AIP-1: Arbitrum Improvement Proposal Framework

Thank you for your response! A lot of the people used this forum today to run campaigns to make the token go the way they wanted with leverage today. If you go to chan/reddit/discord/twitter, you’ll see the coordination wall. It’s predictable people game ups and downs but this past week has really showed the mercilessness of speculative traders. I think you guys handled this situation well. You made markets and that was all the point of the wintermute funds and the 10m sell to keep the foundation making partnerships, like with service providers like Lemma. I know I’m probably misarticulating my points, but I’m appreciative. Thank you.

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I think what is important here is that the criteria for selecting recipents and details about how all of the funds are going to be distributed need to be disclosed upfront. For example, how were the DAOs selected and what was the criteria for that? I think there were a lot of projects excluded from without explanation.

As a long term DAO participant, I would like to add my 2 cents. There has already been plenty of discussion around the ARB sold and the vote being meaningless, so I won’t go into that. There are two things within the AIP that as a DAOist I think are not the way to go about it.

  • 750M ARB in 1 vote, and as first action is way too much. Either a team does a premine and proclaims they know what is best, and the market will have to price it in / judge for itself, or a DAO slowly but steadily builds trust with DAOplomats.
    Since this Foundation is claiming to give out grants and fund overhead costs, it should have come up with a clear budget and a trial period with a way lower amount. Let’s say, a couple 100k perhaps. The Balancer Grants subDAO of which I was a founding member shows how a small initiative can build trust and grow to a larger entity.

  • co-founders of Offchain Labs are part of the Security Council (aka Admin Key multi-sig) and will get paid $5000 per month for this role. Didn’t these founders get a huge pre-mine allocation already? Why do they need to get a stipend for being on an admin key position for a project they created, got a premine of and are working on and got VC funding for to work on anyway?

These kind of brazen moves are not the way of a DAO. Arb team, you can do better.

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The March Cohort getting paid $5,000/month each in ARB tokens is fair I think given they are all doxxed and have been known and trusted in the crypto community for years, each of them. I trust these people because their work records speak for themselves I believe. You can click the links of each of them and find their socials and the work they’ve done.

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Why shouldn’t we delegate to a third party that does not own tokens or build any projects on Arbitrum? Because:

  • If Arbitrum develops strongly, we - holders and delegates - also benefit.
  • If Arbitrum unfortunately faces any incidents, we - holders suffer the most financially, but the delegates do not. Does that sound fair? You should think about it yourself!

I delegate my voting power to CamelotDAO because they are a native project on Arbitrum and, of course, they also own ARB. I trust that all decisions made by CamelotDAO are for the purpose of developing the ecosystem because only when Arbitrum develops strongly will they also develop strongly.

Regarding AIP-1, I vote “FOR” because it is necessary for the ecosystem, and I believe that the creators of ARB understand the benefits of ARB better than third parties who have no obligations towards its benefits.

And surely, i am an ARB holder and also an active member of the ARB ecosystem.

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SEEDLatam Statement

Hey everyone,

@cattin here, representing SEEDLatam and L2 en Español, after discussing this AIP with our community during our first governance call carried out in our Discord, we decided to vote AGAINST AIP-1, for the reasons stated below.

Rationale

As a self-sustaining organization that encompasses other communities, each with different interests, we understand how difficult it is to have clear communication in these scenarios where there is a lot to do (airdrop, forming the DAO, maintaining decentralization, etc.), nobody said that running and forming a DAO was an easy task.

Therefore, we want to thank @stonecoldpat for his post “Clarity around the ratification of AIP-1” which brought more clarity to what is happening in ArbitrumDAO to our community.

However, this does not remove the great dissatisfaction of the community that was expressed during our governance call regarding this situation. Additionally, we believe that AIP-1 encompasses several proposals together which should be voted on and dealt with separately, as it has already been recognized in the latest statement made by Arbitrum on twitter.

While we understand that this is not now a “proposal” but rather a “ratification” of the initial DAO configuration, we will express the will of the Latam community on each point.

On Special Grants

We believe that this point is very vaguely explained, although it is clarified that the Special Grants process and criteria will be published in the future, we do not believe that voting for this point now is correct.

Establishing the scope of these Special Grants and the processes we believe is crucial, as these are funds intended for organizations/institutions or individuals who have somehow helped or supported the Arbitrum ecosystem. We believe that transparency in the processes and that those funds truly have an impact that benefits the Arbitrum ecosystem is really important.

