Proposal: Return 700M $ARB to the DAO Treasury

[thiccythot]

Abstract

Return the 700M $ARB unjustly allocated to the Foundation from the DAO

What happened with AIP-1 was a clear overreach of the DAO’s power of treasury resources

This is a symbolic gesture to demonstrate that the governance holders ultimately control the DAO, not the Arbitrum service provider nor the Foundation

Only after this has occurred, can we move forward with Budget proposals.

Motivation

As stated in (Proposal: AIP-1.1 - Lockup, Budget, Transparency),

On March 16, 2023, the Arbitrum networks (Arbitrum One and Arbitrum Nova) were decentralized and given to the newly formed Arbitrum DAO. Included in this transition were:

* Control of the upgradeability and technical future of the chains
* Control over the DAO treasury
* Control over net fee revenue - i.e. the net difference between fees collected by on-chain operations and L1 fees paid by the Sequencer
* All Arbitrum social media platforms and accounts
* Ability to elect and, if deemed appropriate, remove the Security Council and Directors

Full responsibility of the chain’s technology, future, and fee revenue were given to the DAO directly. With the DAO assuming those rights and controls, the DAO also assumed the responsibility to fund the ongoing operations of the chains and the costs of running critical chain infrastructure, including RPCs, the Sequencer, and third-party vendors and service contracts.

The DAO has full control of the resources of the DAO treasury.

Though it is acknowledged that there is nuance in the chicken and egg problem, the DAO undeniably has the right to reverse any decisions made unilaterally by the foundation or the service provider.

When this public distribution was released, it marked the creation of the DAO.
(ARBITRUM: THE NEXT PHASE OF DECENTRALIZATION | by Arbitrum | Mar, 2023 | Medium)

In this post, it was clearly outlined that the DAO would receive 42.78% of the token supply.

The legal rationale behind the decision from the service provider to not initially allocate resources to the foundation is not clear, but what is done is done.

Once public communication is disseminated and people make investment decisions based on the terms of decentralization, that is binding and there is no going back.

The Foundation has unilaterally been allocated $750M tokens from the DAO that was not approved by the governance token holders.

Any funds must be returned until it has been properly allocated by the DAO and the DAO only.

Health of the Foundation

We understand that the Foundation needs resources for the ecosystem to succeed and compete versus its competitors.

We are in support of AIP1.1 and AIP 1.2 as proposed.

It is prudent that full faith and trust be restored in the governance process before we proceed with anything else.

Ask

• Return 700M $ARB from the Foundation to the DAO as a symbolic gesture that the governance token holders hold ultimate power and authority over the resources that were granted to the DAO

• Buyback $ARB via Wintermute with whatever fiat is left from the $10M OTC sale

• Disclose terms of the market making deal with Wintermute

Proposals

This proposal will remain up for 36 hours before the snapshot proposal will be brought up

[Sparky-Faker]

It may also be helpful to seek legal counsel to ensure that any actions taken are in compliance with applicable laws and regulations.

Overall, finding a solution that balances the interests of all parties involved will require careful consideration, collaboration, and a willingness to engage in constructive dialogue.

[Izkillaz]

Majority wins always in DAO! If Arbitrum doesn’t want to be a DAO, so be it and let all the community knew it. Whatever this brings should be just and fair to all concerned.

[Augustus]

While I understand what is trying to be accomplished here, I disagree. The Arbitrum Foundation needs funding and the Arbitrum DAO has to pay for that.

[thiccythot]

We understand that the Foundation needs resources for the ecosystem to succeed and compete versus its competitors.

We are in support of AIP1.1 and AIP 1.2 as proposed.

However, It is prudent that full faith and trust be restored in the governance process before we proceed with anything else

this is of the utmost importance

[Augustus]

No doubt.

I think it would a great gesture if they sent the coins back to the DAO and, after a snapshot, we sent the coins back to them. I could fully get behind something like that. It just doesn’t like they’d do it.

