Arbitrum agrees to give away $42m grant amid push to keep layer 2 competitors at bay

Arbitrum gears up to hand out $41.5 million through a grants programme, aimed at asserting its presence in the competitive Ethereum layer 2 space.

Arbitrum DAO, the community that governs the blockchain of the same name, gave preliminary approval for a $41.5 million grant programme, via a so-called temperature check vote this week.

The grant is a big incentive programme in the crypto industry — and comes as rivals aim to push their own layer 2s. Arbitrum’s TVL is around $1.7 billion, according to data from DefiLlama.

Other layer 2s like Optimism, zkSync, and Coinbase’s Base are currently its major competitors in the Ethereum scaling blockchain arena, but their combined TVL is only $1.2 billion.

The grants programme will hand out 50 million Arbitrum native tokens, ARB, to DeFi projects building on the chain to support protocol development and create marketing buzz.

The ARB tokens for the grants will come from the DAO’s treasury which holds $2.9 billion, according to DAO treasury tracker DeepDAO.

Arbitrum is the largest Ethereum layer 2 blockchain, according to total value locked, or TVL, — a metric that shows the volume of investment in a crypto protocol or blockchain network. Layer 2 blockchains are networks that help to scale their Layer 1 counterpart main chains.

Temperature check votes are used to gauge initial sentiments within a DAO about a governance proposal. DAOs run an execution vote, typically on-chain, once the temperature check poll passes.

NOW READ: Camelot proposal for $11m ARB token grant faces rejection in Arbitrum DAO vote

The programme is not without risk.

The vote passed despite concerns expressed by DAO members on the governance forum about the rushed nature of the process, amid the longstanding clamour for an Arbitrum incentives programme.

“Historically, bringing many grant proposals to a delegate-wide vote has not resulted in prudent spending,” Arbitrum DAO contributor company GFX Labs said in the governance forum.

“Realistically, most will receive de minimis review and likely be approved,” the company said.

DAO members critical of the short grants window stated on the governance forum that it could lead to an influx of mercenary capital that will exit the ecosystem once the incentive programme ends.

Other members countered on the governance forum that Arbitrum’s delay in starting a DAO-led grants programme could cause it to concede ground to newer buzzier blockchains. They stated that builders will move their protocols to networks that offer attractive incentives.

NOW READ: dYdX grants trustee resigns amid DAO breach of trust uproar

Apart from the rushed nature of the process, several DAO members expressed concerns about the size of the grant.

The DAO was rocked by a major controversy in April when the Arbitrum Foundation tried to co-opt $1 billion worth of ARB tokens for special grants that would be approved without any community vote.

Camelot, the largest decentralised exchange on Arbitrum, also previously saw its $11 million grant application denied in July. Critics of the proposal at the time said the grant would offer an unfair advantage to the protocol and pressed for a general incentives program that would be open to the broader Arbitrum ecosystem.

Some DAO participants also expressed concerns about the framework for monitoring the performance of grantees. Arbitrum’s short-term grant will employ a community-led performance review system where DAO members will evaluate the utilisation of the funds.

“Scrutiny doesn’t come for free, it requires thoughtful structuring of the grant program and the decision process,” Timeless Finance founder Zephram Lou previously told DL News.

DAO-led grants are never far from controversy stemming from alleged insider dealing and lack of transparency.

DYdX DAO restructured its grants programme, appointing new trustees last month amid uproar within the community over an alleged breach of trust by one of its members.

Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.