On Directors

We understand that at this point there is a legal and regulatory margin that is beyond our reach and it is necessary for Arbitrum Foundation to assign its board.

However, we would like to have more information regarding the names mentioned before proceeding with this proposal or at least for Offchain Labs/Arbitrum explain why these directors where elected, with some background about them. Also, these directors could introduce themselves in the forum as such, explaining what’s their background, what relationship they have t0 Arbitrum/Offchain Labs, etc. It is important to maintain trust among all parties that make up Arbitrum DAO, the DAO as such has the right to know who is behind this Foundation and why they were appointed.

On the Security Council

On this point, there’s nothing we would really change, just congratulations to Patricio Worthalter for being part of the Council, since he’s pretty close to our community and an important voice from our region. Our community members are big fans of POAP, and we are proud that this attestation tool has emerged from this side of the world!

On the Data Availability Committee (Arbitrum Nova chain only)

Regarding the Data Availability Committee, we would like to have more clarity on the selection criteria of each member and their relationship with Offchain Labs.

We also believe that it is necessary to vote on a removal or appointment process, just in case there’s a scenario where one member should be replaced, such as what happened last year with FTX.

On The Arbitrum Foundation Administrative Budget Wallet

This is what has generated the most debate and dissatisfaction, on the one hand, it is not an exorbitant amount for a DAO Foundation since they have to pay administrative costs and grant funding as mentioned earlier. On this point, our community is completely in favor of the Foundation being funded, and we don’t necessarily have any issues with the amount requested. The problem here, as mentioned earlier, is communication.

We consider that it’s too risky to have 7.5% of the total supply on a multisig, we know this is unlikely to happen, but after what happened with Ronin we don’t think we should run the risk. This allocation should be distributed gradually, and discussed in a separate proposal, with proper guidelines on how these funds are going to be used and what roles would the directors have in all of this. The main issue we had, as a community, is the way that arbitrum carried this out, doing first and asking for permission later. Even if it was just a “ratification”, then at least they should’ve been transparent since day 1 about the Foundation’s wallet being funded at the time of the distribution and regarding funds going to a market maker, which again, we don’t see an issue with this, but we simply don’t understand why couldn’t this be communicated openly in a transparent way.

So how should we proceed?

To fix this error and due to everything that has happened during this temperature check, we believe that if the proposal is rejected, Arbitrum should take another approach, go point by point, and have it voted on by Arbitrum DAO.

Conclusion

Our community is convinced that we are in time to remedy the first misstep that Arbitrum has taken. On the other hand, we are also pleased with the general reactions, we believe that this type of situation is always good for progressing as an ecosystem, we are in very early stages and it’s better to make these mistakes now than later.

Finally, we want to thank our community, more than 60 members showed up to our governance call, and also thank you to our contributors and delegates @axlvaz_SEEDLATAM.eth @Manugotsu_SEEDLatam @SEED_Latam_Joxes @Phenrril @Noa and @ArbiGod.eth for participating and helping us form this statement. Any member of this DAO who wants to participate in our governance calls and open to discuss Arbitrum-related topics is welcome.

Also, if you want to watch our first governance call click here.

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Good post and thank you for representing Spanish-speaking community!

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I don’t think the issue here is whether the Foundation should have a budget for BD (or the possibility of lending to MM).

These points are necessary for the arbitrum to be successful.

For example, if the document had clearly stated that the foundation would get 750m airdrops (even better if there was an implication in the vesting), I don’t think there would have been much discussion here.
People would have just been arguing about what is the best and most efficient way for the Foundation to use them. There is nothing more to it than that.

The problem is simply that
i) the documentation didn’t mention it
ii) The volume in circulation and the resulting market capitalization, which everyone used and made investment decisions on, was simply false. The volume of tokens in circulation was more than 1.25 billion, not 1.25 billion. What should be used now? Do we add another 50 million tokens to reflect the 10 million tokens sold and the 40 million tokens used by MM (which would make sense)? Or is it an additional 750 million tokens if, from the use of the word “ratify”, it could be in circulation as early as today without a vote?
iii) What was the rush to sell 10 million tokens, which could cover the costs of running such a foundation for quite some time, without transparency?
iv) By saying that AIP-1 is a mere “ratification”, the governance power of the ARB token is undermined and hence the value of the token. What governance power does the token have if the proposal is implemented as is despite token shareholders voting against it?

