Clarity around the ratification of AIP-1

There’s been a lively discussion on the forums regarding Arbitrum’s first governance proposal, AIP-1. The level of engagement has been remarkable and a testament to the strength and dedication of the DAO community. There have been some requests for comments from the Foundation about AIP-1 and requests for further clarification, and that’s the intention of this post – to engage with the questions being raised and also to provide some additional context that may be helpful in understanding and taking a stance on AIP-1.

One acknowledgement before diving in is that in hindsight it’s clear that the Foundation definitely could have done a better job on communication – both by providing more clarity directly in AIP-1 and also by being quicker to respond. We are in the process of staffing up the Foundation and will strive to improve our communication going forward, and we hope that this post provides the necessary clarifications for AIP-1.

A chicken and an egg

When it comes to setting up a DAO, there’s a chicken and an egg problem. Let’s put aside the question of funding the Foundation for just a second (we’ll get there shortly), and focus on the handoff of the core technology and upgradability of the Arbitrum chains. In order to do that, certain parameters need to be decided including transferring the code as-is to the DAO, creating the security council, setting the time delays for code upgrades, establishing the initial textdraft of the Constitution, establishing the AIP proposal mechanism, the initial set of validators and DAC on Nova. Some have suggested that even the initial values of these parameters should have been chosen by the DAO, but that’s not technically possible. When the system was given over to the community, these numbers had to be set with some value – i.e. the DAO governance smart contract had to specify the thresholds that allowed for a proposal to be passed and had to specify a security council that would be live during the initial handoff. There simply was no community that could have voted on these numbers, and the very act of creating the community required these parameters to be specified.

The Foundation was created in order to kick off and facilitate the DAO decision making process in the first instance – if the Foundation didn’t exist, simple operational questions such as “who hosts the various governance forums where these discussions occur” as well as broader questions such as “who kicks off governance” would go unanswered and revert back to the chicken and the egg issue.

And with regards to setting up the Foundation, there were similarly lots of decisions that needed to be made ahead of time in order to get it off the ground. These include basic questions like where the Foundation is domiciled, who its initial directors and employees are, as well as questions about its mandate, mission, bylaws, and funding. Now of course, there’s room for discretion about what these values should have been, particularly with how much initial funding the foundation should receive, but two things that we’d like to make abundantly clear in this post are (1) these values were set with the sole goal of making sure that Arbitrum is positioned to succeed and compete with its peers and (2) the decisions made are well within market range when compared to Arbitrum’s peer projects and foundations.

AIP-1 is a ratification

Nothing here is intended to minimize that there was very clearly a shortfalling in communication. One of the mistakes in the drafting of AIP-1 was a failure to note at the outset that this proposal was intended to act as a ratification of the initial setup of both the Arbitrum DAO and the Foundation that has been created to serve the DAO; this was spelled out at the end of AIP-1 in the section “Steps to Implement”, but it should have been made clear earlier on. Moreover, the post was written in the future tense (a reflection of the fact that it was in the future when we were drafting the post and did not catch this) and understandably this likely led to some of the confusion on the point that this was a ratification. As discussed above, there is a chicken and the egg 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. The communication of those decisions was clearly not articulated correctly. We hope that this post will properly delve into the initial thought processes that went into making these decisions.

The ratification of AIP-1 was also intended to allow for the Foundation to assume some obligations relating to infrastructure and service providers that have been supporting the network in the past, establish its relationship with service providers, contractors and hire personnel on a moving forward basis and ensure that the ecosystem has what it needs in order to continue to thrive in an extremely competitive environment.

How does the Arbitrum Foundation funding compare?

