The Arbitrum Foundation, responsible for promoting the fast and affordable Ethereum blockchain, is under scrutiny for selling ARB tokens before the token-holders ratified the organization’s nearly $1 billion budget. According to a blog post by an Arbitrum Foundation employee, Peter McCorry, the Foundation considered the omnibus governance package AIP-1 to ratify decisions it had already made, such as receiving 7.5% of all ARB tokens, media reports said.
McCorry’s post was the Foundation’s first official response to the governance crisis, which arose after governance hawks called out the Foundation’s “special grants” program. According to the proposal, the Foundation received 750 million ARB tokens, roughly $1 billion ARB tokens to spend as it sees fit, without tokenholders’ approval.
Arbitrum distributed more than 1 billion ARB tokens to almost 300,000 wallets last week, intending to grant authority to its users, a frequent practice in the crypto space. The owners of the ARB token are members of the ArbitrumDAO, a decentralized autonomous organization with the right to vote on initiatives like AIP-1.
However, AIP-1 was not much of a vote when it came to budget requests, according to McCorry’s explanation. He said the Foundation had already started spending the tokens it was earmarked to receive.
McCorry’s post may complicate an early crisis for Arbitrum governance. While votes favoring ratification were leading until a few hours ago, the tide has now turned toward rejection, raising questions about what will happen if AIP-1 is defeated.
McCorry said there was a “chicken and egg problem” in setting up decentralized governance structures. Arbitrum has to establish specific criteria beforehand, including determining the structure of a security council with authority to wield emergency powers, defining voting mechanisms, and, crucially, funding.
While AIP-1 presented the Foundation’s capability to grant “special grants” without any input from the community as a strategy to avoid “voter fatigue,” McCorry has claimed that these unrestricted powers are necessary for the ecosystem’s competitive edge. He cited the examples of blockchain enterprises like Polygon, which landed partnerships with major corporations such as Starbucks through undisclosed negotiations.
Arbitrum’s first attempt at community governance has raised questions about the challenges of transitioning to a more decentralized structure. However, the controversy has highlighted the importance of transparency and accountability in the crypto industry.