[Oxytocin]

I’m Abstaining from the current snapshot vote , as this current thread has been live for less than a couple days before it went for the temp check and as of right now I do not see enough discussion happening around it.

I understand that there’s a time sensitive nature to this vote, as it seeks to be introduced before 1.1, but I would strongly appreciate to have a comment from the foundation about re-organising the votes into a more readable format to avoid these kinds of proposals being ignored due to the sheer amount of noise going around. Right now, there are 20 different posts in the ‘Proposals’ section, with some of them not even being proposals.

Of course, this is not the redactor’s fault, but I would really appreciate it if the foundation/discourse admins could assist delegates by making the forums a lot easier to navigate, or at least reduce the signal-to-noise ratio. The issue becomes even worse when we start looking outside the forums, as so far I’ve only seen votes backed by the Arbitrum foundation receiving a signal boost in other social media.

Sorry for the slightly off-topic reply @thiccythot , I just wished to communicate to my delegates the reason for the abstention! I will probably have to add to the problem make my own thread soon to propose some clearer solutions.

[AlexNikulin]

It is a pity that many people have a distrust of the team, but I am sure that this can be corrected. You need to show intent for the good of the community.

[enzo7]

I am against this proposal, it seems like overkill just to make a point.

Everyone agreed that the first proposal was bad and unfair to the DAO members, and Arbitrum Foundation have put forward 2 new proposals seeking to remedy it.

This proposal seems to want to get the Foundation to kneel on the floor, as if to make a sorry statement.

Such a proposal does not help the DAO in any way. The DAO requires Arbitrum Foundation’s continued support, technical and professional experience to grow the DAO, build partnerships, gain adoption of Arbitrum as a whole.

There are many negative consequences from this proposal - the Arbitrum Foundation may harbor a negative / ill-will towards the DAO and decide to slow rug ARB token, allocate future resources away from the Arbitrum DAO, launch new projects outside the Arbitrum DAO. The proposal doesnt seem to discuss or deal with any of these. For example, Offchain Labs owns ETH client Prysm, which is not part of Arbitrum DAO. Other future projects can similarly be structured by Arbitrum founders outside Arbitrum DAO, leaving scraps to the DAO.

While Arbitrum DAO controls the token allocation, Arbitrum Foundation and the team/founders control the brain capital allocation. They literally built the whole thing from scratch.

Even if Arbitrum founders dont immediately have a bad feeling towards Arbitrum DAO, there is a high possibility that they harbor the feeling of “being owned” by the DAO, which will be detrimental towards all of us. After all, egos are a thing, everyone has egos. Especially in crypto. There are hundreds of coins that have died due to lack of development. For example, founders of some popular L2s like Loopring have decided to launch new projects leaving old ones to perish due to lack of resources

Human capital and brain capital is the most important asset in crypto, not DAO tokens created out of thin air.

More than the “chicken and egg” problem thats being billed here, I think its a “who owns the barn” problem, and at this point is very clear (painfully!!) that Arbitrum Foundation and its team of founders and developers are the actual people behind Arbitrum, not the DAO even though the DAO owns most of the tokens (an anomaly!!). If it wasnt for the efforts of the founders and team of Arbitrum, there would be no Arbitrum. As things stand right now, even though Arbitrum Foundation is not allocated any tokens at the start, the success of ARB token depends 100% on the actions of the founders and Arbitrum Foundation.

Better than this proposal would be to just modify the initial allocation and clearly allocate 750 million ARB tokens to the Arbitrum Foundation, and make the vesting schedule clear. That would help the DAO better atm.

Instead of doing the simple thing, this proposal suggests a more complicated and risky path. All delegates mush consider the negatives of voting for this proposal instead of just fixing what the main issue was.

[thiccythot]

Everyone cares about the longterm health and growth of the ecosystem.

The only way to do that is to make sure the Foundation is properly funded with adequate resources to build, hire, market, and incentivize the ecosystem.

Since all of their resources are in native token, making sure the foundation has adequate resources to succeed relies on the sustained price of the token in the open markets.