The establishment of an initial distribution of tokens to the Foundation is a normal course of practice in setting up ecosystems like Arbitrum, and this was always the intent when AIP-1 was submitted for ratification concurrently with the announcement of the Arbitrum DAO. While our focus is not competing ecosystems, it is useful to compare to understand how this figure was originally chosen and whether allocating 7.5% of the token supply to the Arbitrum Foundation is reasonable. The three closest peers with live or announced tokens are Optimism, Starkware, and Polygon, and indeed 7.5% is lower than all of these:

  • The Polygon Foundation and Ecosystem Growth contracts currently hold more than 10% of the token supply. This is after years of significant grantmaking and other distributions which has led to the successful growth of the Polygon ecosystem. In other words, there remains more funds available despite years of historical distributions.
  • The Starknet Foundation has earmarked all 50.1% of the community token supply into different buckets, with 10% of the token supply earmarked for its foundation to maintain a strategic reserve to fund ecosystem activities.
  • When the Optimism Foundation was established, the token allocations were also much more clearly defined, similarly to the Starknet Foundation. The Optimism Foundation established that 20% of the tokens would be distributed for retroactive public goods and that 25% of the supply would be established for an ecosystem fund. 5.4% of the token supply were allocated to the Partner Fund which explicitly is to “be distributed strategically by the Optimism Foundation to grow the Optimism ecosystem for the benefit of the entire Collective.” Additionally, an additional 8.8% of the token supply remains unallocated for future growth programs.

While not as directly comparable because they are Layer-1 blockchains, the Avalanche Foundation originally received 9.26% of the token supply and the Solana Foundation received 12.5% of its token supply, respectively.

Looking at the above data points, Arbitrum is unique in that it is the only one among its peers in which the vast majority of the community tokens are currently controlled by the DAO on-chain. And also uniquely, The Arbitrum Foundation is the only one that even asked for the community’s ratification of these decisions.

Why not put everything on-chain?

Now, even though it’s an established practice, one may fairly wonder why The Arbitrum Foundation (or any of its peer foundations) needs a significant token budget and why this cannot all happen via on-chain voting. And this is again a place where we should have provided more clarity. It’s not only because of “voter fatigue”, which was intended to describe a more effective way to process smaller grant requests, but often it’s more fundamental and necessary for Arbitrum’s ability to efficiently and effectively fulfill its mission.

At times, it may be in the best interest of the DAO to partner with a company or organization that either won’t or doesn’t have the ability to publicly negotiate deals on-chain due to confidentiality and other operational requirements. Without a strong foundation that has the ability, mandate, and resources to engage with these entities in real life, the Arbitrum ecosystem would be ineffective and at a serious disadvantage as compared with its peers. Please take note of Polygon’s partnership with Nike and Starbucks and Optimism’s partnership with Coinbase’s Base chain. In all of these cases, there was no public process at all and the first time that the public became aware of these relationships was after they were agreed upon.

While it would be incredible if all traditional companies agreed to do everything on-chain, this is not realistically going to happen. Not having a well-funded Arbitrum Foundation that has limited discretionary power to engage and enter deals with large institutions on behalf of the DAO could be severely damaging to Arbitrum as Arbitrum would be the only ecosystem that could not compete for these deals.

Indeed we are aware of similar conversations going on with fintech, social media, and gaming companies right now, and we at the Foundation, are ramping up to engage with and educate these players on Arbitrum, and the initial distribution at inception was intended to provide the Foundation with the resources it needed. It’s clear that it’s within the DAO’s best interest to have a voice in these arenas, and the DAOs ability to choose the Foundation’s directors give it direct control to replace, remove, or augment its representatives. The current (and any future) directors of the Foundation are (and must be) signed fiduciaries of the Foundation and committed to acting in the DAO’s best interest in accordance with the Foundation’s mission.

The role of the Foundation and its obligations to the DAO

The Foundation’s purpose is to fulfill its mission to foster the development and growth of the Arbitrum ecosystem – this is its mission as stated in its governing documents and the Foundation cannot act in ways that are counter to these documents. As a Foundation Company, it does not have shareholders or partners that it is accountable to, and instead, significant governance authority over the Foundation has been given to the holders of the $ARB token. In other words, the Foundation exists to effectively facilitate and serve as a steward for the DAO and the Arbitrum ecosystem.

The specific governance authority that the Foundation’s governing documents provide to the DAO include:

  • Appointment and removal of directors (who are fiduciaries to the Foundation and are tasked with carrying out its mission), including the ability to expand or reduce the number of directors (see Bylaws § 6 and Articles of Association § 13); and
  • Amending the Foundation’s governing documents (subject to certain limitations like compliance with Cayman Islands law, see Bylaws, § 3(a)) (in fact, the Foundation is prohibited from making any amendments to its governing documents that would adversely affect the rights of the DAO without the DAO’s explicit approval, see Bylaws, § 3(b)).

