Arbitrum's Airdrop Leads to Whale Sell-Offs and Price FluctuationsThe Arbitrum Foundation, the centralized organization responsible for promoting Arbitrum – a faster and cheaper blockchain for transacting on Ethereum – has come under scrutiny because it sold ARB tokens for stablecoins before its governance community of tokenholders had ratified the organization’s near $1 billion budget. However, this was revealed by Patrick McCorry, an employee of the Foundation, in a blog post early Sunday.
McCorry explained that the Arbitrum Improvement Proposal (AIP-1), which was viewed as a “ratification” of decisions made by the Foundation, had already provided for 7.5% of all ARB tokens to be allocated to the organization’s use. The Foundation has already begun using these tokens for the benefit of its DAO, including converting some funds into stablecoins for operational purposes. This is the first official comment from the Foundation regarding this ongoing governance crisis.
The response to Arbitrum’s first attempt at community governance has raised new questions. Just one week ago, the platform airdropped ARB governance tokens to hundreds of thousands of wallets in order to give owners more control over critical decisions, starting with AIP-1 – an omnibus package that included governance, emergency powers, funding and grants.
However, Paul McCorry, the Arbitrum Foundation’s lead developer and one of its founders, defended the decision in a post on Sunday, stating that token holders were not given a say in the matter when AIP-1 was initially created. This response comes amid controversy surrounding the Foundation’s “special grants” program, which would grant it 750 million ARB tokens (roughly $1 billion) without token holders’ approval.
Last week’s Arbitrum airdrop of over 1 billion ARB tokens to nearly 300,000 wallets as part of its commitment to decentralizing power and creating an inclusive community led to the formation of the ArbitrumDAO, which holds votes on proposed changes like AIP-1. According to a recent post by Peter McCorry, however, the “ratification” vote for AIP-1 didn’t actually involve any voting on budget requests. Instead, the Arbitrum Foundation had already been spending the tokens that were supposed to be part of the vote. This has caused a stir among the Arbitrum community, and it remains to be seen what will happen if AIP-1 is rejected.
McCorry highlighted the problem of establishing decentralized governance structures, noting that certain parameters, such as structure of a security council, voting mechanics, and funding, must be established beforehand. He acknowledged AIP-1’s attempt to avoid “voter fatigue” by granting blank check powers to the Foundation, but emphasized this was necessary to maintain the competitive edge of the ecosystem, as evidenced by Polygon’s behind-closed-door deals with Starbucks. McCorry concluded that while it would be ideal if traditional companies agreed to do everything on-chain.
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