Arbitrum Walks Back on Problematic Proposal, Foundation Cites ‘Communication Blunder’

The Arbitrum Foundation found itself at the receiving end of significant backlash over its governance voting system. The drama centers around the sale of 10 million in ARB tokens for fiat by the Ethereum layer 2 solutions provider even before the community had formally ratified its budget.

Following the community outrage, the Arbitrum Foundation acknowledged that the first governance proposal – AIP-1 – “will likely not pass.”

Arbitrum Drama

According to the Twitter thread, the team refuted the initial claim of 50 million ARB tokens sale and instead clarified that the figure was 10 million ARBs which were sold to fiat to fund pre-existing contracts and to pay for near-term operating costs.

Arbitrum said the Foundation “does not exist to sell tokens,” while adding that the decision of the sale was only taken to finance its current operating expenses. It does not have any plans to sell more tokens in the near term.

AIP-1, on the other hand, will be split into smaller parts allowing the community to discuss and vote on the different subsections.

Many notable figures in the community pointed out that backtracking was necessary as the proposal would have enabled the Arbitrum Foundation, which happens to be a centralized entity, to control over 750 million ARB tokens worth around $1 billion.

Meanwhile, Arbitrum admitted that the controversial governance package does not provide transparency over how the funds will be spent. As part of the budgeting AIP, the team behind the protocol will propose transparency reports to make the community aware of the same.

Furthermore, the Arbitrum Foundation’s “special grants” program, which it described as being “vague” and “lacks DAO involvement,” will be renamed to “Ecosystem Development Fund.” Its focus will be to provide “context” on how the funds will benefit the ecosystem. Separately, the DAO will also be able to initiate new grant programs from its treasury at any time.

“The objective in setting up the Arbitrum DAO was to lead by example to create the most decentralized rollup, and despite this blunder of communication, we will continue to aggressively pursue this goal.”

Arbitrum Whales?

The days leading up to the much-anticipated launch of ARB bolstered on-chain activity of the popular layer-2 solution to new record highs. But the recent drama surrounding the proposal pushed the token’s price to register declines over the weekend.

The whales, however, remained mostly unfettered. The latest data suggest that two out of the top six whales bought $811,199 and $1.69m worth of tokens in the last 24 hours. On the other hand, two whales have offloaded over a $1M worth of tokens at the same time.

The remaining two whales have shown no significant movement.