Voted for this on Snapshot. This need for this kind of accountability will only grow as the DAO continues to deploy funds, so it’s important to establish expectations for what kinds of behavior will trigger a response.
Hi team, I have voted as well.
I’m between the affected users… I have been waiting for a long time for a resolution. Thank you for following up! 
Considering that Furucombo has failed to return unused STIP funds to the DAO and has not given explanations of the destination of those, I’m voting FOR banning Furucombo from the Arbitrum DAO.
After this temp check is approved, I would like to see the foundation proceed with this option. Not moving forward in this regard could signal that funds can be taken without legal consequences. The KYC processes and signing of legal agreements are mandatory conditions for receiving DAO funds. If these agreements are breached, they must be enforced.
Echo the questions posed by @Immutablelawyer and highlight that there should be some escalation to set precedent for future violations.
Two additional follow-up questions:
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Define “affiliated contributors” - I’m not familiar with Furucombo’s operation but this may be unfair for folks who may have contributed to the development to the platform on a contractor basis and had no say in the decision to misuse the grant funds.
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How would we enforce a ban from future participation from all parties (e.g., how do we stop individuals that may have not been KYCed from creating a new alias to participate in future programs)
Given they have returned the funds, and it was a lack of communication more than malicious, I would vote to NOT ban them from the DAO, but I assume the reputation damage has been done with the many delegates that have already voted to ban them.
I completely understand the person who does KYC is not always the person who needs to be notified in situations like this.
------ Initial post --------
Voting to ban them.
Given what I know so far, I would have to agree we should ban them from the DAO… to not get a response at this point is crazy! Normally I am a fan of graduated sanctions (h/t Elinor), but not returning the funds, especially given the fact that ARB is at a 50% discount is ridiculous.
Assuming that they return the ARB, I would still consider this a black mark on their team… but I wouldn’t ban the entire team from the DAO, I would want to hear their side of the story, and decide from there.
If they don’t return all the money, then we should absolute ban anyone who doesn’t resign from their company within a week of the vote ending.
Just jumped into the Furucombo chat room and saw this message from @Blazar
Hopefully, the statement includes a request for where to send the funds.
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Hello,
Blazar here from Furucombo. I want to first off appologize for the extra time and effort that had to go into formulating the information and data, and setting up this discussion. I’ll start out immediately by saying that the funds have been returned to the DAO, and this was a small misunderstanding based on communication.
We have issued our formal statement here: x.com, and i will also include the details below.
In regards to the recent discussion and voting on Arbitrum DAO, we wanted to issue a formal statement in response. Furucombo has been deeply rooted in the Arbitrum ecosystem even before receiving any grants from Arbitrum DAO.
After receiving the grant we intensified our efforts to promote our product and set out to enhance the prosperity of the entire ecosystem. Unfortunately we came across a set of users who engaged in meaningless wash-trading transactions in an attempt to unreasonably obtain rewards.
To protect the interests of other participants, we decided internally to adjust these rewards. We want to make it clear that all unused funds have been safely preserved and have already been returned to Arbitrum foundation.
Regrettably, unbeknownst to members of the Furucombo team, most of the discussions have only taken place on the forums of the Arbitrum DAO. As a small and extremely busy development team, we are unable to monitor the forums of more than 50 cooperating protocols in real-time.
We missed this opportunity to communicate directly with the community, and we apologize for this oversight. Representatives from Arbitrum or Arbitrum DAO have now opened direct communication channels, and arrangements have been made to return the funds.
Here is a link to the txn of the returned funds: [Arbitrum One Transaction Hash (Txhash) Details | Arbitrum One]. We hope this helps to absolve any of the negativity towards us, and we thank you for your understanding and support.
Some calcuations for the returned funds:
- Amount Issued from earlier rounds of the Campaign: 11,630.5ARB
- Total Received: 59,500ARB
- Therefore we have returned 47,869.5ARB
This communication breakdown was from the Arbitrum DAO to the KYC’d entity for the funds. As the funds had been moved to a centralized entity (off-chain to Kraken), the KYC’d entity did not have a direct line of communication with the Arbitrum DAO. Instead the Arbitrum DAO had a line of communication with myself, but the severity of the situation was not understood by the KYC’d entity. This resulted in us sitting on the funds waiting for direct communication from the Arbitrum DAO even though we have always had every intention of returning the funds.
