Arbitrum Voters Polarized Over 'Research' Pitch With $2M Price Tag

In March, Arbitrum, the biggest layer-2 blockchain network atop Ethereum with about $2 billion of deposits, pushed to decentralize its governance – distributing tokens to holders who would get a say in deciding the project's strategy and tactics with votes, via a "decentralized autonomous organization" known as Arbitrum DAO.

But a new proposal to professionalize the project's research efforts – by allocating more than $2 million worth of digital tokens to an "Arbitrum Coalition" proposed by the research arm of Blockworks, a crypto media firm – is polarizing the community and generating complaints over the cost and potential conflicts of interest.

Currently, the project's research is contributed and aggregated in a community forum, mostly by volunteers.

But the coalition proposal has been met with discord in these forums, with the debate hitting on a key tension at the core of all DAOs: how to reconcile "decentralized" decision-making with the need for expert guidance.

A key complaint is that there could be conflicts of interest among members of the research coalition. The professional contributors would include Blockworks Research; Gauntlet, a crypto-centric risk and financial advisory firm; and Trail of Bits, a cybersecurity company. An additional organization will be elected to serve as a "DAO Advocate" and act as a "referee between the DAO and the coalition" under the proposal.

"Having the same parties review and provide opinions on proposals, cover those proposals publicly via Media Networks, vote on proposals, review the security concerns of a proposal, and then execute the Arbitrum network upgrades is fundamentally lacking separation of powers," wrote one commenter. The person added that proposed members of the coalition also comprise a large percentage of overall ARB votes.

The proposal also struck a nerve with some community members who took issue with the proposed cost of the new venture: $2 million for a year-long trial run.

A "temperature check" poll on the proposal started on Nov. 3 and ends Nov. 10; the informal tally will help determine whether the proposal should be taken to an official Arbitrum DAO vote. While some large DAO voters still have yet to weigh in, the proposal is currently set to pass its simple-majority threshold, albeit by a thin margin: 52% have voted in favor of the coalition's funding and 46% against it.

Arbitrum switched to a DAO-based governance structure in March when it first launched the ARB token and established the Arbitrum Foundation – a non-profit tasked with supporting the development of the Arbitrum network, which helps facilitate faster and cheaper transactions on Ethereum.

The guiding role of a DAO like Arbitrum's is to allow a widely distributed community of people – in this case, Arbitrum's ARB token-holders – to decide how a protocol is developed and governed.

While Arbitrum's shift to decentralized governance has been official for more than six months, the Arbitrum Foundation and Offchain Labs (the firm that built Arbitrum) continue to play a crucial role in the ecosystem. Their outsized influence can be viewed as a necessary byproduct of how DAOs work: It can be hard to coordinate across a far-flung group of DAO members with varying levels of engagement and expertise.

"Arbitrum’s impressive decentralization demonstrates that the DAO can’t rely on single entities such as Offchain Labs or the Arbitrum Foundation," Blockworks Research wrote in its proposal.

The research coalition was pitched by Blockworks Research as a way to "accelerate" decision-making on Arbitrum – offloading certain research and diligence responsibilities to a trusted group of expert stakeholders. The coalition described in the proposal is also supposed to help balance power further in favor of the DAO.

In authoring the proposal, Blockworks Research wrote that it was motivated by the fact that the Arbitrum Forum "includes many worthwhile suggestions, but often lacks the required research, coordination, design, and risk assessment to move forward optimally." (Disclaimer: Blockworks competes with CoinDesk in the crypto media and events space.)

In response to a forum comment around concerns that the new coalition could act as a "centralizing force," Blockworks Research responded that "The Coalition does not intend to influence or persuade community members to vote in any direction," adding that the goal would be to "provide objective tools and reports to help delegates and community members make more informed decisions more efficiently."

The company specified in the proposal that members of the coalition could be removed or changed after serving a 12-month term.

The projected yearly cost for the research coalition would total $2.2 million worth of ARB, Arbitrum’s native token – funds that would come directly out of the Arbitrum DAO treasury. Some of the more heated debate on the proposal was around how these funds would be allocated.

According to a proposed breakdown of costs, Trail of Bits would receive $800,000 for an engineer to review proposals for 32 weeks over the course of a year. Gauntlet, meanwhile, requested $327,000 for "15 quantitative researcher weeks," and Blockworks requested $780,000 "for a minimum 13 analyst weeks per quarter."

"Can the organizations involved demonstrate their time is worth $650-$1500/ hour?" wrote one commenter on Arbitrum's governance forum. "That seems exorbitant … as in 'more than I pay for Harvard lawyers' exorbitant, literally."

As to concerns around this proposed payment plan, Blockworks Research analyst Sam Martin told CoinDesk via email that Blockworks "specifically proposed a not-to-exceed price to eliminate the possibility of overspend on the DAO," adding that "the DAO will have our entire team at its disposal which spans in expertise with a wide array of skills."

"Our commitment to the DAO and seeing it succeed is rather obvious at this point through our unpaid contributions made thus far," Martin said in the email.