AIP-1: Arbitrum Improvement Proposal Framework

Blockworks Research is voting Against AIP-1: Arbitrum Improvement Proposal Framework

We are committed to improving DAO governance and transparency, and this proposal represents a step backwards in its current state.

Our core concern lies within the 750M ARB tokens worth more than $1B at current prices that will seemingly be held under the control of the Arbitrum Foundation, with unknown wallet signers.

As per the Arbitrum Foundation’s documentation, 4.278B ARB tokens are meant to be allocated to the Arbitrum DAO treasury. However, as outlined in AIP-1, only 3,527,046,079 ARB tokens will be controlled by the DAO treasury. 750M 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. As further stated, this separate wallet will be controlled by The Arbitrum Foundation.

750M ARB tokens represents a significant amount (7.5%) of the total supply, so we believe this vote requires careful consideration. Without further clarity on the grants process, how funds are held, and what oversight there will be, we cannot vote in favor of this proposal.

Too often we have seen funds go into a black box of expenses. It is time to make DAO transparency a priority.

A few questions we have include:

1.Who are the people responsible for the 750M ARB tokens? Specifically, who are the signers on the designated Administrative Budget Wallet?

1a. Will the three initial directors of the Arbitrum Foundation mentioned in the proposal control the funds?

  • Campbell Law
  • Edward Noyons
  • Ani Banerjee

The proposal provides no introductions with respect to these individuals or their backgrounds. Also, having only three people in charge of such a large percentage of the token supply is a concern for security and decentralization, especially without enough information for the community to make an informed decision. There is also no clarity as to whether these are the only signers of the designated Administrative Budget Wallet or if there are other actors we need to consider. If there are only three signers that could be a security threat, and if there are more there is no transparency regarding that information.

2.Why is this 750M ARB taken out of the treasury, when it states that the ArbitrumDAO will have direct on-chain governance powers over the treasury?

These 750M tokens were supposed to be part of the treasury but now seemingly lay under the centralized control of 3 individuals. Furthermore, we have reason to believe that Offchain Labs has preemptively separated the Administrative Budget Wallet, as seen from the two DAO Treasury wallets below.

As stated in the Arbitrum Foundation docs, the DAO treasury address is 0xF3FC178157fb3c87548bAA86F9d24BA38E649B58. What is 0xc24e24383120669512a336fb3b5b19afb4cc2a56? An address not listed in the token distribution addresses in the Arbiturm Foundation docs.

We can see on that the second contract address is a Gnosis Safe proxy, representing a multi-sig. But even with a multi-sig, this leaves a massive security risk for Arbitrum if malicious actors were to gain access. Providing no clarity to voters means that the community cannot make an informed decision when it comes to risk management, and is completely antithetical to the goal of decentralization and transparency. The primary rationale for an ARB token was to decentralize one of the leading Ethereum L2s, and this goes against that precise logic.

3.We would like further clarity on how the 750M ARB tokens will be used, and what the distribution will be.

750M ARB represents a significant sum of money. For example, the next largest comparable proposal was by Uniswap. Uniswap proposed to create the Uniswap Foundation, funded with a total of $74M, more than 10x less than the 750M ARB requested at current prices. In addition, the $74M will be broken into two disbursements, with a first disbursement of $20M. We find it hard to believe that the Arbitrum Budget Wallet controlled by the Arbitrum Foundation needs 750M ARB tokens worth over $1B in one go. More clarity over the necessary expenditures and a reassessment after a year for further budgeting is likely warranted.

Blockworks Research represents over 2,000 Arbitrum token holders and we have the responsibility to ask these questions on behalf of our delegators. We hope The Arbitrum Foundation and Offchain Labs will sufficiently address and clarify our concerns.

We hope other token holders and delegates echo our concerns. We are open to all feedback from Arbitrum community members and are willing to change our stance upon new information that is surfaced