April 14, 2023 at 13:57 GMTModified date: May 15, 2023 at 16:11 GMT
April 14, 2023 at 13:57 GMT

Arbitrum Plan to Return $1B in ARB Likely to Fail

Arbitrum Improvement Proposal 1.05, which aims to return 700 million ARB tokens valued at over $1 billion to its DAO, appears to be heading for defeat.

Arbitrum Improvement Proposal 1.05, which aims to return 700 million ARB tokens valued at over $1 billion to its decentralized autonomous organization (DAO), appears to be heading for defeat.

With just one day left for governance votes, more than 83% of the total vote count, or 113 million Arbitrum governance tokens, have voted against the proposal. Meanwhile, 20 million ARB tokens have voted in favor, and 2.2 million have abstained.

Background on Arbitrum AIP 1.05 Controversy

AIP 1.05, titled “AIP 1.05: Return 700M $ARB to the DAO Treasury [REAL],” claims that the preemptive and unapproved allocation of 700 million ARB tokens by the Arbitrum Foundation was an overreach of the DAO’s treasury resources.

The controversy began in early April when the Arbitrum Foundation went back on AIP-1, a contentious proposal to allocate 750 million ARB tokens to itself for funding investment initiatives utilizing Arbitrum’s technology. The proposal proceeded without the approval of token holders, who had voted overwhelmingly against it.

AIP 1.05 aims to serve as a symbolic gesture, asserting that the governance holders, not the Arbitrum service provider or the Foundation, control the DAO.

Reasons for AIP 1.05’s Likely Failure

Prominent token holders who have voted against AIP 1.05 with millions of ARB tokens include 0x0eB5, olimpio.eth, 0xBbE9, galxe.arb, chainlinkgod.eth, and blockworksres.eth. Reasons for voting against the proposal may include:

  1. A perception that small voters prioritize maximizing the value of Arbitrum’s governance token, while large holders, primarily delegates, focus on long-term sustainability and the Arbitrum Foundation’s ability to distribute tokens.
  2. A view that the proposed forced buyback is an extremist approach designed to draw attention rather than a practical solution.
  3. A belief that AIP-1.1 already addresses the issue of the disputed funds, as the Arbitrum Foundation plans to send the tokens to a smart contract with vesting, which the DAO can modify, making AIP 1.05 an unnecessary complication.

Implications for DAO Governance and Optimistic Rollups

The ongoing debate on AIP 1.05 highlights the importance of DAO governance in the crypto space. As the largest Optimistic Rollup in terms of total value locked and valuation, Arbitrum’s governance outcomes will likely set a precedent for other rollup communities.

Arbitrum’s governance token (ARB) price has risen by more than 16% in the past 24 hours, along with the majority of the market, and is currently trading at over $1.50 per token.