AIP-1: Arbitrum Improvement Proposal Framework

[Arbitrum]

UPDATE:

AIP 1.1 : Proposal: AIP-1.1 - Lockup, Budget, Transparency
AIP 1.2: Proposal: AIP-1.2 - Foundation and DAO Governance

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Category: Constitutional - Process

Submitted by: Lemma Ltd

Abstract

This document (“AIP-1”) proposes the structure of a decentralized autonomous organization called the ArbitrumDAO that would be governed by holders of $ARB, the decentralized token that will serve as the primary token for fostering, developing, authorizing and/or governing the ArbitrumDAO-approved chains (as defined in the ArbitrumDAO Constitution). The ArbitrumDAO Constitution, located at The Constitution of the Arbitrum DAO | Arbitrum DAO - Governance docs is incorporated herein by reference.

Motivation

The Arbitrum Foundation, a Cayman Islands foundation company, which will serve the ArbitrumDAO community and be governed by it, aims to foster the growth and development of the Arbitrum ecosystem.

The ArbitrumDAO will have the ability to submit Arbitrum Improvement Proposals (“AIPs”), vote on them and make them a reality through The Arbitrum Foundation.

The guiding values of The Arbitrum Foundation and ArbitrumDAO are described in Section 5 of the ArbitrumDAO Constitution and are incorporated herein.

Rationale

The Arbitrum Foundation serves the ArbitrumDAO by administering the wishes of the community and otherwise adhering to its guiding values. The Arbitrum Foundation and DAO governance are intended to serve as vehicles enabling impactful, transparent and fair decentralized governance by the broader Arbitrum community.

Through the submission of AIPs, the ArbitrumDAO will be able to collectively decide and effectuate changes ranging from core protocol technology to non-technical decisions that otherwise impact the community and $ARB tokenholders.

Specifications

Governance powers breakdown

1. $ARB Tokenholders

• $ARB tokenholders, who make up the ArbitrumDAO, play the most critical role in the proper functioning of decentralized governance in the pursuit of a trustless, transparent and verifiable Arbitrum ecosystem. As Arbitrum is intended to be a public good, it is only right that governance over it should be governed by those for whom such public good is intended for.

• $ARB tokenholders have the ability to directly propose, vote on and effectuate on-chain AIPs with respect to the ArbitrumDAO-approved chains.

2. Special Grants

• The Arbitrum Foundation shall be permitted to issue grants out of the Administrative Budget Wallet without undergoing a full on-chain AIP process (such grants, “Special Grants”).

• The rationale behind the ability of The Arbitrum Foundation to issue Special Grants is to avoid inundating governance with grant applications, while at the same time alleviating voter fatigue.

• The Special Grants application process and criteria will be released at a later date by The Arbitrum Foundation.

3. Directors

As a Cayman Islands foundation, The Arbitrum Foundation is required to have at least 1 director responsible for the management and operation of The Arbitrum Foundation, in particular approving and entering into contractual arrangements on behalf of The Arbitrum Foundation (i.e., the parties actually approving and signing agreements).|

The directors are responsible for ensuring that AIPs do not:

• Compromise their fiduciary duties owed to The Arbitrum Foundation;
• Violate The Arbitrum Foundation’s Amended & Restated Memorandum of Association or bylaws, the ArbitrumDAO Constitution, the AIP Process or any other laws or regulations of applicable jurisdictions (including but not limited to Cayman Islands laws); and
• Cause The Arbitrum Foundation to be in breach or violation of any contracts, agreements or any other arrangements.

The initial directors of The Arbitrum Foundation are:

• Campbell Law,
• Edward Noyons and
• Ani Banerjee

The ArbitrumDAO may remove or elect The Arbitrum Foundation’s directors or expand or reduce the number of directors at any time pursuant to a Non-Constitutional AIP

4. Security Council
The Security Council is a committee of 12 members of a multi-sig wallet which has the ability to perform both Emergency and Non-Emergency Actions, which are further detailed in Section 3 of the ArbitrumDAO Constitution, which is incorporated herein by reference.

