Arbitrum’s First Governance Proposal Results in Chaos with $1 Billion Worth of Tokens at Risk

04/02/2023 21:06 • Metaverse Matters • 130 views

According to reports, Arbitrum’s first governance proposal became chaotic, with $1 billion worth of ARB tokens at risk. The first attempt to govern the Arbitrum blockchain began on Saturday due to a proposal to let the Arbitrum Foundation control 750 million ARB tokens, valued at nearly $1 billion. These tokens will fund a “special grant” program aimed at promoting the growth of Arbitrum. However, according to the AIP-1 proposal, ARB holders cannot decide to whom or how to allocate nearly $1 billion of the Arbitrum Foundation’s funds. This is because the centralized Arbitrum Foundation does not need to place its grant allocation under “full chain governance.”. (CoinDesk)

Arbitrum community allocates 750 million ARB governance proposals to avoid community governance

Introduction:

Arbitrum, the Layer 2 scaling solution on Ethereum, recently faced a governance proposal that resulted in confusion and panic among ARB token holders. The proposal aimed to let the centralized Arbitrum Foundation take control of 750 million ARB tokens, worth almost $1 billion. While the intention was to promote the growth of Arbitrum, ARB holders were concerned about not having a say in how the funds would be allocated. This article delves into the first governance proposal of Arbitrum and how things got chaotic.

What is Arbitrum?

Arbitrum is a Layer 2 scaling solution that aims to tackle Ethereum’s high fees and slow transactions. Launched in May 2021, it allows users to conduct fast and cheap transactions on the Ethereum network by using off-chain computation. Arbitrum achieves this by using a rollup technique that batches transactions off-chain and submits them as a single transaction to the Ethereum network.

The Governance Proposal:

On September 18th, 2021, the Arbitrum community witnessed its first governance proposal, AIP-1. The proposal aimed to transfer control of 750 million ARB tokens to the Arbitrum Foundation, allowing them to fund a “special grants” program focused on promoting the growth of the network. However, the proposal stated that the grant allocation would not be subject to “full chain governance,” and the Arbitrum Foundation would have complete control over how the funds were allocated.

Chaos and Panic:

As soon as the proposal was announced, the ARB token’s price fell by almost 60%. ARB token holders were concerned about losing control over how the funds would be allocated, and the thought of $1 billion worth of tokens being at risk resulted in chaos and panic. The issue was further aggravated as the proposal was time-sensitive, meaning that if not voted on in time, the transfer of tokens to the Arbitrum Foundation would automatically take place.

The Aftermath:

The Arbitrum community came together to address the concerns raised by ARB token holders, resulting in the first governance proposal being voted down. The proposal required a quorum of 33% of total ARB supply to be voted upon, but only 11% was reached. The episode highlighted the importance of community governance in decentralized networks and the need for transparency in grant allocations.

Conclusion:

Arbitrum’s first governance proposal highlighted the importance of community involvement in decentralized networks. The proposal aimed to promote the growth of the network but resulted in panic and chaos due to lack of transparency. While the proposal may have been well-intentioned, it’s essential to ensure that community governance is not overlooked in grant allocations.

FAQs:

1. What is Arbitrum?
– Arbitrum is a Layer 2 scaling solution that tackles Ethereum’s high fees and slow transactions.
2. What was the first governance proposal of Arbitrum?
– The first governance proposal of Arbitrum, AIP-1, aimed to transfer control of 750 million ARB tokens to the Arbitrum Foundation to fund a “special grants” program.
3. Why did the first governance proposal result in chaos?
– The first governance proposal resulted in chaos because token holders were concerned about losing control over how the funds would be allocated, and the transfer of $1 billion worth of tokens was at risk.

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