DAO Arbitrum scandal. Does blockchain voting stand a chance outside crypto world

Our experts assessed whether decentralized autonomous organizations can be recognized as an official form of business governance. After the Arbitrum blockchain project token voting scandal

The issue with the multi-million dollar funding of the Arbitrum project developers’ fund has resulted in a conflict with the owners of its tokens. And it set a precedent in the field of decentralized management of blockchain services.

A DAO is a decentralized, autonomous organization that is governed by the voting of the owners of the blockchain project’s management tokens using smart contracts. Any token owner can independently put forward a proposal for the development of the project. Or vote for other proposals. Most often, they concern the distribution of specially reserved funds – the project treasury .

Before the release of their own token and Arbitrum’s sensational Airdrop, the developers often stressed the need for a decentralized autonomous organization (DAO). In which ARB token holders will be able to choose by voting the directions of the project’s development, including the distribution of budget funds. The only function of ARB tokens is to be able to vote and put forward their own proposals for consideration by the DAO. This is because their owner receives no other technical benefits when interacting with any project in the Arbitrum ecosystem.

Scandal at Arbitrum

Last week, the Arbitrum Foundation. which includes project developers and cronies, put forward a proposal to allocate 750 million ARB (about $1 billion in U.S. dollar equivalent) to the foundation’s own controlled purse for future grants. As well as to cover its administrative and operating expenses. The amount seemed to be too high to the participants. Therefore, about 80% of ARB token holders voted against the proposal.

As it turned out later, even before the voting was completed and without the approval of the participants of the DAO. These funds had already been transferred from the project’s coffers. And some of them were converted into dollars on exchanges or issued as a loan to large market makers. Arbitrum Foundation managers were quick to release a statement saying that the vote was only meant to “ratify a decision that had already been made.” And that further angered both the participating token holders and the cryptocurrency community at large.

The project team’s behavior shows a lack of thought into the financial strategy. Of course, any project needs funds for operating expenses. But they need to be reported on in advance, not post-facto. This is a decentralized organization. Therefore, the opinion of the community must be taken into account. This will be a lesson for the team for the future, our experts say.

Under pressure from FAO members and faced with a wave of negative responses on external resources. Arbitrum Foundation was forced to accept the community’s terms and refuse the offer. And subsequently splitting it into several separate ones and changing the terms in favor of greater transparency. In official publications, the developers acknowledged “communication problems.”

Our experts believe that this event clearly shows how a decentralized autonomous organization can identify problems. Such as corporate abuse, financial manipulation and ineffective financial planning.

Positive and negative aspects of DAO

The Arbitrum Foundation situation has set a precedent and provoked a wave of discussion about the effectiveness of the DAO as such. Despite the lack of a legally recognized form, decentralized organizations are created around many large blockchain projects. And votes from their token owners tend to matter a lot indeed. The process is similar to the decision-making process of shareholders of companies in traditional businesses.

The incident highlights some of the vulnerability of the voting process within a DAO. As well as the mechanism for governing DAOs through voting in general. Due to the lack of conditions enshrined in legally binding documents, questions inevitably arise. For example, is it possible to oblige developers to execute the decision of voting token owners. And on what, apart from the credibility of the project alone, the voting mechanism holds in principle.

Our experts believe that such situations undoubtedly attract the attention of public and government authorities. It can be assumed that they can contribute to the development of a proper legal regulation in the DAO sphere. They can also encourage community and, in particular, investors in such projects to verify the information in more detail. At the same time requiring guarantees of execution of decisions made by a general vote in the DAO.

Opinions of our lawyers

According to our lawyers, the DAO model itself still looks “too utopian for our world”. However, transparency and speed of decision-making are important advantages of DAO. This is due to voting on the blockchain. However, our experts list serious disadvantages. And the main ones are the almost complete lack of legal regulation.

Because in the case of problems, fraud and abuse, the affected persons simply have nowhere to turn. And it is not clear how to get their money back. Decentralization and autonomy from the law are good exactly until they violate the rights of the individual. And then he will seek protection and restoration of his rights through traditional legal mechanisms.

Prospects for DAO development in the ordinary world

Our experts believe that DAO is unlikely to become a recognized legal form of organization in the coming years. This is despite the fact that crypto-assets are already in the legal field in many places. This governance structure makes it difficult to distribute responsibility.

So far, it is just a kind of community, a club of interest. But the potential of this form is very large. Because DAO takes into account the interests of all community members and helps choose the development path for any project.

Of course, progressive company owners will appreciate these advantages and use DAO mechanism. If such a mechanism will be in the legal field. Therefore, our experts believe the co-existence of DAO along with the usual forms of organization is possible. But if it will be properly regulated.