The initial Security Council members, split by cohort, are as follows:

i. September Cohort

1. Mo Dong is the Co-Founder of Celer Network. Mo received a PhD from the University of Illinois Urbana-Champaign in computer science.
   0x526C0DA9970E7331d171f86AeD28FAFB5D8A49EF
2. Harry Kalodner is Co-Founder and CTO at Offchain Labs, the developers behind Arbitrum. Harry started working on building Arbitrum while studying at Princeton University.
   0xf8e1492255d9428c2Fc20A98A1DeB1215C8ffEfd
3. Diane Dai is the Co-Founder of DODO, a leading decentralized trading platform. Diane has extensive marketing experience in Defi space since 2017 and was named to Forbes Asia 30 under 30 in 2022.
   0x0E5011001cF9c89b0259BC3B050785067495eBf5
4. Caleb Lau has been a software engineer at Etherscan since 2019. He works closely with L2 scaling teams to bring users the Etherscan experience on the explorer front.
   0x8688515028955734350067695939423222009623
5. Ed Felten is Co-Founder and Chief Scientist at Offchain Labs, the developers behind Arbitrum. Prior to this, Ed served as the Robert E. Kahn Professor of Computer Science and Public Affairs at Princeton University. Ed also served as the Deputy U.S. Chief Technology Officer from 2015-17.
   0x6e77068823f9D0fE98F80764c21Ec294e4d96AdB
6. Bryan Pellegrino is Co-Founder and CEO at LayerZero Labs, an omnichain interoperability protocol. Bryan is a multi-time founder/serial entrepreneur who has been active in crypto for more than 10 years.
   0x8e6247239CBeB3Eaf9d9a691D01A67e2A9Fea3C5

ii. March Cohort

1. Patrick McNab Is a Co-founder of Mycelium who have been developing and deploying decentralized financial infrastructure since 2018. Mycelium (previously Tracer DAO) were one of the first protocols deployed on Arbitrum in 2021 and support the Arbitrum ecosystem through running validators and Chainlink nodes.
   0x566a07C3c932aE6AF74d77c29e5c30D8B1853710
2. Justin Drake has been a researcher at the Ethereum Foundation since 2017. He focuses on Ethereum consensus layer upgrades.
   0x5280406912EB8Ec677Df66C326BE48f938DC2e44
3. Bartek Kiepuszewski has been a blockchain architect at MakerDAO since 2017. He also co-founded l2beat.com and TokenFlow Insights. Bartek holds a PhD in computer science from Queensland University of Technology.
   0x0275b3D54a5dDbf8205A75984796eFE8b7357Bae
4. Rachel Bousfield has been a software engineer at Offchain Labs since 2021. She is currently leading the development of Stylus.
   0x5A1FD562271aAC2Dadb51BAAb7760b949D9D81dF
5. Patricio Worthalter has been working full time in the Ethereum space since 2015. In 2018 he founded POAP, a web3 native public good that mints digital collectibles for the preservation of memories.
   0xf6B6F07862A02C85628B3A9688beae07fEA9C863
6. Yoav Weiss is a security researcher at the Ethereum Foundation and has been building in the Ethereum space since 2017, working on account abstraction (ERC-4337), OpenGSN, L2 security, etc. Yoav brings over 25 years of experience and has developed security technologies used by industry leading companies.
   0x475816ca2a31D601B4e336f5c2418A67978aBf09

Compensation:
Security Council members are each paid $5,000 per month in $ARB tokens.

Security Council Elections:
Section 4 of the ArbitrumDAO Constitution describes the Security Council election process and is incorporated herein by reference.

5. Data Availability Committee (Arbitrum Nova chain only)

Transactions occurring on the Arbitrum Nova chain are settled on Ethereum mainnet, but, unlike transactions occurring on the Arbitrum One chain, the underlying transaction data batches are posted and stored by the members of the Data Availability Committee on a Data Availability Server (and not on Ethereum mainnet).

The initial members of the Data Availability Committee are authorized representatives of the following parties:

• Reddit, Inc.
• ConsenSys Software Inc.
• QuikNode, Inc.
• P2P Business Technologies
• Google Cloud ( Google LLC.)
• Offchain Labs, Inc.
• Opensea Innovation Labs Private Limited

Data Availability Committee members can be appointed and removed at any time pursuant to a Constitutional AIP approved by the ArbitrumDAO. In the event that a Data Availability Committee member is removed (and not otherwise replaced) pursuant to a Constitutional AIP approved by the ArbitrumDAO, or in the event that a Data Availability Committee member resigns without a replacement, the Security Council may execute an emergency action (9-of-12 approval required) to appoint a replacement for such removed or resigned Data Availability Committee member.

AIP Guidelines and Process Breakdown

Section 2 of the ArbitrumDAO Constitution lays out the AIP process and voting procedures, as well as the various categories of AIPs, and is incorporated herein.