The DAO can also cause the Foundation to take any other action subject to compliance with Cayman Islands law (and in fact, according to the Foundation’s governing documents, in the event that the decisions of the Foundation conflict with those of the DAO, the DAO will prevail unless prohibited under Cayman Islands law, see Bylaws § 7(c)).

Simply put, the Foundation works for the DAO.

Where we could have communicated better

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. For those that didn’t realize that this was a ratification, they may have been surprised to see that the Foundation’s tokens have already been separated and begun to be utilized.

In hindsight, we should have made it clearer that this was indeed a ratification of a decision that had been made, which explains why there has been movement in the treasury that had been set aside for the Foundation. The Foundation treated this as a ratification of its initial setup, not an initial grant request from the DAO Treasury, and indeed has begun to use these tokens in the interest of the DAO, including conversion of some funds into stablecoins for operational purposes.

The most significant miscommunication is likely the unclear classification of the initial distribution to the Foundation in the original pie chart in the governance documentation. The documentation described the allotment to the DAO treasury address and to the Foundation in one bucket as “DAO treasury.” It would have been more clear had that been bifurcated into two, distributing the bulk of the funds to the on-chain DAO-controlled treasury and a portion to the Foundation, in service of the DAO.

In hindsight, there was clearly a lot that could have been better communicated. We do want to stress, however, that AIP-1 was posted on the forums simultaneously with the governance announcement on March 16 (one week before the airdrop went live), and in the “Steps to Implement” section it did make clear that this was indeed a ratification of funding that had already occurred. Again, we could have done a lot better with regards to making sure that this was clear to all, but lest anyone think there was any change of intent, we do want to point out that this was announced at the outset. And we will strive to communicate better going forward.


P.S. There have been some questions for clarity as to the role of Lemma LTD, the poster of AIP-1, and their relationship with the Foundation. Setting up a foundation, managing the governance process and setting up and managing the DAO tooling takes a lot of work, and indeed this is one of the reasons that it was so critical to get the Foundation up, running, and funded prior to launch. To assist in these roles as it staffs up, the Foundation is working with a few different service providers in order to bootstrap itself and be in a position to properly serve the DAO. One among those is Lemma Ltd which provides several services to the Foundation including monitoring and participating in governance forums.


I would appreciate a clearer delineation of more visual ranks of the staff and moderators on the platform. During my first week, it was unclear if there were any staff members present.

Additionally, my only concern with the current structure of the Security Council is the absence of community representation. While the Council comprises individuals with distinguished titles, isn’t it essential to have a representative from the community if the project is community-driven? Maybe we need a regular Joe in there to represent us regular Joes.

I believe this calls for more community representation since you’re clearly doing something against the DAO.


Whether Arbitrum Improvement Proposal 1 is a proposal or a ratification, it could be helpful to clarify what happens should the “against” vote win.

If failure state isn’t considered, this might suggest the vote is only for show. The precedent you set for the DAO will set the tone for the future.


Ok I’m well convinced now but you guys need to make an announcement on your Discord and other Social Channels. Wish Arbitrum Success.


This is an incredible amount of words to use to get the point across that the vote wasn’t meaningful.

Token holders should have some clarity on the buying and selling of $ARB now that it’s a liquid token and this just incites panic as speculators are wondering what % of the foundation’s tokens are being sold without users knowing.

A lot more transparency on balances + selling schedules and the form of selling are necessary.


This is worse than what we imagined.

Gathering the facts,

  1. So the team has been dumping tokens that were initially informed to the community as locked tokens
  2. The team didn’t inform the community when these were unlocked, under what supply these were unlocked.
  3. All tokenomics page shows only User airdrop + DAO airdrop tokens as unlocked, and the rest of the tokens to unlock in March 2024. Now suddenly it seems 750,000,000 more ARB tokens are not only unlocked, but also some of these tokens have been dumped.

