, the voting power goes toward the DAO to choose who to delegate to.

[coolhorsegirl]

Hey @bitblondy - I am a representative of Tally.

[Jaf]

Hi @coolhorsegirl , thanks for putting up this proposal!

Overall, I really like the proposal and the opportunities it presents for Rari DAO. Also, it’s reassuring to see how well the conversation around the ARB staking proposal (similar to this one) went in the Arb forum.

Now, I do have a couple of questions/concerns:

1. without concrete rewards it sems like there will be not enough immediate incentives for users to stake their $RARI. IMO this strategy should come together with a rewards structure.
   Have other DAOs launched staking without rewards? If so, how effective has this strategy been?

2. Is there a limit on how much voting power one delegate can accumulate? In the past, we’ve seen situations where a single delegate had enough power to significantly influence the outcome of a proposal.

Thx!

[jengajojo]

Thanks for the proposal @coolhorsegirl

• Will there be a default Karma score threshold for being eligible for rewards?
• Does the DAO have the option to toggle this threshold?
• Will tally go out to money markets and enable lending and borrowing of the stRARiI token or does the DAO have to do it?

@Jaf

Is there a limit on how much voting power one delegate can accumulate? In the past, we’ve seen situations where a single delegate had enough power to significantly influence the outcome of a proposal.

This is a legit concern. I strongly recommend ways around this in the default implementation

[coolhorsegirl]

Hey @Jaf -

1. We highly recommend launching staking alongside rewards. Rewards are completely determined by the DAO; Rari DAO would have ~1.5 months to determine rewards before staking via Tally Protocol is ready to determine rewards. The move to staking via Tally Protocol is happening simultaneously elsewhere - for example, see discussion in Arbitrum DAO, so we do not yet, but will soon have, more information on what rewards structures contributors across DAOs are interested in using.

2. Binding delegation to an upper limit would require an upgrade to governance smart contracts. At the UI layer, there are things the DAO could do to encourage people to delegate to less popular delegates to prevent certain delegates from accumulating too much voting power, like featuring delegates with less voting power in the first 3 stakers see when delegating. Additionally, the DAO will be able to delegate un-delegated voting power for tokens that are staked in the Tally Protocol, so should be able to re-distribute it to prevent certain delegates from accumulating too much voting power.

[coolhorsegirl]

Hi @jengajojo !

There will not be a default Karma threshold for being eligible for rewards - this is up to Rari DAO and can be adjusted by the DAO at its discretion.

We define an active delegate using Karma Score. The DAO will define the Karma Score requirement for being considered an active delegate. Karma Score is a combination of delegate’s Snapshot voting stats, onchain voting stats and their forum activity. To accurately calculate forum activity score, delegates are required to prove ownership of their forum handle by signing a message with their delegate address and posting on the forum.

By this proposal, Tally will be responsible for standing up the LST version of RARI (stRARI) - not including enabling borrowing/lending of the token in money markets.

[Jose_StableLab]

Another question:

• In which blockchain is this system going to be implemented, and will there be the possibility to easily migrate to other chains where Rari token exists?

[bitblondy]

Thanks for presenting the proposal in the community call.

Regarding the voting power that is then “unlocked” and transferred to the foundation, are there any rules in place on how to distribute that?
I guess that’s one of the main things to consider, imagining a large share of users staking, but not delegating.

[coolhorsegirl]

Hi @bitblondy! Thanks for your q!

I want to emphasise: It is completely up to the DAO to decide how to redistribute voting power; Tally has no rule over how voting power may be redistributed by the DAO.

We would recommend that between the time of the proposal passing and the proposal being implemented (~1.5 months), Rari DAO come to internal consensus about how to redistribute the voting power for immediate implementation upon go-live of Rari.

