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Heavy Backlash Forces Arbitrum to Rescind Controversial Governance Policies

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By Brennan Forrest - - 5 Mins Read

After facing a huge controversy and backlash from its community members, Arbitrum Foundation has finally made some changes to the token distribution. Before its community spoke up, the foundation had a large percentage of the tokens in its possession. Right now, most community members know the implication of allowing an internal organization to have a large control of the tokens. 

Positioned as an Ethereum layer 2 solutions provider, Arbitrum governance has been shaken up after community members condemned the distribution of its coins. The Arbitrum Foundation tweeted, saying they are currently reviewing the feedback it received from its community members. In the tweet, they said, "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."


Why was the AIP-1 Rejected? 

In their announcement, the Arbitrum team listed some of the reasons the AIP-1 was rejected by the community members. It ranged from the proposal being too complex to lacking transparency. One of their first reasons was that the AIP-1 is too ambiguous and should be split into other subsets. "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," the team said. 

Another primary reason they outlined was that the AIP-1 proposal lacked the transparency needed for the project. They noted that AIP-1 lacked transparency on how the funds would be spent. "AIP-1 does not discuss transparency over how the funds will be spent. As part of the budgeting AIP, we will propose transparency reports to make the community aware on how the funds are spent over time," the team said. 

Finally, the team said they would rename the AIP-1 to the Ecosystem Development Fund. It will be used to ensure the growth of the Arbitrum token and its ecosystem. "The Special Grants program is vague/lacks DAO involvement. We will rename it “Ecosystem Development Fund” and provide context on how the funds will be used to benefit the Arbitrum Ecosystem. Separately, the DAO can initiate new grant programs from its treasury at any time," the team noted. They also said they would be making subsequent announcements in the future. 

Criticisms from Crypto Analysts 

Chris Blec, a decentralized finance and decentralization advocate, criticized the Arbitrum ecosystem. According to him, there were several loopholes in the ecosystem that would allow the developers of the token to rug-pull the project. According to Chris Blec, the Arbitrum governance system isn't good enough to protect users' funds. In his analysis, Blec termed the Arbitrum token ecosystem a "decentralization theater." 

He said it was a caricature of decentralized finance where the project's developers could manipulate the code and make away with customers' funds. 

In his tweet, Chris Blec said, "Omggg

The Arbitrum team wrongly started utilizing the 750m $ARB before the vote was even done!

They just assumed the FORs would win.

But now the AGAINSTs are winning!

Team now claims the vote was a “ratification”, not a “request”.