The Arbitrum team has reversed its stance on AIP-1 – a controversial first governance proposal that allocated 750 million ARB tokens to the Arbitrum Foundation.
In a Twitter update on April 2, Arbitrum said it plans to break AIP-1 into distinct proposals in response to a considerable amount of backlash from the community.
1) AIP-1 is too large and covers too many topics. We will follow the DAO’s advice and split the AIP into parts. This will allow the community to discuss and vote on the different subsections.
— Arbitrum (💙,🧡) (@arbitrum) April 2, 2023
AIP-1 proposed to give the Arbitrum Foundation control over 750 million ARB, worth around $1 billion, to fund special grants “without undergoing a full on-chain AIP process.”
As of late Sunday evening, more than 78% of token holders had voted against the proposal. They were further antagonized when Arbitrum employee Patrick McCorry explained that the proposal was more of a formality to notify the community of steps that had already been put into action. Essentially, the community’s signaling against the proposal had been rendered insignificant.
“There is a chicken and the egg that needs to be solved when decentralizing a network, and the point of AIP-1 was to inform the community of all of the decisions that were made in advance,” he said.
On-chain data shows that the Arbitrum Foundation has already used 50.5 million of the 750 million ARB tokens mentioned in the proposal.
https://twitter.com/Cringe/status/1642500642274152448
The Foundation later addressed these on-chain transfers, saying only 10 million ARB was converted to fiat, while 40 million ARB was allocated as a loan to a “sophisticated actor” in the space. Blockchain data analyzed by Lookonchain suggests that this entity is likely to be Wintermute.
The 50M $ARB was transferred to addresses related to Wintermute Trading(market maker), probably in preparation for providing liquidity.https://t.co/0XXrNlT3Oz pic.twitter.com/CuscPppfsg
— Lookonchain (@lookonchain) April 2, 2023
ARB sank to a low of $1.14 amid the governance crisis on Sunday, recovering slightly when the team addressed the issue later in the day.
The Arbitrum team explained that it sold 10 million ARB tokens to fund pre-existing contracts and pay near-term operating costs, including the $3.5 million setup costs mentioned in AIP-1.
“The Foundation does not exist to sell tokens, only sold enough to fund its current operating expenses and has no near-term plans to sell more tokens,” tweeted Arbitrum.
4) The Special Grants program is vague/lacks DAO involvement. We will rename it “Ecosystem Development Fund” and provide context on how the funds will be used to benefit the Arbitrum Ecosystem. Separately, the DAO can initiate new grant programs from its treasury at any time.
— Arbitrum (💙,🧡) (@arbitrum) April 2, 2023
Despite “this blunder of communication,” the team said it will aggressively pursue the goal of making the Arbitrum DAO the most decentralized rollup.