[coolhorsegirl]

Hey all, received a few questions about which chain staking will live on. The proposal above (and price) reflects launching staking on one chain. However, there are two options:

1. Deploy a staking system on each chain (RARI chain and Arbitrum):

• HOW IT WORKS - users would be able to stake and delegate their RARI on either chain. RARI DAO would have to stream rewards to both staking systems. There might be a price different between the two staking systems, which would incentivize users to bridge
• ADVANTAGES - meet users where they are. May be better for existing RARI integrations and liquidity.
• DISADVANTAGES - Much more complex to operate. Also requires a large amount of work (several weeks) FE and BE work on our end to generalize the UI to show multiple staking systems on one page

2. Deploy one staking system, presumably on RARI chain

• HOW IT WORKS - Same as e.g. ARB staking. We’d ask Karma to count contributions on both chains, and bridge the score to a single chain
• ADVANTAGES - Creates an incentive to bridge RARI to Rari Chain. Simpler to operate and implement.
• DISADVANTAGES - User has to bridge. Liquidity on L1 is harder to reach

Because of the extra time and materials required to deploy two staking systems (on RARI and Arbitrum), we would need to re-scope this kind of proposal, which we’re happy to do if there is interest. From our initial scoping, the price would be likely to rise to at least $200,000 USD.

cc @Jose_StableLab

[Firefly808]

I like this proposal. I think Karma will be a good fit us. I look forward to staking and the LST instead of the current veRari locking. The ability for the DAO to delegate unused votes it super cool.

[Firefly808]

While deploying staking on multiple chains is novel and intriguing, it’s a lot of money and complexity for a feature that adds a small amount of convenience to the end user. Bridging keeps getting easier and faster.

[andreitr]

Apologies for being late to the party; I find this very interesting. A few questions:

Has anyone on Tally already implemented this? Do you have a case study you could link to?

What’s the economic model for Tally? How does Tally get paid in the long run?

[Jaf]

@andreitr

Has anyone on Tally already implemented this? Do you have a case study you could link to?

you can look into this one

ARB Staking: Unlock ARB Utility and Align Governance

[bitblondy]

Thanks for the clarification, that makes sense. You might know how Arbitrum will handle the redistribution of the voting power? I guess the karma score could also be used for this.

I assume that possible staking rewards (who will not be part of the initial setup, as far as I understood), are also up to the foundation? Without them, I’m not sure how attractive the staking will be.

Finally, regarding the cost, $100k is still substantial for a small DAO like RARI. I notice that it’s less compared to the proposal on Arbitrum, especially since the audits are already done.

But the cost for implementing the staking smart contracts and integrating in Tally are the same. Would you have to start over with the development for RARI or do you use the previously developed contracts?

[coolhorsegirl]

Hey @bitblondy — responding to your q’s below

You might know how Arbitrum will handle the redistribution of the voting power? I guess the karma score could also be used for this.

My colleague at Tally, Frisson, is leading a working group that is defining the strategy for redistributing voting power over the next month. There is no definitive plan in place yet—it’s still in discussion. I’m happy to update the RARI DAO about how Arbitrum is going about this when I know.

I assume that possible staking rewards (who will not be part of the initial setup, as far as I understood), are also up to the foundation? Without them, I’m not sure how attractive the staking will be.

We highly recommend that the DAO provide staking rewards ASAP upon staking so it is attractive. One possible idea is via RARI inflation, with a defined percentage of newly minted tokens allocated for staking rewards. This is completely up to the DAO.

Finally, regarding the cost, $100k is still substantial for a small DAO like RARI. I notice that it’s less compared to the proposal on Arbitrum, especially since the audits are already done.
But the cost for implementing the staking smart contracts and integrating in Tally are the same. Would you have to start over with the development for RARI or do you use the previously developed contracts?

Contracts for RARI, like Arbitrum’s staking contracts, will be based on UniStaker, but will need to be customized for Rari. We have attempted to cut maximum costs from the Arbitrum staking proposal to Rari’s staking proposal.

[coolhorsegirl]

Welcome @andreitr !

Cheers @Jaf for responding with our proposal to Arbitrum! We have started building staking for Arbitrum (the proposal passed earlier in September). We are in chats with a few other DAOs as well.

We do not have near-term plans to generate revenue for staking outside of the initial implementation fees outlined in the proposal, which cover the cost of development for Tally. Both the staking and LST contracts will be open-source.