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Arbitrum Foundation Backtracks on Governance Proposal Following Backlash

In this post:

  • The Arbitrum Foundation backtracked on its controversial governance proposal and ratification vote after facing community backlash from token holders.
  • The proposal would have given the foundation control over 750 million tokens worth around $1 billion.

The Arbitrum Foundation, the provider of Ethereum layer 2 solutions, has been forced to backtrack on its recent governance proposal, AIP-1, after facing backlash from the community of token holders. The initial proposal was considered too large and covered too many topics. The community expressed their concerns and criticism that the proposal would give the foundation a significant amount of control over 750 million Arbitrum (ARB) tokens, worth roughly $1 billion. 

The Arbitrum foundation has now stated that AIP-1 will be broken up into smaller segments, allowing the community to vote on different subsections. The community backlash has led to a decline in ARB token prices, which slumped by 18% over the weekend from an April 1 high of $1.40 to a low of $1.15 on April 3.

Background on the Governance Proposal

The initial proposal was put forward by the Arbitrum Foundation, a centralized company that provides Ethereum layer 2 solutions. It would have given the foundation control over 750 million ARB tokens, worth roughly $1 billion, via a ratification vote for decisions it had already undertaken. Critics of the proposal argued that it was merely “decentralization theatre,” designed to give the illusion of decentralization while centralizing power in the hands of a single entity. 

The foundation countered these criticisms by stating that the 750 million tokens received would be voted on in its own AIP and that it was working on ways to add more accountability, such as a vesting period of four years. It also noted that tokens held by the foundation could not be used to vote.

Community Backlash and Foundation Response

Following the proposal, the community of token holders expressed their concerns and criticisms of the proposal, leading to a backlash against the foundation. The community argued that the proposal gave too much control to a centralized entity and would undermine the decentralization of the network. Chris Blec, a decentralized finance and decentralization advocate, was among the critics, stating that the proposal was “decentralization theatre.” In response to the backlash, the foundation has backtracked on the proposal, acknowledging that it was too large and covered too many topics. 

Furthermore, The foundation has stated that it will follow the advice of the DAO and split the AIP into parts, allowing the community to discuss and vote on the different subsections. The foundation has also stated that it will rename the Special Grants program to the Ecosystem Development Fund and provide more context on how the funds will be used to benefit the Arbitrum ecosystem.

Impact on ARB Token Prices

The backlash and subsequent U-turn by the foundation have had a significant impact on ARB token prices. The token saw an 18% decline over the weekend, dropping from an April 1 high of $1.40 to a low of $1.15 on April 3. This decline comes after a massive 86% price drop since its airdrop on March 23. The decline in prices reflects the concerns of the community about the centralization of power and the need for greater decentralization in the network.

Conclusion

The recent backlash against the Arbitrum Foundation’s governance proposal highlights the importance of decentralization in the blockchain ecosystem. The foundation’s decision to backtrack on the proposal and split it into smaller segments demonstrates its commitment to addressing the concerns of the community. However, the decline in ARB token prices also reflects the need for greater accountability and transparency in the network.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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