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Arbitrum (ARB) Hangs on Post-Shapella Gains Even as Governance Issues Remain Unsettled

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Ethereum's long-awaited Shapella upgrade finally went live on the mainnet on Wednesday. The technical milestone inspired a modest rally in Ethereum's token price, which soared to an 11-month high of $1,930 at peak action on Friday. Bitcoin and the majority of the tokens – equally buoyed by a positive midweek macro picture – charted similar uptrend courses towards the end of the week.

The native tokens of layer two networks like Optimism (OP) and Arbitrum (ARB) also benefited from the significant midweek event on the Ethereum mainnet. The latter has stood out among the top gainers this week and was last spotted tracking 8.75% gains in the last 24 hours. In contrast to the picture in the market, the Arbitrum ecosystem has struggled to overcome setbacks on its path to attain a purely decentralized governance system.

The state of Arbitrum after the Foundation’s mishap regarding AIP-1

Last month, the Arbitrum Foundation communicated the launch of a decentralized autonomous organization (DAO) for the Arbitrum Nova and Arbitrum One networks. The blog post outlining the “next phase of decentralization” confirmed the previously reported plan of airdropping a governance ARB token to eligible users. This transition to community governance, however, faced an early stumbling block following controversy around the first proposal Arbitrum Improvement Proposal (AIP-1) floated by the Arbitrum Foundation.

The Foundation received backlash for advancing a discussion that would have given it control over 750 million ARB tokens. The justification for this decision to allocate itself roughly $1 billion worth of ARB tokens without DAO approval was to fund projects that promote the growth of the ecosystem. In an attempt to calm ARB holders' concern, the Foundation claimed that what had been thought to be a proposal was just but a ratification. This perceived lack of accountability in the Foundation's remarks triggered even more critical feedback on alleged ulterior motives.

Specifically, the drafting had a mistake where it failed to state that the proposal was meant to ratify the original setup of the DAO and the Foundation. In essence, the purpose of AIP-1 was to inform the community of the decisions that were made previously, but this needed to be articulated more effectively. Backed against the wall, the Foundation acknowledged its faults – poor communication and lack of clarity- which had led to the issue escalating in the first place.

New proposals in the picture

Fast forward to April 5, Arbitrum Foundation published two new AIPs to bolster the system’s overall governance. These incorporated changes announced earlier this month included AIP-1.1, which focuses on expenses, budgetary principles, and transparency. This subdivided proposal sought to introduce a smart contract-enforced lockup schedule that releases linearly over four years, further adjustable by the DAO. A complementing AIP-1.2, on the other hand would revise the current core DAO governing documents by lowering the proposal threshold from 5 million to 1 million ARB tokens. These developments helped holders simmer down.

The whales resumed enriching their coffers

ARB whales resumed adding tokens to their portfolios after holding while the drama around the chain unfolded. One Arbitrum whale (the largest holder of the platform's governance token) withdrew a total of 5.86 million ARB, valued at $7.15 million, from Gate.io. This left the entity holding an impressive sum of 17.62 million ARB, potentially worth around $21.5 million based on current market rates, after starting its stacking campaign with about 11.76 million ARB.

Lookonchain reported that Andrew Kang from Mechanism Capital bought 795,120 ARB with $1 million in USDC. PleasrDAO member added 1.51 million ARB tokens for an average of $1.23 in USDC. This brought his recent cumulative to 2.3 million ARB, on which he spent a total of 2.85 million USDC. A different investor secured 795,381 ARB for 1 million USDC, and a fourth stacked 532,102 ARB acquired at $661,000.

Arbitrum Improvement Proposal 1.05: A symbolic gesture

Last weekend, the Foundation advanced another proposal, Arbitrum Improvement Proposal 1.05, seeking the return ARB tokens allocated to it from the DAO Treasury. The April 8 proposal acknowledged that events around the first proposal were an “overreach of the DAO’s power of treasury resources.” The Foundation asked to return the lump sum of 700 million $ARB tokens to show that ” token holders hold ultimate power and authority” over resources under the DAO.”

AIP 1.05 additionally sought to bring to light the terms of a deal made with market maker Wintermute. However, the proposal drew minimal support, with the snapshot of the final results showing that 118 million ARB governance tokens had voted against, representing 84%. 21 million tokens, roughly 14.57%, voted in favor, while 1.41% chose to abstain. Community members opposing the latest proposal cited various reasons, including selfish interests and an extra bureaucracy burden.

ARB token price outlook

Most cryptocurrencies posted an impressive performance in the market this week, led by Ethereum, which climbed past $2,000 hours after completing the Shapella upgrade. The price of Arbitrum's governance token rebounded alongside the broader market, which fared well on the latest US consumer inflation data, and Federal Reserve minutes.

 

ARB/USD chart. Source: TradingView

Arbitrum (ARB) price action shows it is among the beneficiaries of Wednesday's event. Beyond market activity, Arbitrum still leads L2 networks on Ethereum in total transaction count.

Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.