The price of Arbitrum token (ARB) witnessed a dramatic fall after the Arbitrum Foundation, the body responsible for overseeing the decentralized governance system of the Arbitrum network, sold nearly 50 million ARB tokens without community approval.
Since the transaction, it has recevied a lot of flak from its governance community as the foundation began selling the ARB tokens even before the community had “ratified” the organization’s nearly $1 billion budget. The organization seems to have derailed from its decentralized governance plan; it started since the airdrop of its native tokens.
Thanks to all the DAO participants and delegates for their feedback on AIP-1. It likely will not pass and we are committed to addressing the feedback received from the community.
More details in the thread 🧵👇
— Arbitrum (💙,🧡) (@arbitrum) April 2, 2023
ARB Token Plunges
According to CoinMarketCap, ARB is down more than 5% in the last 24 hours to trade at $1.19. Over the past seven days, the token dropped 5.44%. This decline comes after a massive 86% price drop since its airdrop on March 23 reflecting the concerns of the community about the centralization of power and the need for greater decentralization in the network. However, on April 2, the Arbitrum Foundation released a statement clarifying its stance of selling the tokens.
The foundation said that Arbitrum Improvement Proposal (AIP-1) was a ratification, not a proposal. It added that some of the tokens were already sold for stablecoins. In other words, its budget and allocations would not be subject to an on-chain governance process. Out of the 50 million ARB tokens that were sold, the foundation stated around 40 million tokens have been allocated as a loan to a sophisticated actor in the financial markets space.
Meanwhile, 10 million tokens have been converted to fiat currency for operational costs. The move triggerred ARB prices to plunge substantially. The community argued that the proposal gave too much control to a centralized entity and would undermine the decentralization of the network.
Now is the time to gauge how stupid the arbitrum foundation’s admin team (if this is even the right word to use).
If they double down and continue selling after the community clearly voted against, all goodwill in the near term will be dead.
— Zaheer (@SplitCapital) April 2, 2023
Hiccups in Decentralization Process
Chris Blec, a decentralized finance (DeFi) 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.
Arbitrum foundation made a proposal (AIP-1) to allocate 750M ARB tokens for admin and op costs, but $ARB holders voted against it
Now they said the vote was just a formality, and they have already spent 50.5M (6.7%) of the proposed 750M $ARB
Your vote is not vote pic.twitter.com/lvhBbBesum
— Eden Au (@0xedenau) April 2, 2023
The episode started in March when Arbitrum circulated its token to its users and announced plans to switch to decentralized governance. Prior to the announcement, the Foundation made a number of decisions, including allocating to itself 7.5% of the total token supply.
The Arbitrum Foundation launched the AIP-1 to ratify these decisions. However, problems arose after it was revealed that the foundation did not wait for the result of the vote before selling the tokens. The vote will end on April 3rd, but 70% of the community has an overwhelming majority voted against,