Table of Contents
1. Introduction
Governance is a fundamental component of DAOs, enabling token holders to influence decision-making processes that shape the protocol’s future. In the case of Arbitrum, governance plays a pivotal role in ensuring the stability, growth, and security of the ecosystem.
Arbitrum DAO operates as a decentralized decision-making body where governance power is vested in $ARB token holders. Governance decisions impact the entire Arbitrum ecosystem, including Arbitrum One and Arbitrum Nova, allowing token holders to propose, vote, and implement changes that dictate protocol upgrades, treasury allocations, and operational modifications.
Arbitrum’s governance framework follows a token-based voting model (1 token 1 vote), executed through on-chain smart contracts on Arbitrum One. This structure grants decision-making authority to $ARB holders, who can either vote directly or delegate their voting power to trusted representatives (delegates). While the governance framework promotes decentralization and inclusivity, it is not without challenges. The system must address concerns related to security vulnerabilities, participation rates, centralization risks, and governance capture, which have plagued other DAOs in the past.
This section of the research provides a comprehensive explanation and analysis of Arbitrum's governance framework and proposal lifecycle, highlighting historical governance attacks across the industry, and potential risks to the DAO's decision-making integrity. Additionally, we evaluate how other protocols manage similar issues and propose security enhancements to fortify Arbitrum’s governance against known attack vectors.
2. Core Features of Arbitrum Governance
2.1 Governance Components
Arbitrum’s governance structure incorporates multiple components to ensure transparency, accountability, and efficient decision-making. The primary governance elements include:
- ERC-20 Governance Token ($ARB)
- The leading utility of the $ARB token is participation in governance.
- Grants voting rights proportional to the number of tokens held or delegated.
- Tokens are minted on Arbitrum One and are used to govern multiple chains in the ecosystem.
- Holders can vote directly or delegate voting power to representatives.
- Delegation System
- Token holders can delegate voting power to representatives, ensuring broader participation in governance.
- Encourages specialization, where informed delegates make decisions on behalf of less active voters.
- Facilitates governance efficiency by reducing reliance on direct voter participation.
- Need to achieve a balance between broader participation and centralization of voting power
- Security Council
- A 12-member emergency task force, elected semiannually by the DAO.
- Tasked with responding to critical security threats and implementing necessary protocol adjustments.
- Can deploy emergency patches and prevent protocol-level exploits.
- The Constitution
- A foundational document that defines the rules and operations of the Arbitrum DAO.
- It can only be amended through Constitutional Proposals, which require a higher quorum threshold to ensure significant consensus before changes are enacted.
- Guides decision-making processes and serves as the governance framework.
- Quorum Requirements
Different proposals within the DAO have different quorum requirements.
- Constitutional Proposals: Require the participation of at least 5% of votable tokens to pass.
- Non-Constitutional Proposals: Require at least 3% of votable tokens to participate to pass.
- These thresholds ensure that governance decisions have broad community backing before implementation.
- Prevents governance attacks where few active participants could force changes without adequate oversight.
2.2 Proposal Types and Lifecycles
An Arbitrum Improvement Proposal (AIP) is a proposal submitted by a member of the Arbitrum DAO that proposes a change to the Arbitrum ecosystem. There are two types of AIPs:
- Constitutional AIPs: Modify the text or procedures of the Constitution or AIP-1, install or modify software on any chain, or take any action that requires "chain owner" permission on any chain.
- Non-Constitutional AIPs: All other AIPs, such as those that request funds/grants or provide general guidelines or information to the community.