We hope this is a strong first step to restoring some of the faith in our protocol and what we are building for us and the rest of the ecosystem, and hope we can reach some more collaboration opportunities in the future. We understand that it will take time to renew that relationship, but that is the path we intend to take. Thanks again for everyone taking the time to openly discuss, and those that personally reached out to me to help or further understand the situation.
We support banning Furucombo due to their inconsistent financial reports, lack of transparency, and missed deadlines. These issues raise serious concerns about their reliability and integrity. To maintain trust in the Arbitrum community, it is important to stop funding projects with such red flags. Banning Furucombo will help ensure that only transparent and accountable projects receive support.
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0 Transparency: Now they have returned the funds to Arbitrum, but how long did it take (conveniently after giving them a final call)? Arbitrum cannot let bad actors win in this space.
They also kept funds from users and still owe them the promised rewards
I have voted in favor of banning Furucombo
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Thank you for the explanation and for returning a portion of the funds. It is now up to the ArbitrumDAO to decide what to do with that information in regards to the Snapshot vote.
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Appreciate your clarification @Blazar !
In our opinion, our stance however remains the same for the following reasons:
- Your team is yet to provide an adequate explanation as to why the funds were transferred to a centralised exchange. I fail to see how transferring funds to a CEX facilitate or aim to achieve the pre-destined purpose of these funds i.e. to grow your product and the wider Arbitrum ecosystem.
- The Arbitrum Foundation is a well-respected stakeholder in our ecosystem. The AF issued deadlines that were unfortunately not met. This shows a lack of mutual respect (in our opinion) and a lack of professionality from your project’s side in relation to addressing the community’s concerns within a very reasonable timeframe.
Our stance is that we have, since the start, contributed and dealt with the ArbitrumDAO as a serious collective, and with mutual respect in place. We belive that your lack of adherence to the grant terms and your sub-par or rather, incomplete clarifications are not sufficient and set a bad precedent for future projects participating in potential future incentive programs.
In light of the above, our vote and our opinion will remain the same i.e. that you (your project) should not be allowed to participate in future incentive programs within the Ecosystem.
Kind regards,
Immutablelawyer
Axis Advisory
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We have been receiving some questions regarding who exactly would be banned from participating in ArbitrumDAO, on what terms would they be banned, and how would this ban be implemented (if the vote passes).
As per the Snapshot proposal, the DAO is currently voting on whether: Furucombo, including all founders, current team members, and affiliated contributors, should be permanently banned from all future ArbitrumDAO programs.
The Arbitrum Foundation would like to clarify that the Furucombo founders would be banned indefinitely, while current team members and affiliated contributors would be banned for as long as they work for or contribute to Furucombo.
Delegates should consider this information when making their decision.
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We support the ban on Furucombo given the findings about their inactivity in STIP and lack of communication with the foundation. The misuse of funds raise a few questions about diligence and compliance for future incentive programs that need be answered. Additionally, we support the Foundation’s clarification in that Furucombo founders will be banned indefinitely while contributors will be banned as long as they continue to contribute to Furucombo.
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Supporting a ban on Furucombo given the information presented. The lack of communications and transparency is unacceptable, and there has not been a reasonable explanation from the Furucombo team on the potential misuse of funds (ex: why was there a move of funds to a CEX?).
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Without hesitation, I voted FOR the ban on Furucombo from the Arbitrum DAO.
While I believe in second chances, failing to follow the established guidelines is, for me, a clear sign that we cannot normalize such behaviors if we are to ensure the long-term health of our ecosystem.
It’s important that the DAO seriously considers the agreements established between the DAO and builders.
However, if they wish to address these communication issues in the future, with clear and valid arguments, we should be open to debate, while also setting a strong precedent for how such matters are handled.
Case Presentation: In re Potential Misappropriation of Funds - Furucombo
Exordium:
May it please the court, the entity known as Furucombo, hereinafter referred to as “the Respondent.”
Substantive Allegations:
Breach of Contractual Obligations:
The Respondent has demonstrably failed to fulfill its contractual obligations, specifically the publication of a final STIP report, in clear contravention of the express terms and conditions of the grant agreement.
Misappropriation of Funds:
Prima facie evidence suggests that the Respondent has engaged in the unauthorized transfer of 59.5K ARB tokens to Kraken accounts, thereby obfuscating the trail of said funds and potentially violating the doctrine of ultra vires.
Violation of Promissory Estoppel:
The Respondent’s actions in freezing user incentives constitute a clear breach of promissory estoppel, causing detrimental reliance among program participants.