How is this acceptable?

For transparency sake, the foundation is required to give a summary of the amount of coins that have been dumped, wallets, accounts which were used for dumping.

This is just a total breach of trust.

I dont see how anyone can trust Arbitrum team going forward.


Interesting so for the sake of the DAO how are you going to adapt an audit trail for off chain dealings.


This series of events has made the Arbitrum DAO looks very redundant and powerless. There was zero DAO oversight or input on these funds.

This “Foundation” entity already has such a large chunk of ARB, and now the DAO is left feeling like it has no control over them. What’s the point of ARB governance if day-to-day activities ignore it entirely?

IMO it’s more important than ever that AIP-1 be voted down and that a new draft be created, significantly reducing the funds given to the Foundation. Trust between the DAO and the Foundation has been broken and must be rebuilt through open governance channels.


Classic. Lots of words and not a single number for transparency and clarity, and generally why the fund was able to start spending funds before the vote was over.


The first point to mention is that the majority of the Arbitrum community were under the impression that tokens were locked up for one year (with the exception of the airdropped tokens). To claim that you had posted this funding arrangement on forums which most people aren’t aware of is a cop-out.

Secondly, it is clear that regardless of the semantics around “ratification” vs. “vote”, your community is strongly positioned against this allocation of funds. What are you going to do about this?

For such a community-driven project, this is short-sighted and frankly is a disgrace.


Patrick, i did not realize that’s you. You just joined Arbitrum and been thrown to the fire.

I commented on the situation here:

Two main take-away points.

  1. A foundation, or any entity should not just cut out a huge chunk of the funds at the get-go before something becomes a DAO. IF you want to do that, at least airdrop enough to your people and your investors to guarantee a succesful vote. (still don’t do that but this would have at least looked better). Or even add it to the airdrop claim page (as a much smaller amount) and make it clear this is needed to jumpstart the foundation.
  2. Never ever ever ever send something to a sham-vote. The initial vote of a DAO is symbolic. It’s really unfortunate to see AIP-1 devolve to this. This sets a really bad precedent about arbitrum governance as a whole.

Now what to do from here and on to correct this situation? Hard to say. A lot of damage is done with how this thing was handle.

Perhaps try to return the funds, or as much as possible, and then make a post explaining the bugdet that the foundation needs, what it needs to spend on, how much it needs etc. Essentially a proper DAO expenses proposal with details and accountability. And then re-do AIP-1. This would probably buy enough goodwill back from the community and showing that this is not sham governance.


The clarity posted is a set in the right direction - however I urge the the Foundation to include additional disclosure information, repeal this AIP, and repost in the correct context (i.e., as a ratification and not under the guise of a proposal).

Disclosure items that would be helpful to include as additional context

  1. Publish a high level criteria for the special grant program (e.g., which types of partners are eligible, max funding amounts, how much of the 750mm tokens will be earmarked). This item is not a ratification of an existing program so there is room for more development in this matter and arguably should be it’s own AIP.

  2. For tokens already earmarked for ongoing operating/admin costs, give a breakdown of which service provider has received tokens / is earmarked to recieve tokens, how many tokens, and what those tokens will be used for (e.g., market making, compensation for services, etc.)

  3. Give the community a line item accounting of startup costs paid, who is being reimbursed for which services, and the cost of those services. Call out specifically which individuals/entities being reimbursed are affiliates of Offchain and provide benchmarking for affiliate reimbursements for services that could have been performed by a third party

  4. Provide a 12 or 24 month financial projection of operational and administrative costs

  5. Provide sufficient biographies for all of the individuals acting as directors of the DAO and on the security council. Confirm if Offchain affiliates are being compensated for their service on the security council or if that compensation is being waived since they are already compensated by Offchain.

We understand DAO governance is hard and there will be growing pains. Urge the team to embrace best-in-class transparency and install an experienced governance team equipped with the tools and authority to improve these proposals going forward.