This is why restoring the value of the governance token by returning the 700M ARB that should undeniably in the DAO treasury right now as well as rectifying clear violations in ethics around open market operations is necessary in the long term health of the ecosystem.

The value of the token doesn’t depend 100% on the action of the founders and the Foundation.

The value of the token is a large part influenced by what the utility of the token can do in influencing decisions of the project.

I can understand that in the short term, this will add weeks of delay to giving the Foundation the funding that it needs

However, I believe this is a necessary course of action for all future token buyers

For those of you with voting power that did not buy a majority of your voting power on the open markets, I would urge you ask your constituency of delegates what their opinions are.

As an open market buyer myself, I personally would not comfortable buying any more tokens long term, and I know many other investors who feel the same.

Please consider the long term health and trust in the token into your decisions

[thiccythot]

The team moving funds into the foundation and selling tokens subverted the autonomy of the DAO because they assumed AIP-1 will pass before even holding a vote, clearly cucking governance holders

The team not moving the funds back into the DAO wallet is yet again subverting the autonomy of the DAO because they assume AIP 1.1 and 1.2 will pass before even holding a vote, yet again cucking governance holders

Are they going to keep the funds hostage if AIP 1.1 and 1.2 don’t pass and keep trying until they get what they want?

The continued faith in governance is crucial to the long term price of the token which has the end goal of sustaining the long term health of the ecosystem

I urge you to consider the importance of moving these funds back to the DAO wallet

Please do not underestimate the value of trust and responsibility for all current and future token buyers

[lay2000lbs]

tl;dr this proposal is both invalid and bad governance.

This proposal does not have valid governance parameters and therefore cannot be executed. It also fails to follow the basic standards of governance outlined (i.e has not been posted for 3 days before voting starts among other failures).

ARB token has no control over private parties – it controls software. A token vote cannot compel a private party to disclose terms of a deal. Sure, anyone can create a vote that says anything, I can submit a vote that says “Make Vitalik buy ARB tokens” but the vote is meaningless.

The parameters the ARB token does control are listed in the constitution.

Conceivable, if this proposal was reformatted to follow proper governance procedures, it could fall into the “informational” category. But as it stands, this proposal is default invalid because it doesn’t even follow the basic formatting and process standards. It should be removed from snapshot like any other invalid proposal.

[gauntlet]

Gauntlet will vote against AIP 1.05.

Gauntlet abstained from AIP-1 and agreed with other delegates who either abstained or voted against that more information/clarity was needed. We appreciated the quick response to the community’s concerns and the time and effort that went into producing AIP-1.1 and AIP-1.2. Gauntlet believes these AIPs represent an optimal path forward for everyone involved in the Arbitrum ecosystem.

As other delegates have pointed out, AIP 1.05 does not follow the basic standards of outlined governance. Additionally, AIP 1.05 will result in delays formalizing governance, establishing the full scope of the Arbitrum Foundation, and ultimately hurt the progress Arbitrum has made as a whole. Furthermore, we disagree with the demand for disclosure with regard to the terms of the Wintermute deal. We see no standard precedent for this and believe it will hurt Arbitrum’s ability to attract other vendors in the future.

[thiccythot]

I’m confused, why wouldn’t this fall under a non-constitutional AIP?

It falls under funding, because it is proposing how to spend or allocate funds from the DAO treasury held by the Arbitrum Foundation.

Also does anyone else see the irony in rejecting this proposal solely on the grounds of a technicality on standards of governance after what happened with AIP-1?

These funds should have been returned to the DAO immediately after AIP-1 failed.

Comparing “make vitalik buy arb tokens” to “disclose the terms of the wintermute deal” is a straw man, the foundation has a clear ability to disclose the deal.

In response to Gauntlet’s comment, there is a clear precedent of other projects disclosing the terms of their market making deals in the public.

This has been done before:

Introducing the DAO Deal Tracker™

[ChainLinkGod]

ChainLinkGod will vote against AIP-1.05.

