A controversial Arbitrum Improvement Proposal (AIP-1.05) that seeks to return 700 million ARB tokens to the DAO Treasury was met with overwhelming opposition on April 15. This proposal looked to overturn the unpopular decision of Arbitrum’s Foundation to transfer $1 billion worth of governance tokens to itself despite not receiving the DAO’s approval.

Arbitrum, the largest Layer 2 network by TVL, is now governed by a decentralized autonomous organization (DAO), which voted largely against AIP-1.05. According to certain reports, some governance token holders saw the proposal as too unrealistic and ‘myopic’.

Origin Of The AIP-1.05 Proposal

The origin of the AIP-1.05 proposal can be traced back to the first weekend of April when the Arbitrum Foundation backtracked on a critical proposal – Arbitrum Improvement Proposal-1 (AIP-1). The AIP-1 proposal included a plan to transfer 750 million ARB tokens to the Arbitrum Foundation, which would be invested in initiatives built using Arbitrum’s technology.

Although the governing DAO voted vehemently against the AIP-1 proposal, it seemed like it would pass anyway – without the token holders’ approval. However, after the decentralization of Arbitrum’s governance was questioned, the Foundation called AIP-1 a ‘ratification’, and a different set of proposals (including AIP-1.05) were created to address the initial proposal.

The abstract of the AIP-1.05 proposal claims that “what happened with AIP-1 was a clear overreach of the DAO’s power of the treasury resources”. It also states that the proposal “is a symbolic gesture to demonstrate that the governance holders ultimately control the DAO, not the Arbitrum service provider nor the Foundation”.

Reasons Behind The AIP-1.05 Failure

However, the Arbitrum Improvement Proposal-1.05 was not favored by an overwhelming majority of the ARB voters. According to the reports, the move didn’t receive support from most ARB token holders. 118 million ARB tokens kicked against the proposal, representing 84% of the total votes received.

Meanwhile, 20 million tokens voted in support of the proposal – approximately 14.57% of the total votes. Around 2 million ARB tokens chose to sit on the fence. As said earlier, many voters didn’t favor the AIP-1.05 proposal because they believed the foundation’s ability to distribute tokens, in the long run, was more important than a short-term price increase.

Another crucial reason the proposal is believed to have been opposed is that it didn’t acknowledge that the funding issue had already been addressed in AIP-1.1. The foundation had already planned to transfer the tokens to a smart contract with vesting, which the DAO can modify. It is believed that implementing AIP-1.05 only overcomplicates this situation. 

According to data from CoinGecko, the ARB token currently trades at $1.64, with an impressive 40.9% price rally in the past week.