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Posted on Jul 03, 2024Read on Mirror.xyz

Governance Restaking

Governance Restaking

Separating voting power from financial utility with the Tally Protocol and Symbiotic

Governance tokens are a key component of the blockchain ecosystem, allowing stakeholders to directly participate in the decision-making process and operations of the protocols they rely on every day. These tokens, however, often struggle to balance their governance utility with their potential as financial assets, as participating in governance requires locking up tokens. Token holders face a tough choice: use their assets as collateral in DeFi or actively participate in governance. As the protocol token ecosystem grows, there is an increasing need to maximize the utility of these tokens without compromising their primary function.

The Tally Protocol, combined with Symbiotic’s shared security framework, solves this problem. It separates the governance voting power of tokens from their financial utility as assets that can be put into DeFi. This allows token holders to:

  • Maintain their governance rights

  • Use their tokens as collateral to secure infrastructure networks

  • Unlock new economic opportunities

This approach creates a win-win scenario for DAOs, token holders, and ecosystem builders. It enhances token value, preserves decentralized governance, and enables the development of more robust blockchain infrastructure.

Governance Restaking unlocks a new category of shared security use cases. In this post, we explore the Arbitrum protocol governance token (ARB) and Wormhole protocol governance token (W) as examples of real-world applications for (re)staked governance tokens.

The Tally Protocol: Separating the voting powers of governance tokens from their economic utility

The Tally Protocol enables governance restaking in Symbiotic by enabling:

  • A split in token utility whereby voting rights remain with the original token holder but can optionally be redistributed back to the DAO

  • An unlock in economic utility through a liquid staked version of the token

This separation allows token holders to use their assets to secure infrastructure networks as well as deposit in DeFi applications, without endangering the DAO by locking up their governance tokens in third party protocols.

Symbiotic: Enabling flexible restaking

Symbiotic complements the Tally Protocol by providing:

  • A shared security framework for custom restaking implementations

  • Support for various types of collateral, including DAO protocol tokens

Symbiotic offers key benefits for both protocols and token holders. Protocols can design tailored security systems, while token holders can contribute to network security and earn additional yield. The result is that new infrastructure possibilities emerge, backed by protocol token economics.

Real-World Applications

The Tally Protocol and Symbiotic combination enables new use cases for blockchain infrastructure. To better understand how the Tally Protocol and Symbiotic work in practice, let's look at two potential use cases.

1. Powering L2 infrastructure with (re)staking

Layer 2 solutions today have a variety of different types of infrastructure which both need to be decentralized and secured by strong crypto economic systems. (Re)staking via Symbiotic and the Tally Protocol allows L2s to use their own token and ecosystem to back their own various services like decentralized sequencing, transaction ordering, interoperability and more.

One example is trustless data availability. Current options like Arbitrum's Data Availability Committee are semi-decentralized and require trust assumptions. The Tally Protocol and Symbiotic offer a more decentralized alternative that is aligned with token holders interests and is backed by the security offered by (re)staking:

  • ARB token holders stake their tokens in the Tally Protocol and get tARB (Tally Liquid Staked Arbitrum token)

  • Token holders provide tARB as collateral in Symbiotic to be used to back network services that provide data availability for L3 chains

  • ARB token holders gain additional value from their holdings in two ways. First, they earn rewards from underlying ARB staking. Second, they can (re)stake their tokens in Symbiotic and delegate to data availability operators. Token holders can then earn a portion of the fees paid by L3 Orbit chains for data availability.

This solution creates a symbiotic relationship between L3s and token holders. L3s benefit from a more trust-minimized system, while ARB token holders unlock new value from their assets. While you can currently use ETH backed data availability solutions, token holders want native ecosystem aligned solutions that give them more utility and reuse their own economic security. Native token backed data availability solutions are more aligned with underlying token holder utility.

And it doesn’t stop with just data availability, tARB tokens (re)staked through Symbiotic can additionally be leveraged by other infrastructure use cases seeking to be secured by Arbitrum tokens, including e.g. middleware such as oracles, creating a restaking ecosystem for the Arbitrum community.

2. Decentralized security for interoperability platforms

Interoperability protocols like Wormhole currently rely on a set of Validators and Relayers for facilitating asset transfers.  The Tally Protocol and Symbiotic can improve and further secure this setup specifically when it comes to Wormhole's Native Token Transfer (NTT) Framework.

  • Create tW (liquid staked Wormhole token) using Tally Protocol

  • tW holders back decentralized versions of Guardians and Relayers through Symbiotic that work in parallel with the Guardian Network to create an even more secure and decentralized bridge for tokens

  • This attestation is combined with the one from the Guardian Network on the destination chain. Subsequently delivering the user their funds.

  • Wormhole token holders participate in securing their own protocol

  • Holders earn native W staking yield plus yield from backing services

This approach enhances protocol security and creates a more robust, participatory ecosystem.

Both examples maximize opportunities for token holders by allowing them new opportunities to secure and back their protocol infrastructure. Importantly, this is achieved without compromising the security of the underlying DAO. The DAO maintains control over its protocol security while token holders are free to participate in restaking to earn additional yield.

Conclusion

Governance Restaking with Tally and Symbiotic addresses a significant limitation in DAO token utility and unlocks a new category of shared security use cases. By separating governance from financial utility, Governance Restaking:

  • Unlocks new value for token holders

  • Preserves DAO governance structures

  • Enables development of more secure blockchain infrastructure

The net result is protocols gain more sophisticated and engaged token holders that are incentivized to continue to provide value and services to the protocol.

As the crypto ecosystem evolves, this approach has the potential to influence the trajectory of decentralized finance and governance. It addresses current challenges and provides a foundation for new blockchain applications, likely shaping the future landscape of the blockchain space.


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