Summary of the Drama Surrounding Arbitrum Foundation

On April Fool's Day (April 1), the DeFi community was abuzz with the proposal AIP-1 from Arbitrum Foundation. However, the community soon discovered significant ARB token transfers to centralized exchanges (CEXs). What exactly happened, and what’s the truth behind this drama?

The AIP-1 Proposal Controversy:

According to Blockworks Research's Twitter analysis, the AIP-1 proposal has garnered substantial attention. Specifically, the allocation for the DAO Treasury has dropped to approximately 3.5 billion ARB from an initially proposed 4.2 billion ARB. This reduction of 750 million tokens (about 7.5% of the total supply) was planned to be transferred to Arbitrum Foundation to support development grants and cover network operational costs. Notably, this large amount of tokens is managed by just three individuals.

Reports indicate that 50 million of these tokens were moved to Binance or the market maker Wintermute.

Some sources claim that Arbitrum Foundation sold these tokens even though the AIP-1 proposal had not yet been voted on. The community subsequently circulated calls to oppose the proposal.

On the evening of April 2, Arbitrum released an explanation on its governance forum.

Clarification from Arbitrum Foundation:

To clarify the unusual actions by Arbitrum Foundation, the project stated that this was a misunderstanding regarding the terminology used. The representative “stonecoldpat” explained:

“We could have been clearer in describing this as a ‘ratification’ process for a previously announced decision. This explains the movement of funds from the Treasury to the Foundation. The Foundation views this as a ratification of a decision, which initiates the transfer of tokens as per DAO needs, including converting a portion into stablecoins to cover operational expenses.”

Thus, according to this explanation, the ratification process is not considered a vote on the direction but rather a final notification step in governance. It’s possible that the token sale by Arbitrum Foundation occurred regardless of the AIP-1 voting outcome.

In a tweet addressing rumors, Arbitrum stated that the 50 million ARB tokens in question had not been sold. However, the community remains confused by the explanation that 40 million tokens were transferred as a loan to a third party and 10 million tokens were converted into fiat to cover operational costs.

Further Developments:

Data from Lookonchain reveals that 2.69 billion tokens allocated to investors, the team, and advisors were transferred to 140 individual wallet addresses. According to Arbitrum’s documentation, these tokens were supposed to be locked for 4 years.

No further explanations or corrections have been provided regarding this detail.

Previously, in mid-March 2023, Arbitrum conducted a massive airdrop for users. However, similar to other projects with comparable approaches, Arbitrum faced criticism related to governance and issues with Sybil bot activity control.

Another Layer-2 project, Optimism, also faced controversies related to token allocation to Wintermute and unusual token movements.

As of the latest updates from the community and project representatives, the ARB token price has seen a significant drop of 7.6% over the past 24 hours, trading around $1.15.

Chart: 15m ARB/USDT on Binance at 00:55 AM, April 3, 2023