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What are Arbitrum project prospects and what will happen to its price

Crypto Upvotes experts evaluated the effectiveness of airdrop Arbitrum and told how ARB token exchange price may develop in future

After the sensational airdrop project Arbitrum (March 23), 1 billion ARB tokens were released to market. Which were distributed among 625 thousand addresses. The total market capitalization of token stabilized at $1.63 billion.

At the time of publication, the price of ARB is at $1.28. Having analyzed the experience of projects such as Optimism, Aptos and Blur, whose tokens have also entered the market as part of large-scale airdrops. Our experts told us how the rate of ARB token may behave in the future.

The general bullish trend continues

After listing on exchanges, tokens of projects with airdrops tend to exhibit high volatility. Therefore, there can be both sharp price jumps and drawdowns of tens of percent all at once. Overall, ARB is in line with the “most positive trend.” That’s because the token price didn’t collapse after the start of trading on Bybit, Kucoin, MXC, Huobi, Okex. And then on Binance, although it experienced serious fluctuations. On Huobi, the exchange rate was as high as $11 per token on listing day, though the price went down almost immediately.

First of all, such volatility is due to the fact that those who received ARB tokens during the Airdrop. And then decided to lock in profits immediately after listing, which put pressure on exchange rates. On another note, our Crypto Upvotes experts observed that a significant number of sell orders were placed well in excess of the market price, pushing the rate higher.

If you compare listing of ARB on exchanges with other large tokens with airdrop. The similarity can be seen in the high volatility at the start of trading. The major difference is the “general bullish sentiment” of investors regarding ARB. And this is favored by such data as the growth of total blocked value (TVL) of Arbitrum network by a quarter during the last week. According to DefiLlama, Arbitrum’s TVL stands at $2.18 billion, while its closest competitor, Optimism, has $907 million of locked-in capital in its ecosystem.

Predicting the price of Arbitrum after trading starts is difficult

Starting ARB trading was marked by the fact that on some exchanges trading started a little later than announced. And also the fact that the influx of users led to disruptions in the resources for receiving tokens and on exchanges. Listing of Arbitrum on exchanges was immediately accompanied by high trading volumes, which further attracted crypto-traders. This gives big players an opportunity to form positions without much damage to the average purchase price.

Our experts note that it is difficult to predict the further development of ARB price. Because the price levels have not been fully formed yet. In the short term it is necessary to focus on the level of $1, as it will be a psychological support. In case of a positive scenario, we should be attentive at the price level of $1.5. If this level of resistance is exceeded, the price is likely to quickly approach $2.

Why airdrop Arbitrum became successful

The effectiveness of an Airdrop depends directly on marketing work that the project has done before distributing these tokens. First, the project needs to develop their community, to attract new capital. And constantly pointing to the possibility of a profitable airdrop for active participants. Under such conditions, you can talk about success – even if some of the users in the community decide to sell ARB tokens.

The effectiveness of such a model is good for the popularity a project – it’s an excellent marketing move, our experts say. In the case of Arbitrum, the popular topic media “literally bursting with news”. Because people like to get something for free, especially if it will bring good profits in the future.

However, most traders will fix some part of the received tokens, e.g. 20-30%. The rest will go into stacking or long-term storage waiting for price growth if the project really deserves it. According to experience of our experts, even now we can see that large participants of crypto market actively accumulate ARB in their wallets.

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How to choose promising Airdrop that are similar in success to Arbitrum

Participants of the Arbitrum airdrop project received thousands of dollars in rewards. Review by Crypto Upvotes experts on how the sphere of earning tokens for activity in blockchain services is organized and what other projects can make an airdrop.

Offchain Labs, the company behind Arbitrum, organized an airdrop of tokens to encourage active users of this ecosystem. On March 23, token trading under the ticker ARB started on major cryptocurrency exchanges, and after a period of strong volatility at the time of listing, its price on trading floors stabilized at $1.2. Tens of thousands of addresses received between 3,000 and 10,000 tokens during this distribution. Thus, participants received significant amounts of incentives in dollar terms and caused a stir around other projects. Which in the future may make their own airdrops.

Airdrop is a new form of successful project launch ?

The idea of free distribution of coins to users is not new. The first airdrop, after which the term became popular, was invented by the developers of cryptocurrency Auroracoin back in 2014 at the stage of mass cryptocurrency market birth. According to their idea, every resident of Iceland was supposed to get coins. That project was quickly forgotten, but the concept itself became popular in the crypto industry and continued to evolve.

Now, airdrops serve as an effective method for blockchain services to attract an audience. It is also likely to increase the loyalty of users who receive rewards in the form of project tokens. Some ecosystem decentralized projects, in which investors see potential, conduct multimillion rounds of funding with the participation of famous funds like Sequoia or Andreessen Horowitz.

What is Project Arbitrum. And why it’s the most expected airdrops of this year

A few years ago, crypto companies chose different forms of ICO (initial coin offering) to raise capital and liquidity. Now there is a risk that tokens will be classified as unregistered securities in the U.S. or Europe when raising funds this way. The free distribution of tokens helps create a market for crypto projects. At the same time, most of their supply stays with developers and investors. At the same time, it creates a financial base for the former and a source of profit for the latter.

