Robert Steinadler, a month ago

Arbitrum: Community vote rejects proposal to return funds

Arbitrum was the most anticipated airdrop in a long time and perhaps even this year. The layer-2 technology is believed to leverage the security of Ethereum and offer the scalability that is needed to provide an ecosystem of decentralized apps that can truly change financial products. Right after the successful launch of its governance token, Arbitrum ran into a problem when the Arbitrum Foundation moved funds out of the DAO without community consent.

How has this changed the discussion about decentralization and what was the result of the most recent vote on the issue?

The most disputed transaction in cryptos history

The Arbitrum community was very unhappy when the Arbitrum Foundation decided to take 750 million ARB tokens from the DAO. This action wasn’t even untypical for a decentralized project. A foundation is useless unless it has enough funding to support its mission. Most projects fund the work of their respective foundation through a share of tokens.

Before making the transaction, the funding was voted on with the very first proposal ever made on Arbitrum’s future. But when the community voted against AIP-1 the foundation continued with its plan and transferred the money despite the result.

This has caused a crisis and much criticism because many community members and spectators felt betrayed. The results and the actions of the Arbitrum team have raised a discussion about decentralization and the efficiency of governance in DeFi.

Decentralization remains an objective

It appears that a proposal failed to reverse past decisions. With AIP-1.05 a proposal was made that was asking to return 700 million ARB and disclose a market maker deal with Wintermute. Surprisingly the proposal failed even though the outcry and the media echo over the conduct of the first proposal were huge.

According to the community forum, the concern over the future of the foundation and Arbitrum as a whole is bigger than the wish for democratic decision-making. This also reveals something about the state of decentralization in general. Token holders can vote on proposals but apparently, some actions would turn out to be hurtful if the community would not approve or omit them.

Most DAOs have some sort of built-in failsafe for these types of situations. They usually address technical difficulties and errors during development and are supposed to prevent a protocol from going haywire. It appears that also economic decisions might be needed to be included when designing such features.  

Featured image: © Rcc_Btn /

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