Arbitrum Amends Foundation Proposal After Failed Vote

After the failure of its first governance proposal earlier this week, Arbitrum, the leading Ethereum Layer 2 network, has proposed new measures intended to limit the spending capabilities of its Foundation.

The new proposals spell out the Foundation’s $36M annual budget and include a token vesting schedule, operational expenses, and ecosystem funding initiatives. Arbitrum also proposes to lower the number of tokens required to publish a governance proposal from 5M to 1M ARB tokens.

“With the ArbitrumDAO reaching consensus against AIP-1, it’s now to incorporate community feedback, and move forward with new AIPs and documentation that address key areas of concern,” Arbitrum tweeted.

Arbitrum’s first foray into decentralized governance culminated in the project’s community pushing back against a plan to set up a Cayman Islands-based Foundation and gift the entity more than $1B worth of ARB tokens with minimal oversight.

The vote was slammed as a mere formality when a governance delegate flagged that 750M ARB tokens had already been allocated to the Foundation, suggesting that it would receive the proposed token treasury regardless of the vote’s outcome.

The backlash intensified after it came to light that Arbitrum transferred 50M ARB tokens to Binance on March 23, the very first day ARB started trading, presumably to offload the tokens. Arbitrum confirmed having sold 10M ARB for fiat to cover setup costs and operational expenses.

$36M Annual Budget

Arbitrum said it would not move any of the remaining 700M ARB held in its Administrative Budget Wallet until the DAO approves an operational budget and vesting schedule.

AIP-1.1 outlines plans for a four-year token vesting schedule with 175M ARB released annually, alongside restrictions on the Foundation’s spending. The Arbitrum DAO will retain the power to alter the vesting schedule through governance.

Arbitrum stressed that its Foundation does not receive transaction fees generated from network usage, which are instead controlled by the DAO treasury, meaning the Foundation needs to source its operational budget from elsewhere.

“The Administrative Budget Wallet will be used for covering ongoing administrative and operational costs of The Arbitrum Foundation, payment of service providers, and for the purpose of fostering the growth and development of the Arbitrum ecosystem,” the proposal reads.

Arbitrum predicts it will need $36M to cover expenses for the Foundation’s first year, including $16M for general and administrative costs, $9M for research and development, $5M for technical infrastructure, and $6M for events, marketing, and communications. Arbitrum expects to pay half of its expenses in USD, with the remainder in ARB tokens.

The Arbitrum DAO will retain control of 3.5B ARB tokens and can also choose to inflate ARB’s supply by 2% each year to supplement its on-chain treasury if needed in the future.

AIP-1.2 includes provisions to remove references to the failed AIP-1 proposal from Arbitrum’s documentation, better clarify the rights and roles of the Arbitrum Foundation and DAO in the project’s documentation, and reduce the tokens required to post new AIPs from 5M to 1M ARB.

Arbitrum published its first Transparency Report alongside the new proposals. The report said Abitrum used the funds from its 10M ARB sale to “meet the obligations of initial governance setup and initial and near-term operating funds.”

Mixed Reactions

Many in the Arbitrum community praised the team for the new proposals on the project’s governance forum. Litocoen of Hop Protocol commended Arbitrum for taking steps to “create more transparency and accountability over the Foundation’s operations.”

“[The] documents are a great step forward,” said DisruptionJoe. “I plan to vote in favor of the updates and amendments.”

But other community members are not convinced by the Foundation’s $36M operating budget, with Hiringdevs.eth requesting a more detailed breakdown of its payroll and expenses.

“The biggest line item is General and Admin [at $16M] with no breakdown of what these costs will entail and who the service providers are,” said Jason3s.

Meanwhile, some demanded that Arbitrum make plans to repurchase the ARB tokens it sold.