- The Arbitrum decentralized autonomous organization is currently embroiled in a heated debate following a proposal by its Growth Management Committee.
- The proposal outlines an attractive prospect, promising a 4.54% yield from wstETH deposits, along with a modest return of 1-2% in native ETH from Fluid.
The Arbitrum decentralized autonomous organization (DAO) that governs the Arbitrum One and Arbitrum Nova chains is facing backlash from its community after a proposal emerged to allocate 7,500 Ethereum (ETH) to DeFi projects outside the Arbitrum ecosystem. While proponents argue that the investment will generate stable yields and long-term benefits, critics claim it undermines Arbitrum’s native ecosystem and diverts funds away from internal development.
The Proposal: Diversifying Treasury Holdings?
The proposal, introduced by Arbitrum’s Growth Management Committee (GMC), aims to allocate the 7,500 ETH treasury funds to established DeFi protocols. The GMC’s strategy includes investing 5,000 ETH into Lido, a leading liquid staking protocol, in exchange for 5,000 wstETH (wrapped staked ETH) tokens. The remaining 2,500 ETH would be directed to Fluid’s Arbitrum-based lending platform, further supporting liquidity and ecosystem growth.
The committee settled on the recommendations after reviewing proposals from 45 protocols, including Arbitrum-native platforms such as Dolomite, GMX, and Camelot. Ultimately, the GMC chose a strategy that involves wstETH deposits, which are expected to generate a total yield of 4.54%, consisting of 3.10% from Lido staking rewards, 0.62% from Aave protocol yield, and 0.82% from wstETH deposit incentives. Additionally, the Fluid allocation is projected to generate a 1-2% native ETH yield while also providing liquidity for the Arbitrum ecosystem.
The decision, which follows an earlier approval on Tally, will require a Snapshot vote on February 27, 2025, where token holders can either vote For or Abstain. A simple majority is needed for approval, with a minimum quorum of 3% of the votable token supply at the time the proposal goes live. Should the DAO vote against the GMC’s strategy, the GMC will consider community feedback, adjust its investment approach, and present a revised proposal.
Community Backlash: Why Not Invest in Arbitrum Itself?
The proposal has sparked frustration among many Arbitrum community members, who believe that at least a portion of the 7,500 ETH should be directed toward Arbitrum-native projects. According to Entropy Advisors, the DAO has failed to utilize its ETH holdings effectively, missing an opportunity to drive growth, form partnerships, and generate yield despite its growth-first approach.
Delegate JoJo criticized the lack of allocation to native protocols, arguing that even a small fraction of the treasury could have been used as a symbolic gesture to encourage developers to choose Arbitrum over competing ecosystems. He emphasized that:
Our DAO is at an inflection point. I personally expect all participants of the DAO, especially the ones in active roles, in knowing how bad the perception of Arbitrum is out there.
Another delegate, known as ultra, voiced his frustration over the proposal on X stating, “Today, I’m extremely disappointed in Arbitrum. With all the debate about ‘EF not having skin in the game,’ Arbitrum had a proposal to allocate 7,500 ETH from its treasury to its DeFi ecosystem. The results are out, guess what? None of the selected projects are Arbitrum-native.” In defense, the GMC asserts that the pursuit of stable returns and security considerations drives the decision.
Meanwhile, Arbitrum’s native token (ARB) has been struggling. Over the past month, ARB has lost 35.5% of its value, and in the last seven days, it has dropped another 9.1%, now trading at $0.4501. However, despite the price decline, trading volume has surged by 57% in the last 24 hours, reaching $186 million, indicating heightened market activity and interest.
