AIP: Funds to bootstrap the first BoLD validator - Operational cost sentiment.

Description

Non-Constitutional Proposal

Abstract

The Arbitrum Foundation is seeking 900 ETH, made up of:

• Service fees. 500 ETH to pay proposers who are actively participating and advancing the chain.
• Refund L1 gas costs. 400 ETH to reimburse all L1 gas costs for proposers who are actively advancing the chain and defending against malicious challenges, assuming 1 challenge per year.

This proposal is contingent on the AIP upgrade the DAO-governed chains to use BoLD being approved by the ArbitrumDAO. If the AIP to upgrade the DAO-governed chains to use BoLD doesn’t pass - the Arbitrum Foundation will return these funds, to the ArbitrumDAO within 30 days.

Motivation

The AIP to upgrade the DAO-governed chains to use BoLD only proposes the technical upgrade and intentionally does not yet introduce an economic incentive mechanism to grow the validator set (since Arbitrum only needs 1 honest, active proposer at any point in time). Without this incentive, the ArbitrumDAO holds the risk that no entity will fulfill the role of being the first honest party to secure Arbitrum One. By adopting this proposal, the ArbitrumDAO is appointing the Arbitrum Foundation to be the first active proposer for Arbitrum One.

Key Terms

• Active proposer. A proposer who is actively posting assertions and helping advance the chain. Validators are not considered active proposers until they successfully propose an assertion with a bond. Subsequent assertions posted by the same address will simply move the already-supplied bond to their latest proposed assertion. There can only be 1 “active” proposer at any point.
• Assertion. A claim posted to the Arbitrum rollup contracts on Ethereum L1 about the Arbitrum L2 execution state.
• Assertion bond. Creating an assertion in the rollup contracts requires the proposer to join the validator set by putting up a bond, in the form of 3,600 ETH. Subsequent assertions posted by the same party do not require more bonds, instead, the protocol always considers validators to be bonded to their latest posted assertion until they withdraw.
• Challenge bond. The challenge process in BoLD requires a proposer to post a bond whenever they want to challenge a malicious (and invalid) assertion from a dishonest proposer. This applies to the block level, big-step sub-challenge, and one-step sub-challenge levels, as part of the interactive dispute game played between challengers.
• One honest party. In BoLD, a single, honest party can protect the integrity and liveness of the system. While only a single party is required to act, it is still an open and permissionless system, allowing anyone to step up at any time.
• Proposer. An agent who looks up the list of ordered transactions, executes them off-chain, and then proposes a claim on the final execution output by posting an assertion on-chain. A proposer must have a bond deposited into the BoLD rollup contracts on Ethereum to be considered eligible, by the protocol, to post assertions.
• Service fee. A fee for proposers who are actively and successfully posting on-chain assertions which should amount to the same income that Ethereum validators receive over the same time period. This fee removes the disincentive to lock up capital and be a proposer for the protocol and should not be viewed as an incentive or reward.

Budget Request

Service Fees for BoLD Validators

All blockchains, including Arbitrum One, should compensate participants who actively work to progress the chain.

For Arbitrum One, the BoLD AIP proposes that the DAO pay a service fee to an active proposer who is advancing the chain by posting assertions. If approved, the service fee will correlate to the same annualized income earned by a validator on Ethereum mainnet, which at the time of writing is approximately 3% to 4% of the staked ETH per year (Composite Ether Staking Rate benchmark by CoinDesk Indices).

NOTE: This payment is a fee and not a reward. In both the currently deployed protocol and in BoLD, a new assertion is posted every hour and only the time that the proposer is considered actively bonded will be used to determine the fee amount. Additionally, proposers are only eligible for this fee when their assertion is confirmed. There can be multiple actors who deposit the required assertion bond and run a proposer, but the fee will only be paid to the proposer whose assertion is the first to be accepted on L1 (i.e. active).

We estimate the following service fee per year:

• Assuming a 4% service fee based on the 3600 ETH bond size, equates to a maximum of 144 ETH per year per active proposer (at this assumed rate).

The Foundation therefore requests 500 ETH to support service fee payments for up to 3 years (144*3 years plus a buffer of 68 ETH) in the event that an active proposer, who is not the Arbitrum Foundation, steps up to advance the chain.