What is done is done and cannot be undone. However, it is clear that the ARB token shareholders do not agree with the AIP-1 proposal.

I am just a retarded anon with a completely irrelevant amount of tokens. However, assuming my IQ to be 60, it seems to me that the best approach would be as follows
i) Never say again that voting is not important.
ii) Hold the bulk of the remaining 700 million tokens in contracts with linear vesting (I wouldn’t need to spend $1 billion in ARB tokens on day one). The contracts are not immutable and can be amended by subsequent governance votes.
iii) Increase the number of foundation directors to five. This is to improve decentralization and to provide token holders with reassurance that their grant money will be used for the success of the ecosystem rather than for back taxes (as happened with some Alt-L1s).
iv) Provide transparency and details about the first year of the budget (or at least the set-up costs and expenses for the next few months) so that people better understand why we rushed to sell 10 million tokens.
v) Propose a grant application process and general criteria (does not need to be extremely detailed, just a framework).

This would pass the AIP-2 easily and goodwill would be sufficient.

I was specifically talking about Offchain Labs members, not other ‘outside’ members.

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The September cohort?

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I don’t think the issue here is whether the Foundation should have a budget for BD (or the possibility of lending to MM).

These points are necessary for the arbitrum to be successful.

For example, if the document had clearly stated that the foundation would get 750m airdrops (even better if there was an implication in the vesting), I don’t think there would have been much discussion here.
People would have just been arguing about what is the best and most efficient way for the Foundation to use them. There is nothing more to it than that.

The problem is simply that
i) the documentation didn’t mention it
ii) The volume in circulation and the resulting market capitalization, which everyone used and made investment decisions on, was simply false. The volume of tokens in circulation was more than 1.25 billion, not 1.25 billion. What should be used now? Do we add another 50 million tokens to reflect the 10 million tokens sold and the 40 million tokens used by MM (which would make sense)? Or is it an additional 750 million tokens if, from the use of the word “ratify”, it could be in circulation as early as today without a vote?
iii) What was the rush to sell 10 million tokens, which could cover the costs of running such a foundation for quite some time, without transparency?
iv) By saying that AIP-1 is a mere “ratification”, the governance power of the ARB token is undermined and hence the value of the token. What governance power does the token have if the proposal is implemented as is despite token shareholders voting against it?

What is done is done and cannot be undone. However, it is clear that the ARB token shareholders do not agree with the AIP-1 proposal.

I am just a retarded anon with a completely irrelevant amount of tokens. However, assuming my IQ to be 60, it seems to me that the best approach would be as follows
i) Never say again that voting is not important.
ii) Hold the bulk of the remaining 700 million tokens in contracts with linear vesting (I wouldn’t need to spend $1 billion in ARB tokens on day one). The contracts are not immutable and can be amended by subsequent governance votes.
iii) Increase the number of foundation directors to five. This is to improve decentralization and to provide token holders with reassurance that their grant money will be used for the success of the ecosystem rather than for back taxes (as happened with some Alt-L1s).
iv) Provide transparency and details about the first year of the budget (or at least the set-up costs and expenses for the next few months) so that people better understand why we rushed to sell 10 million tokens.
v) Propose a grant application process and general criteria (does not need to be extremely detailed, just a framework).

This would pass the AIP-2 easily and goodwill would be sufficient.

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Hello everyone, we are Curia, an Arbitrum delegate platform. It’s inspiring to see this proposal initiating the formal establishment of the Arbitrum DAO. We appreciate and support various aspects of the proposal, including the creation and funding of the Arbitrum Foundation, which resonates with our perspective on progressive decentralization. Nonetheless, we find it essential to express our agreement with the concerns raised in this thread.

At present, we will be voting Agasint the proposal due to transparency concerns and other issues raised by delegates in these forums. AIP-1 falls short in terms of clarity in several areas, including the pre-allocation of funds without community approval or input and the 750 million $ARB token transfer to the Foundation during the initial token distribution. This transfer has reportedly already occurred, making AIP-1 seem like a retroactive ratification of decisions made without the DAO’s involvement.

Taking into account the delegates’ concerns raised in these forums, we present a summary of concerns and recommendations for advancing with Arbitrum AIP-1:

Key Concerns:

  1. AIP-1 is encompasses too many topics. Numerous potentially non-contentious and contentious items are bundled together under a single vote, which could set an unfavorable precedent.

