Arbitrum Foundation Under Fire: Community Demands Return of $1B Worth of ARB Tokens

In the Brief:

  • Arbitrum Foundation transferred 700 million ARB tokens to its DAO Treasury, sparking backlash from the community.
  • The community filed a proposal requesting the tokens be returned.
  • New proposals have been released to restore community dialogue, but the community still demands the return of the tokens.
  • The outcome of the proposal will impact the future governance of the platform.
  • The success of the proposal is currently at 55%.

3 - 5 minute read

The Arbitrum community is up in arms after the Arbitrum Foundation transferred 700 million ARB tokens to its DAO Treasury without the community’s approval in March. This prompted the community to file a proposal requesting the Arbitrum Foundation to return the tokens immediately, claiming it was not approved by the governance token holders. At the time of writing, 55% of voters supported the proposal, 42% opposed it, and 2% abstained, with voting set to end on April 14.

The dispute between Arbitrum’s Foundation and its community started in March after the Foundation’s first governance proposal (AIP-1) called for funding its operations with 750 million ARB tokens. Following backlash from the community, the Foundation clarified that AIP-1 was a ratification, not a proposal, and some of the tokens were already sold for stablecoins. The Foundation then released a set of new improvement proposals aimed at restoring community dialogue. The new proposals include AIP-1.1, covering a smart contract lock-up schedule, spending, budget, and transparency, and AIP-1.2, which amends founding documents and lowers the proposal threshold from 5 million ARB tokens to 1 million ARB to make governance more accessible.

Return of 700M ARB tokens

The efforts made by the Arbitrum Foundation did not appease ARB holders, with the community demanding that the Foundation return the 700 million ARB tokens to its DAO Treasury. The community claims that the Foundation unilaterally allocated $750M tokens from the DAO that were not approved by governance token holders. According to the proposal, the Foundation should proceed with its budget plan only after returning the tokens; otherwise, it will demonstrate that the governance holders ultimately control the DAO, not the Arbitrum service provider.

AIP 1.05: Return 700M ARB to the DAO Treasury. Source: Arbitrum's DAO.

Implications for traders

The Arbitrum Foundation’s decision to transfer 700 million ARB tokens without the community’s approval is a black eye for the project. The community clearly feels that the Arbitrum Foundation has overstepped its bounds and must be held accountable. With voting on the proposal set to end on April 14, it remains to be seen what the outcome will be. Traders should pay attention to the decision as it could have significant implications for the project’s future governance and its perceived legitimacy. Furthermore, the proposal’s success could set a precedent for future Decentralized Finance (DeFi) projects and how they handle governance issues that arise.

The dispute between the Arbitrum Foundation and its community over the transfer of 700 million ARB tokens highlights the importance of governance in DeFi projects. The dispute underscores the need for transparent and accessible governance, ensuring that community members have a say in how the project is run. The success or failure of the community proposal will not only impact the future governance of the Arbitrum platform but also set a precedent for other DeFi projects. Ultimately, the community’s demand for the return of the funds indicates that they are invested in the project’s future and want to see it progress in a manner that is fair and equitable for all involved.

Disclaimer: The content in this article is provided for informational purposes only and should not be considered as financial or trading advice. We are not financial advisors, and trading carries high risk. Always consult a professional financial advisor before making any investment decisions.

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