The Future of ARB Tokens: Proposed Solutions to Cryptocurrency Governance

According to reports, the Arbitrum Foundation proposed on Wednesday to expand the budget supervision and governance powers of ARB token holders through two new proposals to address the collapse of cryptocurrency governance over the weekend. The first proposal, AIP-1.1, proposes to place the remaining 700 million ARBs of the foundation in a “smart contract controlled lock” that will be unlocked within four years. According to the proposal, the foundation will not be able to use tokens until community members approve the token allocation budget.

The Arbitrum Foundation Releases Two New Proposals to Expand Budget Supervision and Governance Rights for ARB Token Holders

The Arbitrum Foundation recently made news by proposing two new policies aimed at strengthening budget supervision and governance for ARB token holders after a collapse in cryptocurrency governance over the weekend. The first of these policies, AIP-1.1, suggests locking 700 million ARBs that currently belong to the foundation in a “smart contract controlled lock.” The proposed protocol ensures that these tokens are only available to the foundation after getting community member approval for token allocation budget within the four-year period.
But why did ARB token holders require more budget supervision and governance in the first place? What led to the collapse in cryptocurrency governance, and how could these proposals help?

Background

In recent times, exchanges have faced difficulties with centralized exchanges’ limitations, leading investors and traders to invest in decentralized exchanges (DEXs). They have become a popular investment choice due to their enhanced security and improved user experience. The most significant advantage of DEXs is that they offer non-custodial trade, meaning the investors have control over their funds as the exchange never owns them. The investors only use a trading protocol that allows them to directly influence the blockchain node’s decision.
This enhanced security feature has contributed to the recent rise in popularity of Automated Market Makers (AMMs) like Sushiswap and Uniswap. These AMMs use computer algorithms to facilitate peer-to-peer trading while leaving a portion of investor funds continuously available for use. However, a flaw in the recent governance system led to the rising concerns over tokenomics in DEXs, resulting in the collapse of one such governance protocol– the sushi pool.

Collapse of Cryptocurrency Governance

Following the collapse of the Sushi pool, the Arbitrum Foundation proposed solutions to alleviate concerns and improve ARB token holder’s crypto-governance. Before discussing the proposed policies, it is essential to understand what led to the collapse of sushi pool governance.
The crash of the sushi pool governance system exposed a flaw in the initial design that led to a concentration of voting power among large token holders. In this governance design, the larger the holdings, the more voting power the token holder had, which led to vote concentration among whales (individuals holding large amounts of a particular cryptocurrency). Sushiswap founder anonymously announced the fraudulent use of moveable Insulated Bonds (mIB) funds, leading to a dramatic drop in the value of its tokens, further causing a collapse of its governance protocol.
The sushi pool incident highlights the inadequacy of current governance mechanisms within emerging cryptocurrency markets, where few individuals hold significant power, making economic incentives and interests misaligned. The risk of whale manipulations has spurred the proposal for stricter governance measures that empower smaller investors’ voices to safeguard the market.

The Proposed Solutions

In the wake of these incidents, the Arbitrum Foundation proposed two solutions AIP-1.1 and AIP-1.2, aimed at improving governance and supervision of the ARB tokens.

AIP-1.1

The first solution proposes locking the remaining 700 million ARBs, currently belonging to the foundation, within a “smart contract controlled lock.” According to the proposal, these tokens can only be unlocked after four years once the community approves the token allocation budget. This policy will ensure that the foundation adheres to a greater level of accountability as token allocation plans require the initial approval from members of the community. This smart contract lock will add extra layers of safety to the community.

AIP-1.2

The second solution proposes the creation of a governance committee that will oversee future proposals and ensure that they align with the community’s interests. This governance committee will consist of community members holding ARB tokens and will be responsible for reviewing proposals and approving the final decisions.

Conclusion

The collapse of cryptocurrency governance has highlighted the need for stricter governance measures to empower and safeguard the market’s smaller investors. The proposed solutions by the Arbitrum Foundation are important steps towards ensuring that ARB token holders have the necessary governance powers and budget supervision. These protocols will enable community members to be in charge of critical governance decisions, ensuring transparency, accountability, and building trust among token holders.

FAQs

1. What is the Arbitrum Foundation?
The Arbitrum Foundation is a blockchain-based foundation aimed at enhancing the security and experience of users in non-custodial Ethereum smart contracts.
2. What is the purpose of the ARB token?
The ARB token is used as a utility token to pay for transaction costs incurred on the Arbitrum blockchain.
3. What are Automated Market Makers?
Automated market makers are decentralized exchanges that use computer algorithms to match the protocol’s user orders without involving any intermediaries.