Non-Compliance with Restitution Requests:
Despite repeated cease and desist notices, the Respondent has exhibited recalcitrance in returning the misappropriated funds, thereby engaging in continued tortious interference.
Communal and Organizational Response:
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Precedent of Cooperation:
It is noteworthy that other similarly situated entities have exhibited good faith compliance, creating a clear precedent of expected behavior within the DAO ecosystem. -
Vox Populi:
The preponderance of community sentiment strongly favors punitive action, citing the potential for moral hazard should leniency be exercised in this matter.
Proposed Remedies:
Statute of Limitations for Respondent’s Rebuttal:
We move for a one-week statute of limitations for the Respondent to present an affirmative defense to the ArbitrumDAO.
Motion for Summary Judgment on Future Participation:
Failing satisfactory explanation and restitution, we seek a binding resolution from the ArbitrumDAO to permanently enjoin the Respondent and all affiliated parties from future program participation.
Invocation of Legal Remedies:
The Dao reserve the right to pursue all available legal remedies, including but not limited to specific performance of the grant agreement, to recover the misappropriated funds.
Jurisprudential Evolution and Prophylactic Measures:
- Implementation of more stringent contractual language in future STIP agreements.
- Establishment of segregated fund accounts to maintain a clear chain of custody.
- Formation of an adjudicatory body for rule interpretation and enforcement.
- Institution of mandatory sua sponte reporting for all material changes to incentive programs.
- Engagement of third-party forensic accountants for real-time fund tracking and disbursement analysis.
Peroration:
the actions proposed herein are not merely punitive but serve as a necessary deterrent to maintain the integrity of the ArbitrumDAO’s governance structure.
Case Presentation: In re Potential Misappropriation of Funds - Furucombo
Exordium:
We come before this Grave import concerning the alleged malfeasance and dereliction of fiduciary duty by the entity known as Furucombo, hereinafter referred to as “the Respondent.”
Substantive Allegations:
Breach of Contractual Obligations:
The Respondent has demonstrably failed to fulfill its contractual obligations, specifically the publication of a final STIP report, in clear contravention of the express terms and conditions of the grant agreement.
Misappropriation of Funds:
Prima facie evidence suggests that the Respondent has engaged in the unauthorized transfer of 59.5K ARB tokens to Kraken accounts, thereby obfuscating the trail of said funds and potentially violating the doctrine of ultra vires.
Violation of Promissory Estoppel:
The Respondent’s actions in freezing user incentives constitute a clear breach of promissory estoppel, causing detrimental reliance among program participants.
Non-Compliance with Restitution Requests:
Despite repeated cease and desist notices, the Respondent has exhibited recalcitrance in returning the misappropriated funds, thereby engaging in continued tortious interference.
Communal and Organizational Response:
-
Precedent of Cooperation:
It is noteworthy that other similarly situated entities have exhibited good faith compliance, creating a clear precedent of expected behavior within the DAO ecosystem. -
Vox Populi:
The preponderance of community sentiment strongly favors punitive action, citing the potential for moral hazard should leniency be exercised in this matter.
Proposed Remedies:
Statute of Limitations for Respondent’s Rebuttal:
We move for a one-week statute of limitations for the Respondent to present an affirmative defense to the ArbitrumDAO.
Motion for Summary Judgment on Future Participation:
Failing satisfactory explanation and restitution, we seek a binding resolution from the ArbitrumDAO to permanently enjoin the Respondent and all affiliated parties from future program participation.
Invocation of Legal Remedies:
We reserve the right to pursue all available legal remedies, including but not limited to specific performance of the grant agreement, to recover the misappropriated funds.
Jurisprudential Evolution and Prophylactic Measures:
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Enhanced Contractual Clarity:
Implementation of more stringent contractual language in future STIP agreements to preclude ambiguity and ensure comprehensive compliance. -
Segregated Fund Accounts:
Establishment of segregated fund accounts to maintain an unassailable chain of custody for all disbursed funds. -
Adjudicatory Authority:
Formation of an adjudicatory body endowed with the authority to interpret rules and adjudicate instances of fund misuse, thereby ensuring consistency and fidelity to the DAO’s principles. -
Mandatory Sua Sponte Reporting:
Institution of mandatory sua sponte reporting for all material changes to incentive programs, ensuring preemptive oversight and accountability.
I am unfortunately in support of this proposal.
I have talked with the Furucombo team in the past, and I know they are great builders.
For me, sending ARB tokens to Kraken has an even higher negative impact, considering they sent back the other tokens (even if with extreme delay).
