Questions Raised Over Control and Security of 750M ARB Tokens in Arbitrum’s Proposed Budget Wallet

By Tsunami 04/2/23 9:21 AM

Blockworks Research is voting against AIP-1, the Arbitrum Improvement Proposal Framework, citing concerns over transparency and governance. The proposal outlines the transfer of 750 million ARB tokens, worth over $1 billion at current prices, to an Administrative Budget Wallet controlled by the Arbitrum Foundation.

The funds will be used to make special grants, reimburse service providers for setup costs, and cover ongoing administrative and operational expenses.

While the proposal states that the wallet will be subject to approval by the ArbitrumDAO, Blockworks Research argues that this still represents a significant centralization of control over a large amount of funds. In addition, the proposal does not provide enough clarity over how the funds will be distributed and what oversight will be in place.

1/ Our core concern lies within the 750M ARB tokens worth more than $1B at current prices that will be held seemingly under the control of the Arbitrum Foundation, run by 3 initial directors.

— Blockworks Research (@blockworksres) March 31, 2023

Blockworks Research also notes that the 750 million ARB tokens were originally meant to be part of the DAO treasury, which is subject to direct on-chain governance by the ArbitrumDAO. The transfer of the funds to a separate wallet controlled by the Arbitrum Foundation raises concerns over who will have access to the funds and how they will be used.

According to the documentation of the Arbitrum Foundation, the intended allocation of ARB tokens to the Arbitrum DAO treasury was 4.278 billion. Nonetheless, as stated in AIP-1, the DAO treasury has only received a transfer of 3,527,046,079 ARB tokens.

The researchers point out that the three initial directors of the Arbitrum Foundation, Campbell Law, Edward Noyons, and Ani Banerjee, are likely to have control over the funds. Without more transparency and oversight, the funds could potentially be used in ways that are not in the best interests of the community.

In addition, Blockworks Research raises concerns over the security risks of the wallet, which is currently controlled by a multi-sig. They argue that even with a multi-sig, there is still a significant risk of malicious actors gaining access to the funds.

The researchers also point out that the proposed transfer of 750 million ARB tokens is much larger than other comparable proposals. For example, Uniswap’s proposal to create the Uniswap Foundation was funded with a total of $74 million, more than 10 times less than the 750 million ARB requested in the AIP-1 proposal.

Blockworks Research believes that more clarity is needed over the necessary expenditures and a reassessment of the budget after a year. They have voiced their concerns in the forums and are calling on other token holders and delegates to echo their concerns.

The researchers state that they represent over 2,000 Arbitrum token holders and have a responsibility to ask these questions on behalf of their delegators. They are open to feedback from the Arbitrum community and are willing to change their stance if new information is surfaced.

Based on recent developments, the current proposal has received 69.23% of the vote, equivalent to 48 million ARB tokens, while 30.39% of the vote, equivalent to 21 million ARB tokens, is in favor of it. The remaining 0.38% of the vote, which is equivalent to 261,000 ARB tokens, has abstained. It is encouraging to see the community expressing their opinions on the matter. However, in order to secure the proposed 750 million ARB tokens, we require further clarity on the issue.