Authors: @Jaf
Reviewers: Governance Working Group members @jengajojo
Requesting Community Feedback
This post is meant to start a community discussion regarding how to add Staking Incentives contingent upon Rari Staking proposal’s approval first.
Important questions to consider.
Where the incentives will come from?
What are the mechanics for the incentives?
Abstract:
Following the approval of RRC-30, Rari DAO began transitioning the $RARI token and governance to the Arbitrum ecosystem.
Shortly after, the proposal to enable RARI staking gained significant attention, as it aims to enhance the governance and security of the RARI protocol by introducing staking.
After gauging community sentiment, we now propose implementing staking incentives alongside this initiative to maximize its impact on the DAO.
Motivation:
Two of Rari DAO’s most important goals are to improve governance participation and increase the value of the $RARI token—both of which are significantly advanced by the introduction of RARI staking. However, adding staking rewards will further motivate token holders to participate, ensuring stronger alignment with the DAO’s overall objectives.
Rationale:
Implementing staking rewards will provide an additional incentive for $RARI token holders to participate in staking, which in turn will enhance governance participation.
Key Terms:
RARI token: RARI DAO governance token ( token_Addr in Arb/Rari )
RARI DAO: body governing the Rarible Protocol and RARI chain
Arbitrum ecosystem: Arbitrum One and RARI chain L3
Specification
To develop a clear plan of action for determining the source and mechanics of staking incentives, the DAO must engage in several discussions to address outstanding questions.
Where can the incentives come from?
With the GWG we have been brainstorming several ideas:
From the treasury: Request 200K RARI from the DAO to pay incentives for up to 1M RARI to be staked. Incentive formula will be adjusted so that max reward hits 4% at 1M stake and increases for lower stake amounts. All unused incentives will be sent back to the treasury
From fees collected by the Rari Protocol: This doesn’t seem viable at the moment, as current revenue is low, which could negatively affect the strategy and the DAO.
RARI inflation: Another option is to first switch on token inflation and allocate that towards incentives. These can be dynamically tuned, the rewards can be inversely proportional to the amount of RARI staked.
Staking Rewards Mechanics:
This section of the proposal will be addressed once we have identified the most viable source for the staking rewards.
Steps to Implement
Gather feedback from the community
Modify this proposal as needed (based on feedback)
Post onchain for voting
Overall Cost:
TBD after discussions within the community and RARI foundation
Regarding the decision on whether to fund the rewards from the DAO treasury or RARI inflation. We think these rewards should be viewed as a short-term incentive for users to bridge their RARI to Rari Chain and participate in governance. The optimal long-term scenario is where these incentives can come from sustainable revenue obtained from the different sources the DAO owns, such as the Rari Protocol and the Rari Chain. Given this situation, it makes sense to use treasury funds to incentivize stakers, as the treasury still has enough funds to support this kind of incentives, and increasing the token total supply creates a sense of insecurity on token holders.
To calculate how many tokens could be dedicated for the rewards, as a reference, we will consider the current amount of RARI tokens locked in the veRARI contract, ~324,000 RARI tokens, and what is considered the standard yield that a user can find holding volatile or stable tokens in crypto (3-3.3% APY for staking ETH 1, 2, 3 and 6.5% APY for holding Maker’s USDS). If we aimed to attract all current veRARI stakers into the new contract and reward them with an appealing yield to compensate for the risk of holding RARI in Rari Chain (somewhere between 10-15%, approximately 13%), that would mean dedicating ~42,000 RARI (~$78,000 at current RARI price) over the course of a year.
Once governance staking is implemented, we suggest a 4-month pilot reward program, which, based on the previous calculations, would need ~14,000 RARI for staking rewards. As people start to migrate and we can gather more information on the risk-tolerance of RARI holders, we can extend these rewards at the same rate, increase or decrease them.
There is currently a discussion about the same topic happening in Arbitrum and a dedicated working group will be formed. However, Rari DAO might not want to wait and use Arbitrum’s outcomes as a reference due to prolonged waiting times and different situations at Arbitrum and Rari DAOs.
I appreciate the thought put into this proposal and agree that incentivizing staking could help increase governance participation. However, I have a few points to consider before we move forward with such a high budget allocation.
