Written by: Odaily Planet Daily

 

Today, a piece of news about the star project Arbitrum sparked controversy in the community and is still continuing to ferment.

The Arbitrum Foundation began selling ARB tokens in the form of stablecoins before its governance community of token holders “approved” the organization’s nearly $1 billion budget, according to a blog post by an employee early Sunday.

This action sparked community outcry, and the price of ARB tokens fell to a low of around $1.15. The daily decline once exceeded 10%, and has now rebounded to around $1.18.

 

What is the controversial proposal?

 

On April 1, the Arbitrum community launched the Arbitrum Improvement Proposal 1 (AIP-1) proposal, which plans to introduce a decentralized autonomous organization structure called ArbitrumDAO, which will be managed by ARB holders. The Arbitrum Foundation located in the Cayman Islands will serve and be managed by the ArbitrumDAO community, aiming to promote the growth and development of the Arbitrum ecosystem. The entity behind the proposal, Lemma, will also apply for a grant of 750 million ARB tokens (worth approximately US$1 billion).

Although the proposal has not yet been approved, a multi-signature wallet with an address called "Arbitrum DAO Treasury 2" has been created and received nearly 700 million ARB tokens. A representative of the Arbitrum Foundation stated that the address is the Administrative Budget Wallet.

However, Arbitrum DAO got off to a bad start, with its first proposal sparking huge controversy.

According to the token economic model announced by the project team at the time of the airdrop, 42.78% (4.278 billion) of the total tokens should have been allocated to the community treasury of Arbitrum DAO. According to AIP-1, 750 million ARBs originally belonging to the community may be diverted to the foundation to establish an ecological fund. According to the official statement, the purpose of this move is to "support the special donation plan for the growth of the Arbitrum ecosystem."

The vote indicated that AIP-1 was progressing smoothly. However, as community members' criticism and participation became more enthusiastic, more and more people voted against the proposal. As of the time of this article's publication, the number of votes against has reached 75%.

（AIP-1 voting page）

In the governance forum, there were more than one point that caused dissatisfaction among community members around this proposal. Some investors reported that they could not participate in the voting even though they held ARB airdrops; on-chain data showed that the 750 million ARB allocated in the proposal had been transferred before the proposal was passed; and there were security risks for the 750 million ARB.

What is even more criticized is that on-chain data shows that the Arbitrum Foundation transferred 50 million ARB tokens, and people suspected that the foundation cashed out a large amount too early.

Tonight, the Arbitrum Foundation clarified this on its official Twitter account: The Foundation did not sell 50 million ARB tokens. 40 million of them were allocated as loans to a savvy participant in the financial market, and the remaining 10 million were converted into legal tender and used for operating costs.

 

Request or approval? The chicken and the egg?

 

As for the highly anticipated AIP-1, the foundation used an interesting metaphor: "Which came first, the chicken or the egg?"

Although the community has questioned many details in AIP-1, the content of these proposals (at least in the eyes of the foundation) is essential. The Arbitrum Foundation believes that considering the core technology handover and upgradeability of the Arbitrum chain, many parameters need to be determined before the DAO is established. Specifically, it includes handing over the code to the DAO, creating a security committee, setting a time delay for code upgrades, establishing initial rules, establishing an AIP proposal mechanism, initial validators on Nova, DAC, and so on.

Therefore, what the community members think, “these rules should be set by the DAO”, is technically impossible. The Arbitrum chain cannot be handed over to the Arbitrum DAO without a series of initial settings. So, it is a "chicken or egg" problem - without the initial operation of the foundation, the DAO cannot be created.

Regarding the token transfer that has already occurred, Arbitrum gave an official response. The foundation believes that AIP-1 is not a grant "request", but requires community "ratification".

The Foundation believes that the community has confused the concepts of request and approval. The Foundation believes that what is happening now is a decision that the Foundation has already made, and the proposal is not requesting an action from the community. "The purpose of AIP-1 is to inform the community of all decisions that have been made in advance."

As for the reason for this "misunderstanding", the foundation attributed it to "unclear classification". They believe that the unclear classification of the token allocation pie chart in the governance document may have caused the community to misunderstand it. In the original pie chart, the DAO Treasury address and the foundation's allocation were placed in the same section and described as "DAO Treasury". If this part is divided into two parts, it will be more "clear".

(Initially public ARB token distribution pie chart)

 

The community questioned and the token price fell

 

After a series of disappointing operations, the Arbitrum Foundation's actions have been criticized by the community, and the price of ARB tokens has also fallen.

OKX Eurotrade shows that the ARB token is currently trading at $1.18, down 9% in 24 hours.

Some community members believe that AIP-1 is not a real vote. The proposal has been implemented without the community's consent. What is the point of such a vote?

At present, doubts about this incident have extended horizontally to the industry, and Blockworks Research has voted against the proposal. Blockworks said it will work to improve DAO governance and transparency, and denounced AIP-1 as a regression in the current state of community governance. Blockworks believes that up to 750 million ARB tokens may be controlled by the Arbitrum Foundation, which is operated by the three initial directors Campbell Law, Edward Noyons and Ani Banerjee. They believe that the foundation's move has increased centralization and stripped some power from the upcoming Arbitrum DAO.

It is worth mentioning that when the ARB airdrop was launched, a total of 137 DAOs received the ARB airdrop. This was also the first large-scale airdrop for DAOs. It is not difficult to imagine that in the next few days, as this incident continues to ferment, many DAO organizations holding a large amount of ARB will be forced to express their support or opposition. And their statements will gain or lose the trust of community members.

As the AIP-1 voting deadline approaches, how will the Arbitrum Foundation respond if the proposal is ultimately not passed?