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.

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.

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.


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.

Despite “this blunder of communication,” the team said it will aggressively pursue the goal of making the Arbitrum DAO the most decentralized rollup.