Arbitrum Voting Protocol Procedure

1. Tally.xyz will act as the initial on-chain voting platform for the ArbitrumDAO to submit and vote on AIPs

2. Tally will serve as a front-end user interface that allows DAO members to do several things, namely:

• Create AIPs;
• View delegates and their voting share;
• Re-delegate votes to a different delegate;
• View current and past AIPs;
• Vote on AIPs on-chain, interacting with the on-chain governance contracts via the Tally front-end; and
• View the status of AIP execution during all voting stages

Steps to Implement

1. Ratification of formation of The Arbitrum Foundation and its Amended & Restated Memorandum of Association and bylaws linked in this AIP-1.
2. Ratification of the ArbitrumDAO Constitution
3. Ratification of Security Council and Data Availability Committee member appointments and respective powers
4. Ratification of the following allocations of the L2 basefee on the Arbitrum Nova chain: 8% of the basefee to the Data Availability Committee and 12% of the basefee to Arbitrum Nova validators
5. Ratification of the funding of the DAO Treasury (as defined in the ArbitrumDAO Constitution)
6. Approval of the AIP process as described in this AIP-1
7. Completed setup of the Arbitrum Forum, Snapshot and Tally
8. Ratification of funding the Administrative Budget Wallet
9. Ratification of reimbursement of costs as illustrated in the Overall Cost sections below and disbursement of such reimbursements to applicable service providers

Timeline

Solution prepared and ready to be ratified and approved

Overall Costs

Initial Setup Costs of The Arbitrum Foundation and ArbitrumDAO

Total setup costs, including legal costs, DAO administration setup and registration fees to be reimbursed to service providers: $3.5 million (“Total Setup Costs”)

DAO Treasury
In order to best provide the ArbitrumDAO with the ability to effectively govern and foster the development of Governed Chains (as defined in the ArbitrumDAO Constitution), 3,527,046,079 $ARB tokens have been transferred to the DAO Treasury. The ArbitrumDAO will have direct on-chain governance powers over the DAO Treasury in accordance with the AIP process as delineated in the ArbitrumDAO Constitution.

The Arbitrum Foundation Administrative Budget Wallet

For the sake of operational and administrative efficiency, a separate account controlled by The Arbitrum Foundation will be created (“Administrative Budget Wallet”). 750 million $ARB tokens will be transferred to the Administrative Budget Wallet for purposes of making Special Grants, reimbursing applicable service providers for the Total Setup Costs and covering ongoing administrative and operational costs of The Arbitrum Foundation. Further funding of the Administrative Budget Wallet shall require approval of an AIP by the ArbitrumDAO pursuant to the AIP process.

The Arbitrum Foundation Memorandum of Association

The Arbitrum Foundation Bylaws

[0xMonke]

Looks like a solid plan for setting up the DAO.

A few questions though that could help clarify some specifics:

1. In the proposal, the ability for The Arbitrum Foundation to issue Special Grants without undergoing a full on-chain AIP process is mentioned. How will the community ensure that these Special Grants are transparent and follow the wishes of ARBI token holders?

2. The Security Council plays an essential role in emergency actions. Can you provide more context on the types of situations that would warrant an emergency action and the process the Security Council would follow in such cases?

3. In the AIP process breakdown, Tally.xyz is mentioned as the initial on-chain voting platform. Are there any plans to review or potentially change this platform in the future, and what criteria would be considered when evaluating alternative platforms?

Overall, a great start to decentralising Arbitrum. Looking forward to hearing more about the team’s thoughts on these points.

• 0xMonke
  ZigZag Labs

[MadAl]

In my opinion, an excellent and at the same time unique project. With the advent of each new crypto project, there is hope for a developed future. Thanks)

[Boiler]

I can’t speak to how they have it set up but it is fairly standard I believe to do this. It allows for a quicker turnaround on projects that have promise. A lot of the times the DAO will approve the funds that the special “team” is able to spend without approval on every transaction.

It’s really important for a DAO to allow the people that are most qualified to make decisions be given the power to do so within their domain. DAOs can get really bogged down and not do anything otherwise. I’m a big advocate of sub DAOs, which can be funded by the main DAO but get autonomy in their day to day decisions.

