Arbitrum Rethinks $1 Billion AIP-1 Plan Following Community Concerns

Summary:

• The project’s DAO will rework a contentious proposal to send 750 million ARB tokens to the Arbitrum Foundation after community backlash.
• On-chain data showed that the foundation sold 10M ARB tokens to supposedly fund pre-existing contracts and to pay for near-term operating costs.
• The sale sparked outrage as the Arbitrum community had not voted in favor of the AIP-1 proposal when the foundation sold tokens.

Ethereum L2 scaling protocol Arbitrum plans to redraft a governance proposal meant to allocate $1 billion in ARB tokens to a foundation after the project’s community voiced concerns regarding decentralization over the weekend.

The contentious Arbitrum Improvement Proposal-1 (AIP-1) would transfer 750 million ARB tokens to the Arbitrum Foundation. AIP-1 earmarked a part of the massive allocation worth $1 billion to fund pre-existing contracts and to pay for near-term operating costs. This was supposedly deemed necessary since the foundation is a separate entity from Offchain Labs, the developer of the Arbitrum L2 network.

The Foundation is a separate entity to Offchain Labs and it was established with no funds. The 10m ARB tokens were sold to fiat to fund pre-existing contracts and to pay for near-term operating costs. For example, the $3.5 million setup costs outlined in AIP-1.

Arbitrum DAO Concerns Addressed

Members of the project’s decentralized autonomous organization (DAO) grew concerned after tokens were transferred to the foundation before voting concluded, prompting questions about how the DAO operated and the influence token holders truly have over the protocol’s future.

The self-executing DAO launched along with the project’s ARB governance token airdrop that was unveiled in mid-March. Per previous reports, the DAO was meant to oversee changes to the protocol and govern future operations.

After overwhelming backlash from community members, the L2 project said AIP-1 “likely will not pass” and promised to address four major points raised by the DAO following its “ratification”-styled governance vote.

The proposal will be broken into parts with a separate vote to decide whether to send ARB tokens to the foundation. A budgeting AIP was also suggested to introduce transparency about how the funds will be spent.

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The project will scrap the Special Grants program as it lacks DAO involvement. According to the thread, the Ecosystem Development Fund will replace the grants initiative and “provide context on how the funds will be used to benefit” the platform’s ecosystem.