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  • The layer-2’s first DAO vote failed due to a controversial grants allocation to the foundation.
  • 80% of the DAO members voted against the governance proposal.

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Arbitrum’s step to relinquish governance to its community alongside last week’s token airdrop has sparked controversy among the DAO community members over the foundation’s control of grant allocations.

On March 23, Arbitrum Foundation, the entity overseeing the Ethereum Layer 2 scaling network, launched the ARB token airdrop and announced that it was placing the governance of the digital asset to its community.

Part of the step was the allocation of 750 million ARB tokens worth an estimated $1 billion to Arbitrum Foundation as a grant. The process was partially subjected to an on-chain governance proposal, which has attracted a backlash from the community. As a result, about 80% of the DAO members voted against the proposal, which the Foundation claims were due to a misunderstanding.

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‘‘We believe that a lot of negative sentiment around AIP-1 was driven by confusion around the notion of AIP-1 being ratification and not a request. Those who did realize that this was ratification may have been surprised to see that the foundation’s tokens have already been separated and begun to be utilized,’’ the announcement read.

A chicken and egg problem, says Arbitrum Foundation

Addressing the transparency concerns regarding allocating the tokens to the foundation, Arbitrum termed the situation a chicken-and-egg problem. ‘‘And with regard to setting up the Foundation, there were similarly lots of decisions that needed to be made ahead of time to get it off the ground.’’

The controversy has caused the price of Arbitrum’s native ARB token to dip 18% since the airdrop, currently trading at $1.16, according to CoinMarketCap. ARB ranks 41st largest cryptocurrency with a market valuation of $1.48 billion.

Arbitrum currently ranks the top L2 scaling solution on Ethereum, with a total value locked (TVL) of $2.17 billion, according to aggregator DeFillama. The network surpassed the daily transactions on Ethereum two consecutive times in February.

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CryptoWhat
CryptoWhat was created in 2015 and has become one of the most trusted and well-respected sources of information on all things crypto. The blog's authors are dedicated to providing clear, concise, and jargon-free explanations of this complex technology, so that everyone can understand it.