[BristolBlockchain]

The proposal indeed serves as a solid foundation for the Arbitrum ecosystem, and it is great to see the community engaged and asking important questions. We share the same concerns as 0xMonke from ZigZag Labs and would like to emphasize the following points:

1. Ensuring transparency and alignment with ARBI token holders’ wishes for Special Grants issued by The Arbitrum Foundation is crucial. We understand that not going through the formal process is less time-consuming, but how will you ensure proper allocation of funds? Will there be a maximum limit per grant, or will it be determined later? It would be helpful to have more information on the mechanisms that will be put in place to guarantee transparency and community involvement in the decision-making process.

2. The role of the Security Council in emergency actions is essential. We agree that emergency actions should only be used when there is a real emergency. How will you ensure transparency to the community in these situations? Please provide more context on the types of situations warranting emergency actions and the procedures the Security Council would follow to maintain transparency.

3. Tally.xyz is currently the initial on-chain voting platform for the AIP process. We are interested in knowing if there are plans to review or potentially change this platform in the future. We believe that if the community wants to explore alternative platforms instead of Tally, it could be done through a governance vote, allowing the community to decide on the most suitable option.

We believe that addressing these questions will strengthen the proposal and provide the necessary transparency and confidence for the community. We look forward to hearing more about the team’s thoughts on these matters.

Best regards,

Bristol Blockchain

[yabirgb]

Thanks! The proposal looks indeed good for a constitutional process. Also I loved that people from different places came to start the DAO with a vision on web3.

I would like to ask for clarification on how the budget was estimated since 750 million ARB is a big amount and is not clear at least to me why this amount was chosen.

Since this money will be used to “and covering ongoing administrative and operational costs of The Arbitrum Foundation” for how long is estimated that this amount would cover the operational costs?

To enrich this proposal I would love to see a little more detail on how the budget will be used and how it was estimated.

Another question is if there exists a cap on how much is the amount assigned to “Special Grants”.

Finally regarding the administrative budget wallet how is the ARB token expected to be used? Will be sells managed by the team and have liquidity in stable coins or will be everything hold in ARB until it is needed?

Thank you

[kropla]

We need freedom. We are smart enough to update the system making it more efficient and corruption free.

[Bhau]

Much well-thought out planning has brought us here, presumably with Trust minimization on Layer Zero. With this assumption in mind, we should move to ratify and begin operations.

The Merge was impressively executed without pushing pause, so let’s follow suit.

[limes]

@Arbitrum

Arbitrum Voting Protocol Procedure

I think it’s important to set a proposal threshold of 10,000 $ARB in order to prevent frivolous proposals from popping up on Tally as the current threshold is .01

Two spam proposals have started already with more likely coming soon if it doesn’t change.

[yabirgb]

The voting in snapshot seems to be open Snapshot.

Is there any other channel where this was posted? I believe it would be useful if the voting was announced also in the AIP threads

[DisruptionJoe]

Are we voting on whether or not to send the foundation 750 million $ARB?

Or is this just a vote about the process?

@Arbitrum

The Special Grants application process and criteria will be released at a later date by The Arbitrum Foundation.

Is there a reason this amount needs to be tied into this proposal? It seems like $750 million is a lot when there aren’t criteria yet. This industry is about creating systems where we don’t need to trust the operator. I would vote to fully reimburse the $3.5 million in setup costs to the foundation, but sending $750 million without criteria… it doesn’t seem as though this is necessary to bundle in with the passing of the first AIP.

Without clear criteria, I’d even approve the 750 million tokens, but funded through a vesting contract that releases them proportionally over the course of 10-20 years and the DAO has the ability to cut off the funding if they are not pleased with the foundation’s execution.

@limes

I think it’s important to set a proposal threshold of 10,000 $ARB in order to prevent frivolous proposals from popping up on Tally as the current threshold is .01

This is spot on. We need to set minimum thresholds to avoid spam and voter fatigue.

I do see that in section 2 of the Arbitrum Constitution it does indicate thresholds which don’t seem to have been properly set on Snapshot and Tally yet.

I think it is important for Tally to remain at a level where 10-25 people have enough delegations to be able to post on-chain actions. At Gitcoin, we had it at a level where only 3-4 people could post to Tally. This caused problems and it is now widely agreed that we should have loosened that setting.

[limes]

@DisruptionJoe

I think it is important for Tally to remain at a level where 10-25 people have enough delegations to be able to post on-chain actions.

