Arbitrum Foundation's transparency has been criticized. Is it trying to "steal" $1 billion through AIP-1?

By Ekta Mourya | Fxstreet
Compiled by | PANews
Just a few days after the ARB token airdrop, on March 28, the Arbitrum community launched a vote on the Arbitrum Improvement Proposal 1 (AIP-1) on Snapshot, proposing 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.
However, the creation of ArbitrumDAO may be a "cover" because the entity behind the proposal, Lemma, will also apply for a funding grant of 750 million ARB tokens (worth approximately over US$1 billion) (Lemma is the service provider of the Arbitrum Foundation, focusing mainly on the governance components of operations), but the community soon discovered that the Arbitrum Foundation is likely to use this proposal to "steal" the money.
AIP-1 proposal sparks controversy
The AIP-1 proposal has not yet been approved, but the Arbitrum Foundation has already created a multi-signature wallet with an address called "Arbitrum DAO Treasury2" and received nearly 700 million ARB tokens. Although a representative of the Arbitrum Foundation said that the address was the Administrative Budget Wallet, this statement was not accepted by the community.
In fact, the AIP-1 proposal makes the Arbitrum community feel "uncomfortable" for the following three reasons:
1. No real voting rights for donations of up to 750 million ARB tokens
The community discovered that the seemingly transparent proposal of the Arbitrum Foundation actually excludes grant allocation from on-chain governance. ARB holders cannot decide to whom or how the Arbitrum Foundation allocates nearly $1 billion in funds because the Arbitrum Foundation does not need to place its grant allocation under “full on-chain governance.”
2. No safety and supervision measures
On April 2, Arbitrum Foundation employee Patrick McCorry wrote that the Arbitrum ecosystem’s first community vote on everything from protocol governance to billions of dollars in funding was an “approval” rather than a “request,” and that the proposal was to inform the community of all decisions made in advance.
3. The Arbitrum Foundation is controlled by three people
The Arbitrum community discovered that the entity that actually determines who gets the grants is a foundation with only three directors: Campbell Law, Edward Noyons, and Ani Banerjee. Campbell Law is the co-founder of digital asset compliance company Provenance, Edward Noyons currently serves as a director of DAO consulting company Marfire, and Ani Banerjee’s background is unclear.
Analysis of AIP-1 Proposal Issues
Since the ARB airdrop, some of the Arbitrum Foundation’s initiatives have raised questions among DAO researchers and ARB token holders. According to Arbitrum Foundation documents, 4.278 billion ARB tokens will be allocated to the Arbitrum DAO treasury. However, according to the AIP-1 proposal, only 3,527,046,079 ARB tokens have been transferred to the DAO treasury.
More importantly, AIP-1 means a regression in the current state of community governance and transparency. ArbitrumDAO will allegedly have direct on-chain governance over the treasury, so the community cannot learn why 750 million ARB tokens were taken out and transferred to the unsupervised "special allocation" token allocation. According to the Arbitrum Foundation's documents, 4.278 billion ARB tokens were supposed to be allocated to the Arbitrum DAO treasury, but only 3,527,046,079 ARB tokens were transferred to the DAO treasury in AIP-1. This separate wallet will be controlled by the Arbitrum Foundation, so it is believed that this vote needs to be carefully considered. It is reported that the DAO treasury address was originally 0xF3FC178157fb3c87548bAA86F9d24BA38E649B58, but now it is 0xc24e24383120669512a336fb3b5b19afb4cc2a56.
In fact, Arbitrum has previously clearly stated the purpose of the budget wallet:
1. Provide special funding
2. Reimburse the applicable service provider for the total set-up costs
3. Pay the ongoing administrative and operating costs of the Arbitrum Foundation
The Arbitrum community generally believes that Offchain Labs has preemptively separated the Administrative Budget Wallet, so if the grant process, fund holding method, and supervision method are not further clarified, the hasty approval of the AIP-1 proposal will inevitably lead to subsequent problems, such as:
1. Who are the signatories of the designated administrative budget wallet? (Can only the three directors of the Arbitrum Foundation sign?)
2. Why can these 750 million ARB tokens be taken out of the treasury when it goes bankrupt? (These 750 million tokens should have been part of the treasury, but now they seem to be under the centralized control of three directors?)
3. Even with multi-signatures, if malicious actors gain access, it will pose a huge security risk to Arbitrum.
Follow-up
So far, Blockworks Research and TreasureDAO, the largest governance representative of the Arbitrum ecosystem, have expressed opposition to the AIP-1 proposal. Perhaps under pressure from the community, Arbitrum clarified on its official Twitter account that the foundation did not sell 50 million ARB tokens, of which 40 million were distributed as loans to participants in the financial market, and the remaining 10 million were converted into legal currency and used for operating costs. At the same time, the AIP-1 vote also reversed, from the initial 81.7% in favor to the current 82.56% against.
Not only that, the Arbitrum Foundation also announced that it plans to conduct an independent vote on the allocation of 750 million ARB tokens, and will also break down the AIP-1 proposal into a series of separate proposal votes to provide the "Ecosystem Development Fund" with background information on how the funds will be used and a "transparency report" on the foundation's budget.
The AIP-1 proposal will end voting on April 4. Let us wait and see whether the Arbitrum Foundation can "obtain" these 750 million ARB tokens as it wishes.