Arbitrum proposal to return 700m ARB to DAO Treasury likely to fall flat

The AIP-1.05, which seeks to avert what it described as a “clear overreach of the DAO’s power of treasury resources,” is being voted against by an overwhelming majority.

A crowd of people rising hands and protesting with banners, art generated by Midjourney.

Despite the backlash that followed Arbitrum DAO’s failed keystone vote, the proposal to return misallocated funds to the DAO Treasury is slated to fail as large token holders are casting their votes against AIP-1.05.

Last week, Arbitrum Foundation got in hot water after it submitted a proposal to allocate $1 billion worth of ARB tokens to the special grants program that would support projects built on the Arbitrum blockchain. Before the vote was over, the foundation already spent 50 million out of 750 million ARB, which sparked outrage from the DAO members as 83% voted against the move.

Although the Arbitrum team initially framed the proposal as mere ratification that doesn’t require community approval, the growing backlash prompted the foundation to rescind the vote. To address the mounting criticism, Arbitrum announced that it would hold redos on each section of the controversial AIP and expand DAO members’ budget oversight and voting powers. It also promised that the remaining 700 million ARB won’t be moved until the community approves “an acceptable budget.”

Still, the efforts undertaken by the Arbitrum Foundation clearly didn’t resonate with some DAO voters. On April 7, trading consortium Clurb Capital (clurbcapital.eth) initiated a proposal titled “AIP 1.05: Return 700M $ARB to the DAO Treasury [REAL],” asking the foundation to return funds, disclose market making deal with trading firm Wintermute, and pause AIP-1.1 and AIP-1.2.

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AIP-1.1 proposes a lockup, a budget, and transparency reporting regarding the 7.5% of the ARB tokens distributed to the foundation’s “Administrative Budget Wallet,” while AIP-1.2 covers amendments to the Arbitrum DAO Constitution and Bylaws to remove references to failed AIP-1 and reflect other changes requested by the community.

“This is a symbolic gesture to demonstrate that the governance holders ultimately control the DAO, not the Arbitrum service provider nor the Foundation,” wrote the author of the proposal, suggesting that the foundation can move forward with its budget plans only after funds are returned.

Although at first it seemed that the proposal had a chance to pass, the support quickly vanished after large ARB holders — including olimpio.eth, 0xBbE9, galxe.arb, chainlinkgod.eth and blockworksres.eth — deployed their tokens to vote against the move.

“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 commented on the Arbitrum governance forum.

“Delaying the foundation’s funding would put the L2 at a disadvantage for a minimum of 30-60 days while the governance process is carried out. During this time, operations for the DAO and Foundation would be at a stand-still,” Blockworks Research stated.

“Most of the large voters voting “against” have almost all tokens delegated to them, rather than purchasing their tokens with fiat on the open market,” Clurb Capital’s Alex, aka thiccythot, commented on the voter activity for the AIP-1.05. “They are all smart, rational, and good intentioned. However, they would rather not trade off fixing governance the ‘right’ (and slow) way if it hinders competition for BD deals with other foundations and growing the ecosystem.”

So far, 113 million ARB tokens, representing more than 83% of the total votes, were cast against the proposal. 20 million ARB (15.5) voted in favor, while 2.2 million ARB (1.62%) abstained.

The price of the ARB token is up 14.35% over the last 24 hours, trading at $1.53 at the time of writing. Voting on AIP-1.05 ends on April 14.