  2. Lack of communitcation regarding the pre-allocation of funds without community notice, approval or input.

  3. Insufficient transparency and detail regarding the 750M ARB budget allocated for administrative purposes.

  4. Ambiguity surrounding the Special Grants program, with unclear processes and criteria for awarding funds, which lacks DAO involvement and requires proper guidelines and context on how the fund will be used to benefit the Arbitrum ecosystem.

  5. Lack of clarity around the Arbitrum Foundation’s directors and Data Availability Committee’s selection criteria and processes for member removal or appointment.

Recommendations for Arbitrum AIP-1 Moving Forward:

  1. Improve the communication process regarding the governance updates and actions taken by the Arbitrum team.
  • One issue we’ve noticed is the lack of proper announcements for proposals, both on the forum and Arbitrum’s Twitter. We suggest having an official process on the announcing updates of each proposal on the forum and creating a separate Twitter account focused solely on ArbitrumDAO’s governance-related matters, similar to SafeDAO.
  1. Divide AIP-1 into separate proposals that can be voted on individually. This could include separate votes ratifying on:

    2.1 The relationship of Arbitrum foundation with ArbitrumDAO and clarity on issue regarding its directors

    • Clearly outline the appointment process for Directors, including their backgrounds, relationships with Arbitrum/Offchain Labs, and the rationale behind their selection.
    • Also encourage the Directors to introduce themselves in the forum to foster trust and transparency.

    2.2 The guideline or framework for Special Grants and clear process on how to enhance transparency and provide more detail on the 750M ARB budget by including allocation guidelines, timelines, and regular reporting to the community.

    • For Special Grants program, including a clear outline of the processes and criteria for grant selection, as well as the intended impact on the Arbitrum ecosystem.

    • Incorporate reimbursement for Foundation Setup Costs mentioned earlier in the initial AIP-1 proposal.

    • As a side note, since Arbitrum is promoting the incorporation of on-chain votes to directly control governance via smart contracts, consider employing smart contracts to control fund allocation and vesting of tokens, ensuring immutable enforcement and proper management of funds.

    2.3 Address the Security Council and Data Availability Committee

    • Offer more clarity on the selection criteria for the Security Council and Data Availability Committee, and establish processes for member removal or appointment. This will help ensure that the committees function effectively and can adapt as needed.

By addressing these recommendations, Arbitrum can create a more inclusive and transparent governance process going foward. This will help build trust within the community and ensure that future proposals are met with a more constructive and collaborative approach.

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SUMMARY

In short, as the 5th largest delegate, Camelot will be voting ‘ABSTAIN’ on AIP-1. After internal discussions and listening to the thoughts from our community and the broader Arbitrum ecosystem, we feel we cannot vote FOR or AGAINST the AIP-1 in its current state, given that it’s a signaling vote rather than a binding governance proposal.

For a summary of our position on AIP-1, please see the points below:

  • Due to the ratification of AIP-1, the proposal is purely a signaling vote and not binding; therefore, we will be abstaining
  • Whilst we are supportive of the allocations, which we feel are in line with industry standards and appropriate, we are strongly against the concept of ratification
  • Considering the size of the allocation, more details are required to detail the breakdown for short, mid, and long-term purposes
  • In addition to more details on the use of the allocation, further precisions are required on the vesting and custody, in which there is still a lack of transparency and communication that is desperately needed to maintain trust within the community
  • Transparency regarding the grant process and how these will be enacted & clearly communicated to the community is also required
  • Finally, the format of the proposal is not conducive to community discussion and debate, and we would suggest a more broken-down approach that is appropriate for the average community member

RATIONALE

Firstly, when discussing the contents of the initial proposal, we are generally supportive of the allocation towards the foundation, which we feel objectively aligns with standard practices we have seen in the industry so far and is appropriate in the context of a network-level foundation. The Arbitrum ecosystem has grown significantly in its relatively short history, and this rapid success would not have been possible without the team who built and drove it to where it is today, and therefore the allocation itself is something we deemed as fair.

However, we also believe that governance obviously has an absolutely crucial role in the future of decentralized networks. When AIP-1 was first proposed, we were under the impression that it was a genuine vote, as it was portrayed. Therefore, we strongly disagree with the concept of proposing a vote on something to then amend it to a ‘ratification’. Not only does this invalidate the role of governance, but it further undermines the role of the ecosystem in such an important early decision - the first AIP. This point is the main rationale behind voting abstain, as the proposal is no longer a valid governance vote and is merely a signal that bears no impact on the end outcome.

