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Arbitrum in Turmoil: Community is Raging Over the First  Governance Proposal

Arbitrum in Turmoil: Community is Raging Over the First Governance Proposal


Arbitrum is amidst a severe governance crisis as its community is raging over the Arbitrum controversial governance proposal. The community criticized the proposal for its lack of transparency and centralized decision-making, with many feeling that the foundation was crossing the line with its authority.

The Arbitrum team announced earlier this month that it was forming a DAO, which came with the launch of its ARB governance token.

The proposal under the name of AIP-1 aimed to allocate 750 million ARB tokens to the Arbitrum Foundation - a centralized company - for special grants, reimbursement, and administrative and operational costs. The size of the allocation and the lack of transparency around its use drew criticism from community members, who felt that the foundation was acting shady. As the backlash continued, the foundation clarified in a forum post that AIP-1 was a ratification, not a proposal and that some of the tokens were already sold for stablecoins. 

Furthermore,  the post clarified that nearly 50 million ARB tokens were moved on-chain in the past few days, with 40 million allocated as a loan to a sophisticated actor in the financial markets space, while 10 million tokens have been converted to fiat currency for operational costs. This move further fueled community anger and suspicion. The explanation basically meant that the foundation held a "ratification" vote over decisions it had already implemented without the consent of the token holders.

However, community members were not satisfied with the explanation and made comments regarding the actions of Arbitrum's team. They have noted that the team has been selling off tokens that were previously communicated to the community as being locked, which contradicts what was initially stated. In addition, members have highlighted that the tokenomics page only displays unlocked User airdrop and DAO airdrop tokens, while there are still tokens that are scheduled to unlock in March 2024.

The Arbitrum Foundation tried to settle the dust by saying that this symbolic first governance attempt failed due to communication problems and decisions that were “clearly not articulated correctly”, claiming that the point of AIP-1 was to inform the community. 

As the crisis started to escalate, late Sunday, the Foundation announced plans to divide the dense proposal into smaller segments. It tweeted, "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."

The most criticized "special grants" program will also be rebranded as the "Ecosystem Development Fund." The foundation pledged to "provide context on how the funds will be used," as well as a "transparency report" on the Foundation's budget. The new Arbitrum Improvement Proposals will be issued early this week.

Source and Copyright: © TradingView

The governance drama has caused a decline in the price of ARB token, which has fallen nearly 5% lower over 24 hours, currently trading at $1.21 according to CoinMarketCap.

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