At 5,000,000 $ARB it looks like only 4 delegates would have the capability to propose an AIP. A threshold of 1,000,000 $ARB would put us at 27 delegates. As more $ARB trades hands I’d expect the number of delegates that hit this threshold to come down. Using $ENS as an example which had a similar distribution mechanic, we can see delegation fall over time.

Seems like 1,000,000 $ARB might be suitable

[yabirgb]

@Arbitrum Any feedback that you can provide us about the questions?

[Arb_fun]

Nice, will be good. Good job

[Matt_StableLab]

Thank you for this detailed outline! We at StableLab have a few questions and comments

1. We agree the @limes and @DisruptionJoe proposal threshold should be reduced from 5,000,000 ARB to 1,000,000. Only 4 delegates currently meet the 5M threshold and this could lead to delays or difficulties in getting proposals posted to Tally. 1M ARB seems much more suitable especially since many current delegates are beginning to lose voting power as ARB is being sold and undelegated. A 1M threshold would allow around 25 delegates to post proposals which is a much more suitable number and make it easier for proposals to be seamlessly posted to tally.

2. What qualifies as a “special grant” and where will these grants be announced and tracked? It is important for this process to be transparent and for the grant issuers and receivers to be held accountable.

3. The constitution suggests snapshot polls are supposed to be posted at the same time as the proposal is posted on the forum. This does not seem wise as the community should be given time to comment on the proposal and suggest changes before the temp check is voted on. We recommend the proposal be required to be posted on the forum for a few days before it can move to snapshot for a temp check.

4. This proposal is currently on Snapshot but has very few votes currently. Will there be an announcement somewhere when proposals move to snapshot? Additionally, what is this proposal asking? Is it asking whether or not the DAO should accept the AIP framework? What would happen if this proposal was voted down?

5. This proposal estimates that the startup cost of the DAO will be $3.5 Million. Will this come out of the 3,527,046,079 $ARB put into the treasury or this will come out of the Arbitrum Foundation Administrative Budget Wallet?

6. 750 Million $ARB for the Arbitrum Foundation Administrative Budget Wallet and only 3.5 million $ARB for the treasury seems to be pretty imbalanced. What is the thought process behind this? Will additional funds be transferred from the Arbitrum Foundation Administrative Budget Wallet to the treasury?

We are super excited about the future of Arbitrum’s governance and proud to be a part of it!

[Tonic]

how to vote for the spanshot?

[limes]

@DisruptionJoe

Without clear criteria, I’d even approve the 750 million tokens, but funded through a vesting contract that releases them proportionally over the course of 10-20 years and the DAO has the ability to cut off the funding if they are not pleased with the foundation’s execution.

This idea seems to align incentives well. It would be nice to see:

1. What method was used to establish this number?
2. How much liquid $ARB is needed to retroactively give Special Grants to service providers today, locking the rest to be released via a stream.
3. What proposed timeline would the Arbitrum Foundation be able to effectively allocate funds?

[Westie]

While it is certainly necessary to set up some official guidelines around the treasury and security council, there are a few issues I have with this proposal:

1. First off, 750M ARB (around $1B) going to one entity without any clarification how the allocation would be broken down for the different functions mentioned is not enough clarity. I would reccomend a new proposal that goes into more detail into how this Administrative Budget Wallet would used, and may even suggest that rather than giving a lump sum all at once that there a predefined amount of ARB needed for one year of operations and Special Grants funding, which would be reassesed after a year. Giving three people complete control over how funds are allocated does not seem very secure as well.
2. Instituting a Security Council without any election process is antithetical to the decentralized governance process. While having elections every 6 months does seem reasonable, there should be an election process for the initial council instead of them being appointed all at once by the foundation.

Arbitrum has a chance to kick things off on the right foot when it comes to transparency and decentralization, and I hope some changes can be made to ensure this.

[MattOnChain]

Hi there! Matt from Blockworks Research here.

If this proposal passes, the Administrative Budget Wallet will receive over $1 Billion in ARB. There are no details about who will control this wallet other than the following passage from the bylaws:

(b) The Foundation Director(s) shall engage in any activity which, in their reasonable discretion, does not contradict the terms set forth in any AIP approved by Tokenholders, the ArbitrumDAO Constitution, these Bylaws, or the Foundation Articles, including but not limited to the following actions:
(i) approve transactions from the Administrative Budget Wallet;

I am confused why these 3 non-crypto native Cayman individuals have control over this $1B without any oversight from the DAO. I would like further clarity please surrounding who will control this wallet and what processes/oversight will there be in place for the distribution of funds.