- The Arbitrum Foundation faced backlash over its proposed governance package, AIP-1, and decisions about token allocation.
- The Foundation’s “special grants” program sparked controversy and a shift in votes towards rejecting AIP-1.
- In response, the Foundation pledged to hold separate votes on each section of the AIP-1 omnibus bill.
The Arbitrum Foundation has recently faced intense scrutiny and backlash from the community after unveiling its proposed governance package, AIP-1. The Foundation has been accused of making unilateral decisions about token allocation and other critical aspects of the ecosystem, raising questions about decentralization and community involvement in the project.
AIP-1: Ratification or Request?
The first community vote in the Arbitrum ecosystem, AIP-1, was intended to cover everything from protocol governance to funding. According to Arbitrum Foundation employee Patrick McCorry, the voice was a “ratification and not a request,” implying that many of the decisions outlined in AIP-1 had already been implemented.
For instance, the allocation of 7.5% of all ARB tokens to the Foundation, a centralized company in the Cayman Islands, had already taken place. McCorry apologized for the lack of clarity surrounding the nature of the vote, stating that the purpose of AIP-1 was to inform the community of decisions that had been made in advance. This revelation sparked a significant backlash from the community, with many accusing the Foundation of overreaching and undermining the principles of decentralization.
Token Allocation Controversy
The crux of the controversy lies in the Foundation’s “special grants” program, which allocated 750 million ARB tokens (approximately $1 billion) to the Foundation without token holder approval. This sparked outrage from the community, leading to a vote shift towards rejecting AIP-1.
Moreover, the Foundation began selling ARB tokens for stablecoins before the governance community had ratified its budget. As a result, the price of ARB fell by 9% in 24 hours. McCorry explained that the Foundation had already started spending the tokens allocated to it, causing further concerns about transparency and community involvement in decision-making.
In response to the backlash, the Foundation announced that it had loaned 40 million ARB tokens to a market maker and sold an additional 10 million tokens for fiat to cover operations. The Foundation promised to share more information soon.
Pledges for Change and Transparency
Amid the mounting criticism, the Arbitrum Foundation pledged to hold a series of separate votes on each section of the AIP-1 omnibus bill, following the advice of the DAO. This decision won the support of some influential voices in the community, who praised the Foundation for listening to feedback and taking steps in the right direction.
The controversial 750 million ARB token allotment will now be subject to a standalone vote, with the Foundation working on options to add more accountability. Additionally, the “special grants” program will be rebranded as the “Ecosystem Development Fund,” with Arbitrum promising to provide more context on how the funds will be used and release a transparency report on the Foundation’s budget. The Foundation has assured the community that it has no near-term plans to sell more tokens.
The recent events surrounding the Arbitrum Foundation and its governance have highlighted the importance of transparency, accountability, and community involvement in decentralized ecosystems. As the Foundation works to regain trust and implement the necessary changes, it will be crucial for all stakeholders to remain vigilant and continue advocating for the core principles of decentralization.