This proposal looks to be a pure optics play and does more harm than good, introducing risk for both the DAO and the Foundation. I acknowledge that the initial communications around AIP-1 and the Administrative Budget Wallet were poor, leading to much confusion in the community (including myself). However, I believe this has been largely rectified through the publishing of the Transparency Report and the AIP-1.1 / AIP-1.2 proposals.

I have some specific points on each of the asks here.

@thiccythot

Return 700M $ARB from the Foundation to the DAO as a symbolic gesture that the governance token holders hold ultimate power and authority over the resources that were granted to the DAO

This seems to only serve as a power play, adding an additional unnecessary step before ultimately just transferring funds back and into a vesting smart contract, delaying the ability of the Foundation to support the growth of the Arbitrum ecosystem. The level of control the DAO has over the Foundation is already unprecedented, with the ability to change the Foundation directors, the mandates of the Foundation, and with AIP-1.1, the rate at which the Foundation can receive vested funds.

@thiccythot

Buyback $ARB via Wintermute with whatever fiat is left from the $10M OTC sale

I am not a lawyer, and therefore do not know the full extent of the legal consequences or challenges this would introduce, but this seems like a highly risky move to make given the current regulatory environment, especially without input from a formal legal counsel first.

Speaking practically, this would also be an expensive and impractical move generally. The Foundation would have to incur three consequence instances of slippage/price impact, considering the ARB will simply need to be sold again later to cover Foundation costs: (1) initial sale, (2) buyback, and (3) follow up sale. Any volatility these purchases and sales could create (from both the actual sales and market reaction) would also be of little to no benefit to anymore.

It’s also likely that a portion of the fiat obtained from the ARB sale have already been spent or generally the amount of fiat held by the Foundation may not be enough to repurchase the full 10M ARB back, meaning the resulting optics play would still be fairly weak (can’t say the full amount was repurchased). Engaging with a market maker for these additional purchases/sales may also introduce additional costs that otherwise would not have occurred.

@thiccythot

Disclose terms of the market making deal with Wintermute

Expanding on what @gauntlet has stated, it’s not clear how a DAO vote would be able to enforce disclosure of an agreement that’s already been mutually agreed upon and signed and may have confidentiality clauses in it. Even if Wintermute were to agree, it may result in a poor relationship experience, and can create a poor precedent for when the Foundation engages with future vendors.

In general, I see this proposal bringing little to no benefit in the best case, and introducing unnecessary risk and costs to the DAO and the Foundation in the worst case. I believe the best action to take is to move forward, align on how the funds should and can be used going forward (AIP-1.1), rather than engaging in a power play move over past actions.

[ChainLinkGod]

There also appears to be an additional ask in the snapshot proposal that is not listed in this forum proposal? Based on my rational above, I am also against pausing AIP-1.1 and AIP-1.2. I’m also not entirely sure what this ask means exactly or how it would be enforced. The AIP-1.05 vote won’t finalize before AIP-1.1 and AIP-1.2 are put up for snapshot. The forum posts for AIP-1.1 and AIP-1.2 went up before this AIP-1.05 forum post and the timeline for the AIP-1.1/AIP-1.2 vote were known at the time of publishing AIP-1.05.

[web3magnetic]

Agree with the concerns raised that including third party vendors like market makers within the scope of the proposal is detrimental and possibly not enforceable.

The market making contract may even include non-disclosure terms agreed by the market maker with the Foundation, which the DAO cannot seek to overturn and could lead to a breach of contract and damage claims by the market maker.

In such a situation, the proposal will be moot.

[thiccythot]

Though I am in support of AIP1.1, what if it fails? Does the foundation plan on holding the tokens hostage until they launch an AIP that passes? The tokens should rightfully be placed in the DAO until AFTER there is an acceptable allocation that the DAO has agreed upon, NOT before.

The tokens belong to the DAO and are allocated to the Foundation. Taking the tokens, passing off a meaningless vote, and keeping them anyways until something passes, sends a horrible message to any future buyer looking to participate in governance and spend their resources funding the ecosystem.

