In mid-March, Arbitrum announced that it was decentralizing its Arbitrum One and Arbitrum Nova networks through the creation of a DAO. The Ethereum-based Layer 2 scaling solution airdropped more than 1 billion ARB tokens to different crypto communities on March 23. The Arbitrum Foundation was been created to fund and manage critical chain infrastructure and foster ecosystem growth. However, its attempt to adopt a decentralized governance structure was marred by some early hiccups.
The first proposal (AIP-1) was rejected by the DAO and the Arbitrum Foundation came under fire for transferring 750 million ARB tokens to its wallet without the DAO’s approval. Moving forward from the failed inaugural proposal, the DAO is currently voting on two new proposals that may help straighten things out.
While AIP 1.1 focuses on issues around transparency and budgeting, AIP 1.2 deals with the Foundation and DAO governance.
Lockup schedule for ARB tokens:
AIP-1.1 suggests a four-year lockup schedule for the remaining 7% of ARB tokens in the Foundation’s “Administrative Budget Wallet”. This lockup will be enforced on-chain through a smart contract, with 175 million ARB tokens released over each year for four years on a continuous linear time basis, starting from the date of the Snapshot approval of AIP-1.1 by the DAO. The beneficiary of the lockup contract will be a multisig wallet controlled by The Arbitrum Foundation. It is important to note that the DAO will have the flexibility to adjust future funding and modify the unlock schedule.
Proposed operational budget:
AIP-1.1 also includes a proposed operational budget for the Foundation’s first year of operations. The budget is denominated in USD, with the expectation that approximately half of the costs will be paid in USD and half in locked ARB tokens. The budget is broken down into four categories: General and Administrative ($16,000,000), R&D ($9,000,000), Technical Infrastructure ($5,000,000), and Events, Marketing, and Communications ($6,000,000).
These are estimated costs and may serve as an upper bound for the first 12 months of the Foundation’s operation. The actual expenses will be tracked in transparency reports.
AIP-1.1 proposes transparency reporting regarding the 7.5% of ARB tokens distributed to the Foundation’s “Administrative Budget Wallet”. A transparency report regarding the 0.5% of tokens that have already been transferred is available, and further transparency reports will be provided periodically to allow the DAO to monitor the Foundation’s expenditures and activities. These reports will provide insights into the actual expenses incurred by the Foundation and will help ensure accountability and transparency in the use of funds.
That said, the Arbitrum DAO went on to propose another series of amendments to its Constitution, as well as the Amended & Restated Memorandum & Articles of Association (A&R M&A) and Bylaws, collectively known as AIP-1.2.
The proposed amendments are a response to the fact that AIP-1, which outlined critical aspects of governance and included key governance documents for the Arbitrum DAO and the Arbitrum Foundation, did not pass after extensive community debate. As a result, the documents referencing AIP-1, such as the Constitution, Bylaws, and A&R M&A, need to be updated to remove references to AIP-1 and incorporate other changes based on community feedback. Some changes that will be introduced by AIP 1.2 include:
- Removing references to AIP-1 from the Constitution and Bylaws of the Foundation.
- Lowering the threshold number of votable tokens required for an AIP to be posted on-chain from 5,000,000 $ARB to 1,000,000 $ARB.
- Adding a new Section 5, which details the Data Availability Committee and its processes for removing and appointing members.
- Replacing the concept of “Special Grants” with Arbitrum ecosystem growth.
- Removing the defined term “AIP Threshold” as it is not used elsewhere in the Bylaws and clarifying that the ArbitrumDAO may replace The Arbitrum Foundation’s directors, change the number of directors, and require The Arbitrum Foundation to take certain actions.