1. Current Participation Landscape:
Let’s be realistic about where we stand. The number of delegates and active participants staking their RARI is currently low. Given the relatively small size of our DAO, most of the active community members will likely migrate to Arbitrum and participate in staking without additional incentives. The core group of contributors and delegates are already engaged and committed to the governance process. This makes the argument for allocating nearly $400k in rewards seem disproportionate to the scale of the problem.
2. Cost vs. Impact:
Given our DAO’s limited treasury and low on-chain activity, I believe we need to be cautious about how we allocate funds. A $400k initiative is not a small undertaking. If the primary goal is to encourage participation and prevent attrition of governance power, there may be simpler and more cost-effective ways to achieve this. We could, for example, design more targeted campaigns to re-engage inactive token holders or focus on community-building initiatives that strengthen long-term participation.
3. Gamification and Engagement Strategies:
I agree that we need an initial incentive to attract dormant token holders who have been inactive in governance. But rather than following a rigid APY model, which may not appeal to crypto-native participants, I suggest introducing an element of gamification and mystery. Instead of setting a fixed yield that might be seen as unattractive (e.g., 5-10% APY), we can allocate a specific pool of 40k RARI (as suggested by Jose) and create a dynamic reward mechanism. Here’s how it could work:
Mystery Pool: Announce a prize pool where rewards are distributed proportionally among stakers within a defined time frame. This creates the perception that early stakers could earn significantly higher returns based on the participation rate—effectively making the rewards unpredictable and potentially higher than a standard APY.
Dynamic Milestones: Implement a tiered reward structure that increases if certain governance milestones are hit (e.g., reaching a quorum on votes, increasing the number of active delegates, etc.). This would transform staking from a passive activity to one that incentivizes active governance participation.
4. Focus on Organic Growth First:
It’s important that we prioritize organic community growth and engagement rather than relying solely on monetary incentives. At this stage, a heavy focus on financial rewards could lead to short-term participation that fades once incentives run dry. By introducing gamification and mystery elements, we shift the focus from just earning to participating, creating a stronger alignment with long-term engagement.
Conclusion:
For now, I suggest we reframe the proposal around a more flexible and gamified rewards structure, allocate a smaller budget for an initial pilot phase, and assess engagement metrics over a shorter timeframe. This would allow us to gauge the actual need for staking incentives without overcommitting our resources. Let’s see how the community responds to a smaller-scale initiative before committing large amounts from the treasury.
I completely agree. To make this proposal sustainable in the long term, I’m sharing four pillars that can help us grow steadily in different areas. Regarding the RARI staking incentive proposal, it is crucial to develop a growth strategy focused on both economic sustainability as well as community participation. Below, I’m sharing some strategies for you to consider.
Incentive Optimization:
Tiered rewards: Offer progressive rewards that increase over time, encouraging users to hold their stakes for the long term.
Governance participation rewards: In addition to staking incentives, reward stakers who also actively participate in voting or governance proposals.
Task-specific incentives: Introduce additional rewards for actions such as vote delegation or using tools within the Rarible ecosystem, linking staking with added utilities.
Diversification of incentive sources:
Diversified treasury: In addition to Rarible’s treasury funds, consider strategic partnerships with other projects or platforms in the Arbitrum ecosystem that could contribute to the incentives.
External collaborations: Form partnerships with other DAOs or Web3 platforms to co-fund staking incentives.
Multi-use RARI rewards: Introduce additional use cases for $RARI tokens earned through staking, such as discounts, exclusive services, or rights within the platform.
Maximizing community participation:
Regular community surveys: Maintain a constant feedback loop to adjust rewards based on stakers’ preferences.
Gamification and challenges: Create periodic challenges or games that involve staking or governance, keeping users engaged and interested.
Education and marketing:
Educational campaign: Develop content and campaigns to educate the community on the benefits of staking and how it positively impacts the $RARI token value.
Results-driven marketing: Publish periodic reports showing how staking has improved governance participation and $RARI value, motivating more users to get involved.
Long-term sustainability:
Inflation optimization: Ensure that any additional token issuance is well-calibrated to prevent discouraging long-term staking due to token devaluation.
Continuous feedback: Keep communication channels open to adapt rewards and incentives based on market conditions and the DAO’s needs.
I believe that we can start by landing about 2 ideas, implementing them and then continue moving forward so that the execution deadlines are achievable and real, not saturating ourselves with thousands of ideas, but continuing to execute and iterate.