We do not support the ratification of AIP-1 and would further suggest several items to improve the initial proposal. Firstly, we feel that there is a lack of detail in regard to how the allocation of these tokens is actually used and distributed. The current allocation represents a significant amount of tokens, and yet AIP-1 does not sufficiently explain how it will be used. This amount of tokens will not only bootstrap grants for the short-term but for the life of the Arbitrum network, and therefore it’s imperative that the ecosystem is aware of the approach to how this allocation is intended to be used over both the short and long-term.

In addition to the lack of detail on how the tokens will be used, there is a subsequent lack of information about the grant process itself. The community cannot make an informed decision without knowing how the tokens are intended to be allocated. This requires understanding how grants will be conducted and communicated with the rest of the ecosystem. Without this process formalized and communicated, it’s unclear as to how the tokens might even be used and over what periods and structure.

The proposal also lacks transparency in terms of vesting and custody, both of which are highly sensitive factors that the community is very conscious of. Any large movement of tokens will result in instant reactions online, so having these details included in such an important proposal is critical.

Finally, we strongly recommend that the next AIP follows a different format that is more conducive to community discussion and debate. As the first proposal, AIP-1 provided a significant amount of information for the broader ecosystem to digest, opening room for misunderstanding as various interpretations were spread online. Community involvement is a fundamental element of decentralized governance, and therefore we suggest that future proposals not only contain all the relevant details but also follow a more digestible and user-focused approach.

CONCLUSION

Due to the lack of details within the proposal and the amendment of AIP-1 to a ‘ratification’, Camelot will be voting ABSTAIN and waiting for further information and clarity from the Arbitrum DAO and foundation. Despite the shortcomings mentioned above, we remain committed to supporting the Arbitrum DAO and foundation and strongly believe that the ecosystem will find an amicable path forward that takes this as an important lesson that strengthens future governance proposals.

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At L2BEAT we took our time to thoroughly analyze the situation around the AIP-1 proposal:

  • We read what’s been written in this forum post and on Twitter.
  • We went through the official legal documents.
  • We analyzed the on-chain history.
  • We have read the ArbitrumDAO smart contracts.

These are our main findings:

  1. The vote to adopt AIP-1 is irrelevant for AIP-1 going into effect.
  2. ArbitrumDAO remains in full control of the funds, and has to approve funds in the Arbitrum Foundation’s wallet.
  3. ArbitrumDAO has governance control over the Arbitrum Foundation (as per foundation founding documents).
  4. ArbitrumDAO has upgrade power over all Arbitrum contracts including the ARB token itself.
  5. AIPs can only be proposed and voted on by the DAO and its members and not any external actors.

After this careful consideration, we decided to vote: ABSTAIN in the Snapshot temperature check. We think that this proposal shouldn’t even be voted on and it should rather be treated as an initial setup of procedures for ArbitrumDAO. Future AIP proposals should address all the contentious issues to amend those procedures.

Below we try to summarize our understanding of the current situation, what we think should happen now and how we should avoid such issues in the future.

Important documents:

  1. AIP-1: Arbitrum Improvement Proposal Framework - the controversial AIP
  2. The Amended Constitution of the Arbitrum DAO | Arbitrum DAO - Governance docs - The ArbitrumDAO constitution that directly refers to AIP-1 several times
  3. The Arbitrum Foundation - Bylaws - Google Docs - The Arbitrum Foundation Bylaws, that define how Arbitrum Foundation is functioning and also refers to AIP-1 several times
  4. The Arbitrum Foundation - A&R Mem & Arts (Final Form) (16.3.23) - Google Docs Arbitrum Foundation companies act that established Arbitrum Foundation

Timeline:

The vote to adopt AIP-1 is irrelevant for AIP-1 going into effect

The ArbitrumDAO was set up by publishing the ArbitrumDAO Constitution together with AIP-1 that specified the framework for ArbitrumDAO operations and initial token distribution according to the initial token allocation ($ARB airdrop eligibility and distribution specifications | Arbitrum DAO - Governance docs).

In our opinion, the AIP-1 is not really votable, as the ArbitrumDAO Constitution clearly refers to AIP-1 as a source of truth regarding the structure and processes of ArbitrumDAO. Furthermore, legal documents establishing Arbitrum Foundation also refer to the AIP-1 as a document that defines the structure and processes of the ArbitrumDAO. In that case this structure and those processes are already in motion and ArbitrumDAO needs to abide by them. In a sense, were there no AIP-1, there would be no ArbitrumDAO to even decide on any AIP.