I think most of the community understands the need to properly fund a foundation and ensure that it has the resources to operate for the long haul. However the way this was communicated and proposed to the community left much to be desired and I think in the wake of everything the proposal should be altered and put up for re-ratification with the following added conditions:

  1. Implement a 5 year linear vesting schedule for the 750m tokens. This would ensure a steady unlock of funds while guaranteeing that the foundation has the resources to operate at the same time.

  2. For the appointed multi-sig operators in charge of the special grants - their terms of service should be limited to 2 years (with the DAO having the ability to remove them ahead of time via governance proposals). In addition - 3 additional signers should be elected by the DAO at the end of the first year to erect a rolling committee of 6 signers responsible for special grants with 3 members up for election every year. This rolling committee would hopefully encourage the community to be more active in governance (specifically the election of replacement members) and also ensure urgency for elected members to shoot for maximum impact during the duration of their term.


As the saying goes, when in a hole, STOP DIGGING!

What you’re saying, and just admitted to is that:

  • the governance vote is meaningless, and can be swapped into an FYI if it doesn’t go your way.
  • $ARB is literally a meaningless speculative shitcoin
  • the DAO is a very nice screenplay, but nothing is really binding

If it were a ratification, why was it a Snapshot vote? Why not just a Medium post? I don’t think the issue is of 750m ARB as much as it is over utter disrespect towards all the community you’re supposed to be governed by.

I’m not a lawyer so I don’t wanna larp legal spaghetti, but a centralized sequencer / prover and now this, the legal exposure can’t be good.

If you were to try and stop the bleeding, I’d humble myself and revert all these thing we’re supposed to be ratifying. Then come forward with specific proposals for everything and a clear oversight & transparency plan in tow.

You guys squarely kneecapped all the trust the community put in you, and it’s gonna be a long road back to equilibrium. Community might forgive it once if you play your cards right here, but its gonna be thin ice for a while. Not a good look.


Hi, you write " that this was announced at the outset".

Could you share the announcement about it?


Everyone needs to calm down. Any and all criticism of the Arbitrum Foundation is anti-semitic.
Goyim should be grateful they get to vote on governance at all, even if their vote doesn’t matter.

1 Like

“The Foundation treated this as a ratification of its initial setup, not an initial grant request from the DAO Treasury, and indeed has begun to use these tokens in the interest of the DAO, including conversion of some funds into stablecoins for operational purposes.”

How can something be in the interest of a DAO if the vote hasn’t completed and the decision goes against the current majority (by 70%) vote? What does “interest of the DAO” mean, exactly?

1 Like

Thank you for the clarification on the issues raised @stonecoldpat.

From my POV it seems like most of the discussion is people talking past each other.

Most of the discussion I see has been focused on 3 points:

  • Concerns around the appointment of Directors/security council
  • The concerns that there’s not enough transparency around the 750M ARB budget for Administrative purposes and/or disagreements about the amount.
  • The pre-allocation of the funds

On the other hand, the proposal was intended to ratify the setup of the DAO and the foundation. Setting up a project of this magnitude requires a certain level of pragmatism which I’m sympathetic to. For the most part, I believe that everything in this proposal seems reasonable when viewed through this lens. Still, it’s evident by the resulting discussion that this was not clearly communicated.

Points one and three are addressed by the fact that this proposal was but point 2 might is not entirely.

It seems like as it stands the proposal will not pass but at the time it must pass so we can move forward.

There are a few ways that I see how we can move forward.

  1. More transparency and detail around the purpose of the 750M budget. This would quell most of the concerns being brought up in the forum and

  2. Reduce the initial budget to an amount that would cover the initial setup costs and short-term expenses. Start work on a draft for a different proposal with a proper budget and guidelines for the allocation of the remaining budget.

I believe that creating a new proposal with either of these or a mix of both solutions would serve to satisfy most raised concerns.

I’m very interested in hearing everyone’s thoughts on these solutions or others that can be used to ratify the initial setup of the DAO.

- John from


This clearly shows that there need to be representatives of the community in the board/security council to keep the CEOs in line as an overwatch when decisions are being taken over the DAO.


Exactly why Arbitrum should leverage a platform like EthereansOS to build an on-chain flexible governance structure. It would mitigate these communication problems and investors doubts that the token is actually effective in governance decisions