Developers of blockchain services often do not announce a token when launching their project. But the experience of their competitors helps community members determine which projects will sooner or later decide to release their own crypto-asset. And which types of activities will be eligible for rewards.

This was the case with Offchain Labs: an infrastructure has already been built around Arbitrum – decentralized exchanges, NFT marketplaces, games, wallets, social networks and other services. All of them are at an early stage of development and need active users and testing. It is for activity in such projects that tokens are eventually distributed.

The company remained silent about its airdrop until recently. But the successful experience of large projects such as Aptos, Blur or Optimism ( the main competitor of Arbitrum) made it clear that participation in projects on the Arbitrum blockchain. Most likely, in the end, will not remain without encouragement from developers.

From which projects to expect launch of new Airdrops

The first obvious candidate is zkSync, an Ethereum scaling solution with a different technical approach than what Arbitrum or Optimism offer. In November 2022, zkSync developer (Matter Labs) led several investment rounds totaling $258 million. And LightSpeed, Andreessen Horowitz as well as major venture capital crypto funds – Blockchain Capital and Dragonfly took part in them.

The zkSync development team includes Anthony Rose, who led engineering teams at SpaceX, creating software for Falcon, Dragon, and Starlink. And Steve Newcomb, who founded Powerset, which was acquired by Microsoft and later became part of the search engine Bing.

In one week before the launch of token from Arbitrum, users transferred $8 million in assets to projects in the zkSync ecosystem. According to DefiLlama, the amount of funds (total value locked) locked in the pool of the decentralized exchange ZigZag. Which runs on the zkSync platform, rose from $1.5 million to more than $13 million in just one day. In a comment for Coindesk, Martin Lee, head of analytics platform Nansen, says that it was the distribution of Arbitrum tokens that triggered the increased activity of “airdrop hunters.” They have attracted both new entrants and those who have participated in airdrops from other projects.

Other potential candidates for future airdrops include several other projects:

StarkWare – Ethereum scaling solution, similar to zkSync. The developer is the Israeli company StarkWare Industries, with an investment of over $150 million and an estimate of $8 billion.

Scroll – a similar Ethereum scaling solution. The project has attracted funding of $80 million with an estimate of $1.8 billion.

Fuel Network – an Ethereum scaling solution similar to Optimism or Arbitrum. The project’s developer, Fuel Labs, raised $80 million in funding in September 2022.

Aleo – DeFi-protocol with a focus on privacy. The developers of Aleo Systems raised $200 million from SoftBank, Andreessen Horowitz, Samsung Ventures and other funds.

LayerZero – a protocol for exchanging data between blockchains from different ecosystems. The company behind the development, LayerZero Labs, has raised more than $173 million, with investors including PayPal Ventures and Andreessen Horowitz.

Other major projects without their own token include Sui, Celestia, Sei, Linera and others.

Terms of participation in airdrop from similar projects

As a rule, the developers of such projects do not name any criteria or conditions, fulfilling which it will be possible to get tokens in the future. Moreover, none of them guarantee the availability of airdrop for early users or the launch of a token. Activity sets are formed in the community based on the experience of predecessor projects. And when an airdrop is announced, the project team decides for itself each time who can claim their tokens and for what.

Some projects have even given away tokens for a single interaction with the ecosystem. And in the case of the Blur Marketplace, for example, a full-fledged multilevel airdrop strategy with a gamified approach was developed.

Risks from participation and scammers

Anonymity when using cryptoservices opens the door to manipulation. According to a joint study by journalist Colin Wu and the blog x-explore, about 150,000 addresses and at least 4,000 groups were identified in the Arbitrum airdrop.
Which are engaged in activity generation, which accounted for more than 253 million ARB tokens. And that’s about 22% of the entire airdrop.

There is growing evidence on the web that organized groups typically in countries such as Vietnam or Bangladesh – are scamming activity in blockchain projects. They use multiple accounts and wallets, working in offices on a schedule and getting paid. Our Crypto Upvotes experts managed to find several international groups in Telegram and Discord messengers. In these groups administrators offer services of “outsourcing” activity. Prices for the services range from $10 to $200 per account, depending on the project and activity set.

The growing popularity of cryptocurrency airdrop is being actively exploited by scammers. Interacting with blockchain projects implies a certain level of technical expertise. Therefore, inexperienced users often become victims of scammers. Tens of thousands of phishing pages appear on web that imitate sites of famous projects.

Sometimes these sites are designed with attention to detail and have high-quality design and convincing scenarios of interaction with the victim. It helps to avoid risks by interacting only with the official resources of the services. Where they also post links to ecosystem projects in which it is possible to participate, claiming a future airdrop.

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