In that way it’s not up for ArbitrumDAO to decide whether to accept or reject AIP-1. The vote for this AIP should proceed according to the Constitution, but there seems to be no substantial consequences of this vote passing or not passing.

However, it is in the power of ArbitrumDAO to amend the rules set in AIP-1 by submitting and accepting new AIPs that change those rules.

The AIP-1 proposal is a large proposal that mixes several different aspects of setting up the ArbitrumDAO. The majority of the aspects outlined in the AIP-1 are non-controversial statements of facts that are not debatable or votable - the initial set of directors, the security council, the initial data availability committee members, the AIP processes - all of these already happened and are considered an initial setup. These also seem not controversial. It is not the case however, in our opinion, with the funds allocated to the Foundation.

The DAO remains in full control of the funds, and has to approve funds in the Arbitrum Foundation’s wallet

According to the distribution specification 42.78% or 4.278B of ARB tokens were allocated to ArbitrumDAO treasury. However, if we look into the on-chain transfers that were executed on the 16th of March ($1.02 | Arbitrum (ARB) Token Tracker | Arbiscan), we can see that this amount is split into two portions: 3,527,046,079 ARB has been sent to the ArbitrumDAO Treasury contract, and 750,000,000 ARB has been sent to another address, that is not listed in the official list of deployment addresses (DAO contract addresses | Arbitrum DAO - Governance docs).

From the AIP-1 proposal we assume that this address is a multisig wallet controlled by Arbitrum Foundation. AIP-1 mentions this as Administrative Budget Wallet and that these funds will be used for “making Special Grants, reimbursing applicable service providers for the Total Setup Costs and covering ongoing administrative and operational costs of The Arbitrum Foundation”. Furthermore, Administrative Budget Wallet is also defined in the Foundation Bylaws (The Arbitrum Foundation - Bylaws - Google Docs) in section 2 point a:

(a) “Administrative Budget Wallet” means the account that contains ArbitrumDAO approved Foundation assets, which will be utilized by the Foundation for purposes of operational and administrative costs as well as administration of Special Grants.

The Bylaws state that the assets held by Administrative Budget Wallet are “ArbitrumDAO approved”. In our opinion that means that, no matter the amount held by this account, those assets are still part of the general ArbitrumDAO Treasury and ArbitrumDAO still needs to decide on how much should be approved as disposable by the Foundation. The DAO remains in position to approve any funds held by the foundation’s wallet. Without the DAO’s approval, the Foundation is not authorized to spend the funds. We believe that the DAO still has the possibility to amend this amount (by proposing another AIP related exactly to that issue) and, for example, it could ask the Foundation to return all or some of the funds.

ArbitrumDAO’s control over Arbitrum Foundation and ARB token

It is worth noting that even though the initial setup of the Arbitrum Foundation and ArbitrumDAO has been proposed within the AIP-1 (and has been also set up legally), the ArbitrumDAO still remains able to:

  • Exercise “control” over the Foundation (as specified in Foundation’s bylaws).
  • Remove or appoint Foundation directors.
  • Ask the Foundation to provide transparency over how funds at the disposal of the Foundation are used.
  • Approve assets in the Foundation’s wallet, which in our opinion should also include the possibility to ask the Foundation to return all the funds that are currently under control of Foundation’s Multisig.
  • Wind-up the Foundation.

We have never seen any other high-profile project that gives so much power to the community and as such we hope that the community will use this power wisely, assuming first and foremost good intentions of people having to do the “initial setup”.

Furthermore, it is worth reminding the community that the ArbitrumDAO also holds control over the ARB token, so theoretically it can propose such an upgrade of the token contract that would for example circumvent the current restriction that mint can happen only once a year and the inflation cannot exceed 2% (by upgrading to a new implementation with new mint() logic).

Our vote

Given what we have summed up above, we decided to vote: ABSTAIN. We believe that no matter the results of this vote, the merits of the AIP-1 are still in effect and ArbitrumDAO should abide by them. However, we also believe that the ArbitrumDAO should already propose additional AIPs to amend the contentious aspects and that it should be accompanied by a healthy debate.

