The price of Arbitum has fallen by 18% in three days following controversy over the handling of its first Arbitum Improvement Proposal (AIP-1). The project’s governance token, ARB, was supposed to be used to vote on updates to the network, but the proposal led to criticism from users who felt they had not been given enough information about the Foundation’s allocation of 750 million ARB tokens to itself. The Foundation has also moved 40 million ARB without community consent. Although community anger remains high, the token remains designed to have multifunctional use through on-chain governance.
The Arbitrum Controversy and the Sale of 10 Million ARB Tokens
The price of Arbitum is down 18% in three days, and big news broke over the weekend. The Arbitrum Foundation is calling it “a blunder of communication,” but is that what this really is? The sale of 10 million ARB tokens has caused backlash against the Arbitrum Foundation for moving 40 million ARB before voters were notified.
What is ARB?
ARB is a governance token and supposed to be used to vote on updates to the network. The Foundation’s allocation of 750 million ARB tokens to itself is under the most scrutiny. The total supply of ARB tokens is 10 billion, and the Foundation has already moved 40 million and sold 10 million without community consent.
Arbitrum just airdropped its ARB token to early users, and the whole community has been waiting on what was supposed to be one of the biggest and most profitable airdrops in recent history. Redemption went live on March 23, and they used the point system to decide who will get what. The average user got 1,859 ARB tokens with some users getting as many as 10,000. When ARB token started trading, the price jumped over $11 and dropped significantly within minutes to under $2.
The Handling of the Airdrop
Around 10,000 people were successfully scammed by fake Arbitrum accounts, and the price stabilized and even recovered in the following days. Stonecoldpat published a blog about AIP-1, and a bunch of people sold their tokens. The handling of the airdrop was not smooth, with lots of bugs, issues, crazy fees, and scammers making things frustrating and complicated.
The Arbitrum Foundation and its Holders
According to the Arbitrum Foundation, they want voters to agree or disagree with what the Foundation has already done. According to the holders, they weren’t told why they need so many tokens for operating costs and why it seems like this is being pushed through. The Arbitrum Foundation was established to make those preliminary decisions before infrastructure was established for holders to vote and made decisions.
The Future of Arbitrum
Moving forward, Wintermute confirmed on a Twitter post they received 40 million ARB tokens as a loan, and only the remaining 10 million was converted to fiat. The price of ARB token has fallen 18% in three days, which is almost expected after all this hype leading up to the airdrop. Arbitrum is designed to be multifunctional through DAO governance, but the real problem with AIP-1 was it was too big.
The Significance of ARB Tokens
ARB holders are given unique authority more than other L2s to appoint and remove foundation directors and amend the foundation’s governing documents. The real problem with AIP-1 was it tried to pass too many things with one vote. These things should be voted on individually. Regardless, ARB tokens are supposed to give users the ability to vote on how the protocol works.