Robert Steinadler, 2 months ago

Arbitrum: Governance crisis shakes the market

Arbitrum was the hottest topic for several months among airdrop hunters. When it became clear in March that the airdrop would be finally commenced, their moment had come. But the airdrop is not only free money. It is meant to decentralize Arbitrum further by handing the governance over to the community. In this case, those people who were using Arbitrum heavily over a longer period. It looks like governance is not always an easy task.

What kind of drama unfolded around Arbitrum and how did it affect the market?

The community is against AIP-1

Each change and decision is formulated in a proposal that ARB token holders can vote on. The size of their ARB investment defines the weight of their voice during the vote. This procedure is pretty much the same as all DeFi protocols that involve some sort of governance.

Recently, the first proposal on Arbitrum was voted on and the community voted against the proposal. They were concerned that 750 million ARB was meant to be given to the Arbitrum Foundation to cover different costs related to the development and promotion of Arbitrum. Even though the majority voted against the proposal, the Arbitrum Foundation nevertheless continued to implement ARB-1 partly by selling 10 million ARB.

They argued that the proposal was rather ratification than an actual vote. The community is outraged and many fear that the foundation could sell all the tokens and put unnecessary pressure on the price. This event has also changed how the governance of Arbitrum is overall perceived by the community as well as the media. Some argue that this is just some minor drama while others believe that governance is mission-critical for the layer-2 protocol.

Some whales are selling, others are buying

Analysts were quick to study the blockchain on how the biggest entities holding ARB were reacting to the events. It seems that indeed some larger entities sold their tokens shortly after the ARB-1 happened. But that does not justify the perspective that investors are losing faith because, at the same time, other entities were reportedly buying ARB.

At the end of the day, there is no clear indication of whether the event was bearish or not. The price reacted and fell but the low that was formed was still above the all-time low. A swift price recovery followed shortly after the crisis. However, it will be important to how Arbitrum will deal as a community with this incident. According to the Arbitrum Foundation, ARB-1 will be split into many smaller decisions that will be voted on. The foundation clarified that it has no plans to sell all the tokens and that all related transactions are only meant to cover necessary costs. Furthermore, transparency reports were suggested that are supposed to foster trust between the foundation and the community.

Featured image: © Rcc_Btn /

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