We would like to see Arbitrum succeed as a decentralized ecosystem with strong community and good governance mechanics. We think that ArbitrumDAO Constitution, together with AIP-1 is a good starting point for that and we believe that all involved actors will work together to make it better in the future.

The ArbitrumDAO itself has been given enough power to have a meaningful impact on the future of the Arbitrum ecosystem. Going forward, new proposals should be submitted as soon as possible to address the most contentious issues, especially the amount of funds that are accessible for the Arbitrum Foundation. Our stance is that the funds currently held in the Administrative Budget Wallet should not be considered as ArbitrumDAO approved and therefore should not be used until such approval from ArbitrumDAO is granted. We don’t believe trying to recover already spent funds would be beneficial for anyone, but all spending should immediately stop until the DAO gives its approval.

We are declaring our availability and willingness to work on those proposals and we believe that the focus of the ArbitrumDAO should be moved towards that.

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While Gauntlet is in favor of forming the ArbitrumDAO and supporting the Arbitrum Foundation, we agree with other delegates that more detail is needed around the Foundation’s plans for structuring and operational procedures. As such, Gauntlet is abstaining from this vote.

All said, we are excited by the governance activity displayed here and are looking forward to reviewing ideas and proposals that remedy the community’s concerns.

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Blockworks Research team here with an update on our views surrounding AIP-1 and the next steps from here.

We have been very impressed by the level of participation and quality of discourse surrounding this proposal. While we voted “Against” on the snapshot proposal, we still believe there is a way to move forward that ensures success for the proposed Foundation and the Arbitrum Ecosystem. To recap, we believe these are the primary issues the community sees with the proposal in its current state:

  1. 750M ARB tokens with no vesting period to be sent from the community allocation.

    • These tokens were moved prior to the voting period for AIP-1, which was received very poorly by the community.
  2. 50M ARB tokens were already spent by the Foundation. 40M were loaned to Wintermute, and 10M were sold to cover operating costs.

    • Again, these tokens were moved prior to the voting period for AIP-1, which was received very poorly by the community.
  3. Lack of clarity surrounding the Arbitrum Foundation: the selection of the initial directors, the justification for 750M ARB, the process for creating and allocating “Special Grants,” and the necessary operational expenditures need further elaboration.

  4. AIP-1 contained too many elements to fit into one proposal. Each individual element should be its own AIP that is discussed and voted on separately.

  5. High ARB requirement of 5M to submit proposals.

A Path Forward

With all this in mind, here is what we are proposing the next steps should be for the DAO:

  1. Provide a detailed budget breakdown to justify the funds sent to the Arbitrum Foundation that will be held in the Administrative Budget Wallet.

  2. Once a budget has been submitted for DAO review, create a vesting contract that aligns with the Foundation’s annual budget requirements. The vesting contract should be set up in a manner that gives the DAO the ability to halt funding if KPIs are not met.

A Foundation focused on creating a vibrant and sustainable ecosystem is beneficial to the success of Arbitrum. In our view, a 7.5% allocation to an ecosystem fund is fair and necessary for competitive advantage, especially when looking at other comparable foundation token allocations. However, it was a misstep to fund the wallet prior to DAO approval. Sending these funds back to the DAO treasury would hamper the Foundation’s ability to act in the DAO’s best interest for the next 2-3 months as it would severely slow the rate of implementation.

In order to rectify the initial missteps, we request a detailed budget breakdown to justify a 750M ARB allocation to the Arbitrium Foundation. This plan should include information on the Arbitrium Foundation’s mission, scope, team (full-time and contract), and budget. It should address the Foundation’s goals and include KPIs to measure success.

Once a budget has been agreed upon, there can be further discussion about how the funds should be delivered from the DAO to the Administrative Budget Wallet. We are generally in favor of vesting over a set period of time with the ability to request quicker distribution if necessary, however, more information will be gleaned once a plan has been presented.

Uniswap set a great example of how funds should be requested from the treasury to form a foundation that works in the protocol’s best interest, which includes budget breakdowns, OKRs, a detailed roadmap, and clarity surrounding the foundation’s key stakeholders and decision makers. While it may not be possible to go into as much detail as the Uniswap Foundation was able to, much more clarity into the Arbitrum foundation’s roadmap, KPIs, and contributors would go a long way.

This should eliminate the community concerns surrounding the lack of transparency in the foundation’s decision making and budget allocation. It should also help clarify the need for a 750M ARB allocation and present the best method of distributing the funds over time.