Let me know if you’d like to adjust anything or thoughts!
Thanks for the proposal. So the working group has not concluded yet, whether you would suggest funding the staking from the treasury or inflation?
We would at least add a function to fund incentives from protocol rewards, in case more fees get collected in the future. I like @dzonson.eth idea to add a gamification mechanism and support @Jose_StableLab suggestion to keep the discussion in Arbitrum DAO in mind.
Generally, you’re absolutely right that we should implement staking rewards if the Tally proposal gets accepted.
Thank you all for your feedback.
Will review your comments and refine this proposal to ensure it maximizes benefits and participation for everyone within the Rari ecosystem.
I appreciate the sentiment behind this but I think the DAO is getting a little bit lost. I think governance is fine, incentives are fine - but to what end? We currently govern a Layer 3 chain which has almost no activity. So incentives will bring people in to farm them but I seriously doubt they will hold these tokens and remain within the Rari Chain ecosystem, more likely this will result in more sell pressure on the token and a temporary spike in metrics. What do we even think users will do once they’re incentivised to bridge?
Likewise, governance participation is fine but it is not an end objective in and of itself, creating working groups and all these things needs to be in service to some objective. Until we as a DAO have aligned on KPIs or long term strategic objectives I don’t think we should spend treasury funds chasing these sorts of programs.
Having followed the arbitrum incentives working group recently, this is also something that has been strongly emphasised by the contributors analysing the effect of the recent incentives programs - KPIs and metrics that the chain wishes to incentivise must come first otherwise spend cannot be well targeted.
We’re sending the staking contracts to audit soon. When the proposal to turn on staking goes up a in a few weeks, the proposal will need to include 1) the denomination of the rewards and 2) the amount of rewards.
They can always be changed later by the DAO, so this isn’t final, but we should start somewhere.
it sounds like the plan is to issue rewards in RARI
What should the reward schedule look like for Rari DAO’s governance staking?
Hi Raf, we are currently discussing a rewards pilot once staking is allowed. Most likely the rewards will be denominated in $Rari and will last for a few months. We were wondering if there will be options to create more complex incentive structures than “X” amount of tokens distributed over “Y” period of time. We are happy issuing simple rewards programs at the moment but also curious about all the opportunities that this new primitive offers.
Nothing has been discussed in depth yet, but I could imagine some situations where, for example, the DAO would want to increase rewards for stakers that delegate to active underallocated delegates, promoting this way further decentralization of the delegate cohort.
Here is the final report regarding staking rewards for Arbitrum DAO.
And here the reaction from Tally, which has agreed removing the redelegation engine of the contracts. This removes the possibility for the DAO to reallocate delegation and instead forces the stakers to delegate again to an active delegate in order to receive the rewards.
Hi, in order to set up staking, we need to know the reward source. We will set up a contract that moves the reward from its source into the staking system. Once its complete, onchain governance can approve it.
Can anyone share if the rewards will come from inflation, treasury or somewhere else?
Thanks, @Jose_StableLab, for the info and the offer to help. I finally got a chance to go through this forum and the discussion in the Arbitrum forum too.
It looks like the final recommendation will be:
Rewards will come from the treasury.
The duration will be 4 months, after which we’ll review how the strategy is working and decide the next steps with the DAO.
I’ll join the Governance WG call tomorrow for one last discussion and quick review with the team before posting the final proposal on the forum later this week.
Quick update.
We are finalizing the details of how staking rewards will be transferred to the Rari Chain if this proposal is approved. The final proposal will be shared in this thread next week.
This governance upgrade proposal will become a heavy burden on the treasury, soon heading towards $300k overall costs with the incentives being added on top of it. Just for some extra governance activity? I kindly ask you to reconsider this all.
When we asked 300k RARI from the Rewards wallet for the Dropable proposal, it was to much, but at the same time you guys are doing it yourself? Growing governance while ignoring the ecosystem growth?
You should first grow the ecosystem, instead of focusing on governance. Once the ecosystem flourishes, there will be more $ in order to do governance upgrades and introduce expensive reward programs.
I feel like this being more a cash grab instead of having true intentions towards growth of our ecosystem.
I’m being told the treasury funds are low, how do you think that happened?
There is no risk if only specific amount of tokens is approved to use by Staking contract. (Staking contract can use up to this approved amount, not more)