To learn more about service fees, check out the forum post.

Note: The Arbitrum Foundation will NOT be entitled to receive the service fee since the Arbitrum Foundation is proposing to use the ArbitrumDAO’s funds.

Reimbursement of L1 Gas Costs

The Foundation is requesting 400 ETH to reimburse the on-chain gas costs for active (and honest) proposers who are helping advance and defend the Arbitrum chain. It is estimated that 400 ETH will be sufficient to cover ~3 years of operational costs.

There are two on-chain gas costs:

• Posting assertions. An active proposer must post an assertion for the chain to advance.
• Challenges. A proposer who is defending the system must participate in a multi-round challenge process.

Note: we only propose to reimburse L1 gas costs since that is publicly verifiable and computable by all. The off-chain costs to run a proposer will not be reimbursed.

Estimated Reimbursement Costs

Assuming a nominal gas price of 50 gwei/gas during normal operations (i.e. no challenges) and assuming an elevated 500 gwei/gas price during a challenge (i.e. worst-case scenario), to fully reimburse an honest party’s gas costs the Arbitrum Foundation is requesting 400 ETH for 3 years.

This includes ~308 ETH to cover the above costs and a ~92 ETH buffer in the event of higher gas prices during normal operations, during a challenge, and/or in the event that there is more than one challenge per year.

To learn more about these calculations, check out the forum post.

Steps to implement & timeline

1. Publication of an AIP to the ArbitrumDAO forums for engaged discussion and debate.
2. Two separate temperature checks on Snapshot. a. Bond sentiment. Test whether the ArbitrumDAO may approve the Arbitrum Foundation’s request for 4234 ETH to run the first BoLD validator. b. Operational cost sentiment. Test whether the ArbitrumDAO may approve the additional service fee for active proposers (excluding the Arbitrum Foundation) and the reimbursement of L1 gas costs for running an active proposer, totalling 900 ETH.
3. Depending on the temperature check result: a. Continue to Tally. If there is strong consensus on both temperature checks, then the AIP will be published as one on-chain AIP on Tally for an on-chain vote. b. Re-iterate on numbers. If either temperature check is rejected by the DAO, then it will be iterated on and re-submitted for a temperature check again, until these is consensus.
4. Assuming a successful vote on-chain, the funds will be transferred to a multi-sig wallet controlled by the Arbitrum Foundation.
5. The Arbitrum Foundation will then deposit the funds in a validator that will be used to secure Arbitrum One, if the AIP to upgrade the DAO-governed chains to use BoLD is passed.

Payment facilitation, final costs & restrictions

The Arbitrum Foundation is requesting 900 ETH from the ArbitrumDAO to cover the following costs:

• 500 ETH as service fees for active BoLD proposers (excluding the Arbitrum Foundation), and,
• 400 ETH to reimburse honest parties on their L1 gas costs for 3 years.

Notable points:

• Arbitrum Foundation will not be entitled to the service fee,
• Arbitrum Foundation will be reimbursed for the L1 gas costs,
• All service fee payments and L1 gas reimbursements for non-Arbitrum Foundation actors will be manually processed by the Arbitrum Foundation periodically alongside a requirement that all payments adhere to the Foundation’s compliance process.

All requested funds will be sent to a multi-sig controlled by the Arbitrum Foundation and the funds will be returned if the BoLD proposal is not approved by the ArbitrumDAO. Additionally, after 3 years, any unspent funds from the service fee or gas reimbursements will be returned to the ArbitrumDAO and a subsequent proposal will be posted to help cover the future operational costs of Arbitrum.

The ArbitrumDAO will have the authority to single-handedly return the funds to the ArbitrumDAO treasury by revoking the Arbitrum Foundation’s proposer at any time and returning the bonds back to the treasury. This will be implemented and enforced via the BoLD smart contracts:

• Withdrawal Address. The funds will be deposited into BoLD from the Arbitrum Foundation-controlled multi-sig address but the withdrawal address will be set to the ‘UpgradeExecutor’ contract on L1.
• Triggering Withdrawal. The ArbitrumDAO (via governance) or the Arbitrum Foundation will have the authority to trigger a withdrawal and the funds can only be sent to the pre-established withdrawal address (i.e. the ArbitrumDAO’s treasury).