Arbitrum, one of several layer 2 blockchains working to scale Ethereum, airdropped over $1 billion worth of tokens to its users last week. The move shifted the blockchain governance powers from Offchain Labs, the company behind the project, to token-holding users who make up a decentralisation autonomous organisation, or DAO.
But Arbitrum’s first governance proposal has backfired, engulfing one of the most talked about crypto projects in controversy over the merits of decentralised governance. The vote ended on Monday with more than 76% of votes cast against the proposal.
The AIP-1 proposal, which the Arbitrum DAO submitted for a community vote on March 27, let holders of the recently airdropped ARB governance token indicate their support or opposition on a package of proposals. These included appointing directors of the Arbitrum Foundation, the body responsible for overseeing the network’s decentralised governance, and paying out $5,000 a month salaries to Security Council members.
‘These kinds of ‘omnibus’ proposals that formalise a gazillion items at the same time are hella confusing for voters.’
“These kinds of ‘omnibus’ proposals that formalise a gazillion items at the same time are hella confusing for voters,” Lito.eth, a pseudonymous delegate with over 1.7 million ARB tokens entrusted to him, told DL News. He voted against the AIP-1 proposal.
“Imagine you agree with the bulk of the proposal but there’s one or two items you absolutely don’t agree with, how are you going to vote?”
In fact, one part of the proposal has drawn significant ire from the community — the decision to allow the Arbitrum Foundation to bypass future community votes and distribute over 750 million in ARB token grants from the treasury themselves.
On-chain sleuths highlighted that the 750 million ARB tokens listed in AIP-1 had already been transferred from the foundation to an “Administrative Budget Wallet” several weeks earlier. This move implies that the foundation had already committed to disbursing the funds for grants, without providing ARB token holders with an opportunity to voice their dissent.
Out of the top 50 biggest voters on the AIP-1 proposal, only three delegates voted in favour of it while the others voted against or abstained. Larva, the pseudonymous founder of Arbitrum News DAO, is one of the top delegates who voted in favour of AIP-1 with 426,000 tokens.
“I hope Arbitrum DAO is not too decentralised at the moment, and I would like Offchain Labs to have more governance power since Arbitrum requires a gradual top-down transition to the DAO governance model,” Larva told DL News. “Otherwise, this system will crash.”
He lamented that the AIP-1 proposal “has deviated from its essence and has been used by people with ulterior motives to profit, increase their own personal influence, and even split the Arbitrum community.”
The Arbitrum Foundation addressed the community’s concerns on Sunday, saying that “some decisions must be made before and in connection with a broader launch,” and that the main goal of AIP-1 was for community members to “signal their support” rather than make any binding decisions as many community members had previously understood.
Allocating funds from a DAO for the purpose of community grants is a common practice.
DisruptionJoe.eth, another delegate with over 400,000 tokens who also voted against AIP-1, told DL News that the Arbitrum Foundation’s “mistake” was expecting the “DAO to ratify this setup decision as part of establishing the governance process and didn’t expect the community to want a say in this decision.”
DisruptionJoe.eth added that the percentage of Arbitrum’s total token supply allocated for community grants was lower than its peers, but “due to the size of the project ended up as a very large number.”
Optimism, another Ethereum layer 2 which launched a governance token in May last year, set aside 25% of its token supply for its ecosystem fund.
‘This situation just goes to show the importance of clear communication in a DAO.’
“This situation just goes to show the importance of clear communication in a DAO,” Nathan van der Heyden, a delegate with 1.6 million ARB tokens, told DL News.
Despite voting against AIP-1, van der Heyden said the way that Arbitrum built out its governance was “inspiring for all DAOs that truly strive for decentralisation.”
“I have no doubt that this is just a small bump on the road for Arbitrum DAO but I hope that important lessons have been learned by its operators,” he said.
Disclosure: The editor of this story, Ekin Genç, is eligible to claim ARB tokens.