Arbitrum proposal to return 700 million ARB fails by overwhelming majority

A controversial Arbitrum Improvement Proposal aiming to return 700 million ARB governance tokens, AIP 1.05, has failed by an overwhelming majority.

118 million ARB voted against the proposal, comprising 84.01% of the total vote. Conversely, 21 million ARB voted for the proposal, comprising 14.57% of the total vote. 2 million ARB abstained.

The Block previously reported that AIP 1.05 was slated to fail. Yesterday, 83% of the total vote was against its passing.

The price of Arbitrum's governance token has increased more than 8% over the past 24 hours. It is currently trading at around $1.66.

The price of Arbitrum's governance token has increased this week. Source: TradingView

What was Arbitrum Improvement Proposal 1.05?

Entitled "AIP 1.05: Return 700M $ARB to the DAO Treasury [REAL]," the Arbitrum governance proposal asserted that the unauthorized and premature allocation of 700 million ARB tokens, valued at over $1 billion, constituted a significant overstepping of authority — and not indicative of truly decentralized governance.

The situation began in early April when the Arbitrum Foundation reversed course on a pivotal governance proposal, AIP-1. This controversial proposal aimed to transfer 750 million ARB tokens to the Foundation, claiming that these tokens would finance investment projects leveraging Arbitrum's technology.

The action had already occurred despite not receiving approval from token holders — the decentralized autonomous organization that is, in theory, responsible for governing Arbitrum. Token holders had voted resoundingly against it.

AIP 1.05 maintained that it "serves as a symbolic action to show that the governance holders ultimately possess authority over the DAO, rather than the Arbitrum service provider or the Foundation."

Why did AIP 1.05 fail?

Notable token holders who voted against AIP-1.05 encompass "0x0eB5," olimpio.eth, 0xBbE9, galxe.arb, chainlinkgod.eth, and blockworksres.eth, all of whom cast their votes with millions of ARB tokens.

Reasons behind voting against the proposal could involve the perception that more-minor voters are primarily concerned with increasing the value of Arbitrum's governance token, while larger holders — mainly delegates — prioritize the platform's long-term viability and the Arbitrum Foundation's capacity to distribute tokens.

Furthermore, some individuals might have considered the suggested forced buyback a radical measure intended more as an attention-seeking tactic than a practical solution.

Additionally, certain parties argue that AIP-1.1 already tackles the issue of the contentious funds since the Arbitrum Foundation intends to transfer the tokens to a smart contract featuring vesting, which the DAO can adjust. As a result, AIP-1.05 might have potentially made the matter more complex.