Opinion: Arbitrum misunderstands the definition of ‘proposal’ and ‘DAO’

Arbitrum, the Ethereum layer two created by Offchain Labs, recently released its ARB token and announced its intention to begin empowering a Decentralized Autonomous Organization (DAO) with authority over the direction of the protocol.

As part of this transition, it submitted its first Arbitrum Improvement Proposal (AIP), which claimed that “ARB token holders have the ability to directly propose, vote on and effectuate on-chain AIPs.” However, this initial proposal, despite being written in the future tense was not really a proposal, as the company had already begun acting on it.

Proposal: “An act of putting forward or stating something for consideration.”

Merriam Webster

Among the goals stated in this initial ‘proposal’ was to solidify the powers of token holders and the Cayman Islands-based Arbitrum Foundation, as well as establish multi-sig wallet keyholders. The proposal also described allocating roughly 3.5 billion ARB tokens to the DAO treasury as well as 750 million ARB tokens to the foundation’s ‘administrative budget.’

The community voted against this ‘proposal’ roughly two to one, but unfortunately for these token holders, their votes were meaningless as the funds had already started being transferred. Of course, these poor voters should have known this because buried deep in its 1,700 words, the proposal did clarify that the ‘steps to implement’ it were mostly ‘ratification.’

The proposal itself also fails to explain what it means for it to be ratified by the DAO, or more importantly what it would mean for the DAO to choose not to ratify.

Perhaps even more confusing for the voters in the ‘DAO’ is the fact that the original governance documents had a certain portion of the tokens going to the ‘DAO Treasury’ but apparently those weren’t accurate either. A good portion of those funds actually went to the foundation which the DAO controls (at least as well it controls the movement of funds in proposals).

The governance of so-called DAOs is often performative, but having something you describe as a ‘proposal’ where the votes don’t matter and the funds move no matter what is a hilarious example of the form.

6/ Regarding the on-chain transfers of 50M $ARB tokens, 40M $ARB tokens have been allocated as a loan to a sophisticated actor in the financial markets space. The remaining 10 million has been converted to fiat and dedicated towards operational costs.

— Arbitrum (?,?) (@arbitrum) April 2, 2023

Read more: Arbitrum and Optimism: Two protocols control 80% of all Ethereum Layer 2 TVL

So far 10 million tokens seem to have been sold into stablecoins, and an additional 40 million have been loaned to Wintermute, a ‘sophisticated actor in the financial markets space.’

Wintermute is the money-losing market maker who lost millions on FTX, $160 million in a vanity address exploit, and millions in a Gnosis Safe replay attack in 2022.

Let’s summarize: ArbitrumDAO is a ‘decentralized autonomous organization’ where the votes of token holders don’t matter, where funds move even when they vote against it, and the foundation under its control has the authority to issue grants even without any on-chain votes or governance.

I love that the Arbitrum Foundation is so dedicated to “decentralization, security, and growth,” even when it requires unratified transfers of nearly a billion dollars.

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