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Questionable Security Practices
Furucombo had inadequately configured permissions, which enabled the attacker to exploit user accounts directly. Users had given ERC20 token permissions to the Furucombo protocol, allowing it to perform transactions using those tokens without further approvals. When the attacker introduced the “evil contract” masquerading as a legitimate Aave v2 implementation, it exploited these permissions to steal tokens from user accounts.
Lack of Transparency
Despite claiming to be a decentralized platform, Furucombo is not fully open-source. While their proxy contract is verified, the rest of the codebase remains closed. This lack of transparency limits independent security audits and potentially hides other vulnerabilities. The closed-source nature of the platform raises concerns about undisclosed risks and the overall security of the protocol.
Questionable Tokenomics
The distribution of COMBO tokens has raised concerns, with a significant portion potentially controlled by insiders. This concentration of power could lead to governance issues and potential conflicts of interest, undermining the decentralized nature of the platform.
Unproven Loyalty Program
Furucombo introduced a points-based loyalty program in June 2022 to boost user engagement and token value. However, the structure of the program, with points expiring at the end of each round, could be seen as a way to manipulate user behavior and token demand artificially.
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I voted FOR to ban Furucombo from the Arbitrum DAO. I think it’s important to publicly signal to builders that agreements with the DAO are to be taken seriously. The Furucombo team had plenty of opportunities to comply with the Foundation and the STIP committees and actively chose not to do so.
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The situation involving Furucombo and the alleged misuse of funds from the Simple Token Incentive Program (STIP) and Backfund STIP grants has raised significant concerns within the ArbitrumDAO community. , the actions taken, and the potential legal implications:
- Misuse of Funds: Furucombo was identified as having misused approximately 59.5k ARB tokens. Despite being contacted privately, they failed to return the misused funds and did not publish a final STIP report. The funds were sent to Kraken accounts, creating ambiguity around their use.
- Lack of Transparency: Furucombo’s actions lacked transparency, and they froze incentives towards ‘wash traders,’ leaving users with fewer rewards than expected.
Consequences and Actions Taken
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Ultimatum: The Arbitrum Foundation has given Furucombo an ultimatum to return the funds within a week or face a vote from the ArbitrumDAO on their permanent ban from all future programs.
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Community Response: The Arbitrum community has largely supported the proposal to ban Furucombo from future incentive programs. There is also a strong sentiment that legal action should be taken to recover the misused funds and to set a precedent for future cases.
Potential Legal Actions -
Legal Recourse: The community has discussed the possibility of taking legal action against Furucombo. This could involve sending a judicial or legal letter to the recipients, as the Arbitrum Foundation knows their identities through KYC/KYB processes.
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Breach of Agreement: Misuse of funds is considered a breach of the grant agreement with the Arbitrum Foundation. Legal action could be pursued to enforce this agreement and recover the funds.
Lessons Learned and Path Forward
The ArbitrumDAO community has identified several key lessons from this incident:
- Clear Rules and Deadlines: STIP rules should be more clearly defined, with specific deadlines for claiming incentives and returning remaining funds.
- Transparency in Fund Distribution: Funds should be distributed from dedicated addresses to ensure easy tracking of on-chain transactions and avoid commingling of funds.
- Authority and Accountability: An incentive program should specify an authority responsible for interpreting rules and addressing misuse, with clear powers and accountability to the DAO.
- Real-time Tracking and Reporting: On-chain analytics companies can help track incentive distribution in real-time, enabling the DAO to identify potential issues early on.
- Approval for Material Changes: Projects should be required to report any changes to their incentive program and obtain approval from the appropriate authority.
Current Status
As of now, there is no confirmation of any ongoing legal proceedings against Furucombo. The Arbitrum Foundation and the community are focused on recovering the misused funds and implementing measures to prevent such incidents in the future.In conclusion, the Furucombo case serves as a critical reminder of the importance of trust, transparency, and accountability in the decentralized finance (DeFi) space. The ArbitrumDAO community is taking steps to ensure that such misuse of funds is not tolerated and that the integrity of the DAO is maintained.
I voted for on this proposal because there was enough time for the protocol to communicate with the Foundation and the DAO. They missed deadlines that they proposed themselves, without any detailed explanation at the time.
I acknowledge the last message sent by their team, but it is highly likely that the situation would extend further if this snapshot was not put in place.
The lack of transparency and communication with interested parties is not a standard that we want to create.