Moving tokens from their rightful place in presupposition of an AIP passing is exactly what got us in this mess in the first place, I hope we can learn from the mistakes that were made with AIP-1

This may just look like silly optics to you, but from a perspective of an outsider all of these actions and lack of proper procedures taken by the DAO has been incredibly concerning to the integrity of the governance process.

Selling tokens on the open market on launch day without any disclosures to retail buyers. People who spend their fiat on tokens is a major source of funding for the ecosystem. I hope you can consider ethical standards and the violations thereof around disclosing an accurate prospectus. It is on the Foundation to rectify those issues to regain the trust in the community, as it was clearly a mistake to go about those open market operations.

I would rather let the Foundation itself tell us about the terms of the market maker deal and any non-disclosure agreements signed with Wintermute than speculate on “what-ifs” and “legal ramifications” of such.

As I said earlier, there are PLENTY of protocols that have made their market making deals transparent to their DAO. The database of all of them is included in the link

There are 40MM free tokens allocated to an actor with under incredibly opaque terms and free reign to sell on the open market that was delegated by a Foundation that does not even exist yet.

I hope you can consider how worrisome this is to any outsider looking in especially given the poor reputation of massive market making deals and their incentives to dump more tokens then necessary.

tldr

Though I feel strongly about all elements of the proposal, moving the tokens back into the DAO is just undeniably the right thing to do and is the portion of the proposal that I feel most strongly about.

@chainlinkgod and @gauntlet, would you be open to passing a proposal that only included the moving of the tokens back? I respect your opinions both deeply as delegates and want to have you in support of whatever is passed, while keeping the perspectives of future token buyers in mind.

[ChainLinkGod]

My aim as a delegate is to support the long term growth and success of the Arbitrum ecosystem, which involves gauging if the expected benefits of an AIP proposal are worth the potential risks. My perspective on any particular AIP is not driven on whether the AIP will make the ARB token seem more attractive to a potential token buyer (though the comms mistakes of before should be definitely avoided going forward). The growth of the ecosystem is ultimately the value creation driver over the long term.

I appreciate your view on the integrity of the governance process, but I believe these concerns have been adequately addressed via Transparency Report, AIP-1.1, and AIP-1.2. There are no more meaningless retroactive votes to be made with 1.1/1.2, only future actions to take. I simply do not see AIP-1.05 supporting any long-term growth initiative of the Arbitrum ecosystem and serves only to signal a power move that incurs potential legal risk and introduces unneeded costs and time delays.

Given the 700M ARB will not be touched until there’s an agreement via a vote on how to handle the funds (e.g. AIP-1.1 or otherwise), there is no practical difference at this stage at where funds reside (beyond short term optics). It’s also important to note that the Foundation does indeed exist, per the Transparency Report, it’s the reason the DAO exists now.

On your point about market maker deals, the public deals you mention were agreed to be made public before the deal was signed, “Each deal in our dataset was discussed on governance forums and reviewed by off-chain Snapshot voting or an on-chain vote.” In this instance, the deal was already signed by the Foundation before there was any agreement to make the specifics of the deal public.

At this stage, I would still vote no even if the proposal was solely scoped to just the transfer of 700M ARB to DAO just to be sent back out.

[hiringdevs.eth]

I appreciate the author bringing up this line of discussion, as it helps ensure the full faith of the governance process. That being said, I am ultimately against this proposal.

The implications of this proposal are fairly minimal, except for posturing.

If we accept that…
An Arbitrum Foundation is needed
The foundation will need an operating budget

Then this proposal will result in 1-2 month delay in getting the Foundation running and result in a market event where a whale (the foundation) will need buyback and then sell again a large block $ARB.

This result has the potential to lose money for the DAO (frontrunning the ARB<>USD trade) and will definitely waste time.

Currently, we are seeing an explosion of activity among L2s. ZKsync launched Era and is rumored to be launching their token in the next year, Optimism just partnered with Coinbase, Polygon has a long list of major partners, and Scroll and other zk roll-ups are around the corner. We need to prioritize initiatives for the Arbitrum ecosystem that will drive value and growth.