Arbitrum Foundation Sells 10 Million ARB Tokens to Fund Pre-Existing Contracts and Operational Costs

The Arbitrum Foundation recently sold 10 million ARB tokens to pay for near-term operational costs and fund pre-existing contracts.

The Foundation is a separate entity to Offchain Labs and it was established with no funds. The 10m ARB tokens were sold to fiat to fund pre-existing contracts and to pay for near-term operating costs. For example, the $3.5 million setup costs outlined in AIP-1.

— Arbitrum (💙,🧡) (@arbitrum) April 2, 2023

The Ethereum (ETH) layer2 solution foundation clarified in a Twitter thread on April 2 that the token sales were essential for the Foundation’s operations as it is a separate entity from Offchain Labs and was established without any funds. 

However, the Foundation added that it has no plans to sell more tokens in the foreseeable future, stating that its purpose is not to sell tokens.

Arbitrum Foundation Faces Controversy

Despite the Foundation’s explanation, it has faced criticism over its AIP-1 proposal. The proposal was meant for the Arbitrum DAO to ratify earlier decisions taken by the Foundation, which included the assignment of 750 million ARB tokens to itself.

6/ Regarding the on-chain transfers of 50M $ARB tokens, 40M $ARB tokens have been allocated as a loan to a sophisticated actor in the financial markets space. The remaining 10 million has been converted to fiat and dedicated towards operational costs.

— Arbitrum (💙,🧡) (@arbitrum) April 2, 2023

On-chain data revealed that the Foundation had moved 50 million of the assigned tokens without the community’s approval. The Foundation clarified that 40 million of these tokens were given as a “loan to a sophisticated actor in the financial markets space,” Crypto market maker Wintermute confirmed that it received the 40 million ARB token loan.

Confirmed. https://t.co/xxkrayNWHQ

— Wintermute (@wintermute_t) April 2, 2023

The Foundation stated that the remaining 10 million tokens had been converted to fiat and are dedicated to operational costs. However, the controversy has caused many to question the Foundation’s transparency and decision-making processes.

Proposed Solutions

1) AIP-1 is too large and covers too many topics. We will follow the DAO’s advice and split the AIP into parts. This will allow the community to discuss and vote on the different subsections.

— Arbitrum (💙,🧡) (@arbitrum) April 2, 2023

In response to the criticism, the Foundation has decided to act on the DAO feedback by splitting the AIP-1 into multiple proposals. The Foundation believes this action will enable the community to discuss and vote on each segment, adding more accountability to the proposal.

The Foundation also plans to rename the Special Grants program as the “Ecosystem Development Fund” and provide clarity on its usage. The DAO will propose the new AIPs this week to discuss before voting.

Conclusion

The Arbitrum Foundation’s recent token sale has caused controversy and concerns about transparency and decision-making processes. However, the Foundation’s proposed solutions, including splitting the AIP-1 proposal and renaming the Special Grants program, demonstrate a commitment to accountability and clarity. How the community will respond to these proposals remains to be seen as to whether the Foundation can regain trust and support.