While this is not typical of other network foundations, we can set a strong precedent for efficient capital allocation and complete transparency.

Other less notable changes we also support:

  1. Splitting up AIP-1 into many different AIPs.
  2. Lowering the ARB required to post an AIP on chain.
16 Likes

After renewed examination of the AIP-1 together with the arguments presented by the community and in view of new circumstances, I hereto change my position on the AIP-1 and consider it important to underline the following points:

  1. The Arbitrum Foundation cannot and should not be blamed for the steps it undertook in order to implement the AIP-1, as it turns out these were actually necessary decisions with a view to commence the functioning of the DAO and ensure its resilience in this highly competitive environment. What it should be blamed for is the miscommunication and presenting of the AIP-1 as something to be decided by the vote. The AIP-1 should have clearly be presented as the foundational document being implemented for the commencement and development of the DAO and it should have been clearly stated that what was really sought were comments on the AIP-1 by the community.

  2. The argument about exorbitance of the sum allocated to the Foundation as such cannot but be inadequate, that is in view of comparisons with similar cases (like Polygon, for example). Arguably, this argument could be based upon the fear of existence of a strong centralised body within the DAO, as it would undermine decentralisation. Although being to some extent justified, such fear should be weighted against the necessity of a strong centralised body of high-skilled professionals within the DAO to effectively carry out its decisions. But at the same time it’s undeniable fact that such body cannot be a part of the DAO without being duly checked and balanced.

Thus, the AIP-1 should be presented as a document being already implemented. The most ubiquitous comments/complaints to the AIP-1 should be transformed into the AIP(s), that is if the AIP-1 could be accordingly amended in case of positive vote and adoption of such AIP(s).
The system of aforementioned checks and balances should be speedily devised and implemented. It means that although being strong the Foundation must be accountable to the DAO.

5 Likes

The proposal itself is troubling for several reasons:

  1. AIP-1 was a ‘ratification’ of actions already carried out by the Arbitrum Foundation - clearly against the decentralised ethos they are attempting to create
  2. Almost no transparency was given to the allocation of 750m ARB to the Arbitrum Foundation
  3. An extremely expansive proposal with no clear focus on a particular subject matter

AIP-1 Overall Failure
In our opinion, this is an incredibly bad precedent to set where the first vote is a ‘ratification’ of past actions and something the DAO would disagree with. We are sympathetic in that a huge cost is associated with setting up and operating such a large organisation, not only efficiently but successfully.

Arbitrum had every opportunity to outline these funds for allocation to the Foundation in their token distribution schedule when the ARB token and Arbitrum DAO were announced. We believe that as this road was not chosen, the Foundation must remain on it and stay true to its outlined governance process.

Unfortunately, from the outside, AIP-1 looks like an attempt to squeeze a large amount of funding for any number of things into an all-encompassing proposal hoping to fly under the radar (we understand this is likely not the case but optics are everything in this space).

Frankly, AIP-1 was a proposal to bypass the governance process, which was already bypassed due to the actions that have already taken place. Instead of attempting to be as decentralised as possible with the ratification of actions, they have undermined the entire DAO and its governance power.

The ARB token’s main purpose is governance and this simple yet critical purpose has been walked all over. In light of this, we will be abstaining from voting on AIP-1.

Transparency
AIP-1 gives almost no transparency as to the allocation of funds, how they will be spent, or when.

The following is required to move forward regarding the Special Grants Program:

  • What framework is to be used to select grants to ecosystem participants and how will these benefit the Arbitrum DAO?
  • What types of grants will be targeted (sectors) and why?
  • How will such grants be reported to the community?
  • How will a return on investment (ROI) be calculated for these grants to determine program efficacy?

In addition to the Special Grants Program, ARB has been moved from supposedly locked wallets (with vesting) without any prior communication. We call for a full report on the details of all wallets and their locked/vesting status. Transparency on circulating/liquid tokens, vesting and selling schedules are paramount.

Multi-faceted Proposal
As echoed by many others here and specifically in our original ARB Delegate Application, AIPs must be targeted at a single goal. AIP-1 misses this by a long way and can be split into several more focused proposals.

Summary
As a result of the above comments, Castle Capital has Abstained from voting on AIP-1. We look forward to the above comments being implemented for the revision.

5 Likes

Hi @Atomist , please find the new proposals here:

3 Likes

Standing on this protocol, this is my stand too.

1 Like