News
Arbitrum Foundation’s First AIP Fails After Governance Controversy

Arbitrum Foundation’s first Arbitrum Improvement Proposal (AIP) have failed following a governance drama that happened over the last weekend. The native ARB token fell sharply after a backlash from token holders.
As per the reports, Arbitrum Foundation proposed its first Arbitrum Improvement Proposal (AIP-1) to allocate 7.5% (750 million) of ARB token supply to the Foundation to cover the operational expenses. The ARB token community voted against the proposal.
Arbitrum foundation made a proposal (AIP-1) to allocate 750M ARB tokens for admin and op costs, but $ARB holders voted against it
Now they said the vote was just a formality, and they have already spent 50.5M (6.7%) of the proposed 750M $ARB
Your vote is not vote pic.twitter.com/lvhBbBesum
— Eden Au (@0xedenau) April 2, 2023
The Controversial AIP-1
However, a little later, the Foundation announced that DAO voting was just a formality, and it had already spent $50 million from the proposed 750 million ARB. This sparked a community backlash over the Foundation’s vote for financial actions it had already taken.
Following the public outcry, Arbitrum admitted shortcomings in the text of AIP-1 and explained that the proposal was a ratification of the initial setup of the Arbitrum DAO, and the Foundation created to serve the DAO.
Many in the community said that the Arbitrum Foundation transferred 50 million ARB to Binance on the day of listing. Coinbase director Conor noted that $50 million ARB was transferred to the Wintermute market maker through the Binance deposit address for liquidity management; the other 500K ARB was sent to Gnosis Safe.
Arbitrum clarified:
“Regarding the on-chain transfers of 50M $ARB tokens, 40M $ARB tokens have been allocated as a loan to a sophisticated actor in the financial markets space. The remaining 10 million has been converted to fiat and dedicated towards operational costs.”
6/ Regarding the on-chain transfers of 50M $ARB tokens, 40M $ARB tokens have been allocated as a loan to a sophisticated actor in the financial markets space. The remaining 10 million has been converted to fiat and dedicated towards operational costs.
— Arbitrum (💙,🧡) (@arbitrum) April 2, 2023
Chris Blec, a DeFi and decentralization advocate, argued that the Arbitrum Foundation already perceived that most token holders would vote in favor. But, seeing the voting result, they found a way to justify their decision. “DECENTRALIZATION THEATRE IS BEING FULLY EXPOSED”, he wrote.
The Foundation then backtracked from its proposal, saying that “it likely will not pass” after votes flooded in against it. In the latest update, it said that it would split AIP-1 into parts. It, on early Monday, April 3rd, announced:
“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.”
1) 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.
— Arbitrum (💙,🧡) (@arbitrum) April 2, 2023
The organization behind the ARB token also explained that it sold $10 million ARB to “fund pre-existing contracts and to pay for near-term operating costs.” It would introduce a new AIP to cover the allocation of $750 million ARB to the Foundation.
Arbitrum Foundation concluded:
“We look forward to proposing the new AIPs early this week and participating in an open discussion with the DAO. Arbitrum is the only L2 to seek DAO ratification of the initial Foundation funding, and that transparency sparked this important discussion.”
The ARB token fell sharply (10%) from $1.27 to the 24-hour low of $1.14 on Sunday, April 2nd. The native token of the Ethereum L2 scaling solution Arbitrum is now changing hands at $1.22 as of writing.
