Arbitrum to Retry Vote Citing ‘Chicken and the Egg’ Problem as ARB Falls

By André Beganski

Arbitrum’s newly-launched ARB token sank over the weekend as the network navigated a governance crisis stemming from the apparent failure of its DAO’s first vote. 

At first, Arbitrum signaled the vote was essentially meaningless, and then changed course on Sunday amid mounting pressure.

The leadership behind the Ethereum scaling solution had announced earlier this month that it was forming a decentralized autonomous organization or DAO, which coincided with the launch of a governance token named ARB.

The token’s value comes from its role within the ArbitrumDAO. People who own ARB are allowed to play a role in shaping the network’s future by voting on proposals, such as AIP-1, which outlines the structure of the DAO itself and its associated Foundation.

However, more than 78% of ARB tokens cast in AIP-1’s proposal have voted against the measure, as of this writing. Initially, an Arbitrum employee named Patrick McCorry explained that AIP-1’s proposal was meant as somewhat of a formality.

“We believe that a lot of the negative sentiment around AIP-1 was driven by confusion around the notion of AIP-1 being a ratification and not a request,” Patrick McCorry wrote in a blog post. “There is a chicken and the egg [issue] that needs to be solved when decentralizing a network, and the point of AIP-1 was to inform the community of all of the decisions that were made in advance.” 

Since the measures outlined in AIP-1 have already been implemented, the community’s opposition and votes against the proposal appeared to be moot. 

But late Sunday, Arbitrum said it would break AIP-1 down into separate parts that would be voted on individually, effectively pulling a U-turn after critics spoke up.

One element of AIP-1 that has drawn the most scrutiny is the allocation of 750 million ARB tokens to the Arbitrum Foundation for making grants, reimbursing service providers, and covering its administrative and operational costs.

McCorry’s post included a justification for the figure that compared similar decisions of other networks. He added that the Foundation has already “begun to use these tokens in the interest of the DAO, including conversion of some funds into stablecoins for operational purposes.”

Arbitrum then clarified on Twitter that the total amount of ARB converted into stablecoins was around $10 million.

In its thread on how AIP-1 would be divided into distinct proposals, Arbitrum later said its Foundation had “no near-term plans to sell more tokens” and reprised its claim that the organization “only sold enough to fund its current operating expenses.”

Arbitrum said it also plans on proposing measures to address transparency concerns regarding how the tokens allocated to the Foundation could be spent.

The price of ARB fell as far as $1.15 or 11.5% on Sunday before edging back up to $1.19 amid the network’s about-face, according to CoinGecko. ARB is currently the 41st largest cryptocurrency by market capitalization with a total value of around $1.5 billion.

Arbitrum airdropped its new ARB token on March 23, and over 1 billion ARB was claimed by over 550,000 digital wallets, according to a Dune dashboard. 

Arbitrum is a scaling solution for Ethereum built by Offchain Labs. It is designed to make Ethereum transactions cheaper and faster by processing them on a separate network and then relaying their receipts back to Ethereum in bulk.

The proposal of AIP-1 was created by Lemma LTD, which McRorry said is one of a “few different service providers” the Arbitrum Foundation is working with to “bootstrap itself and be in a position to properly serve the DAO.”

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