There have been some problems with the popular Arbitrum platform, which has recently entered the market with a large airdrop. Especially the Arbitrum Foundation’s spending made users suspicious. Now, there are allegations that Arbitrum may be related to other companies. Here are the details…
Arbitrum management and community discussion grows
cryptocoin.com As we reported, the Arbitrum Foundation, the team behind the popular DeFi scaling project Arbitrum, received backlash from the community for selling the ARB token without permission. The foundation has issued 2.7 billion ARB tokens worth $3.2 billion to sell 700 million to cover operating expenses and provide private aid. Selling 700 million equates to $840 million, or about $65 million per employee.
While the Arbitrum ecosystem is gaining attention as a DeFi scaling solution for Ethereum, some blockchain developers question the need for such a large token issuance without governance. One competitor, Optimism, has only 315 million OP tokens in circulation, a ninth of Arbitrum’s. The problem deepened when the community realized that the foundation was selling ARB tokens without approval from ARB holders. The foundation had pledged to move to a decentralized autonomous organization (DAO) to give ARB token holders a say in the management of Arbitrum.
However, when the foundation proposed to allocate $1 billion worth of ARB tokens to it on behalf of administrative costs and special grants, ARB holders voted against the proposal. The foundation then went on to sell some of its ARB tokens before the proposal was put to a vote. When challenged by the community, the foundation claimed that the initial proposal was merely to confirm a decision the foundation had already taken. This incident brought to light the governance issues in the Arbitrum ecosystem and raised questions about the effectiveness of the community’s controls.
Wintermute link drew attention
Jordan Atkins, a Coingeek author and alumnus of the University of Auckland Law School, focused on the subject by stating that “Arbitrum’s promise of decentralization is just a gloss.” He stated that the foundation will not authorize token holders to make any decisions unless they agree, indicating that it is not a decentralized autonomous entity. Atkins also expressed concern over Arbitrum’s relationship with market maker (LP) Wintermute. Wintermute received 40 million ARB tokens as part of a $1 billion dividend deal.
The London-based hedge fund gained notoriety for its rapid rise in profits in 2021. Because at the end of 2020, it had increased its profit, which was about $ 23 million, to over $ 500 million by December 2021. It made even more profits during the Terra crisis last year. Wintermute processed $250 million in UST-LUNA arbitrage during Terra’s collapse in May last year, making tens of millions of dollars in profit. Forbes reports that Wintermute bought UST for $0.80, traded it for $1 worth of LUNA, and then sold the LUNA again to make a profit. This process continued until the UST dropped to around $0.10.
Wintermute, is FTX next?
Wintermute’s competence and yielding work during the Terra crisis has been attributed to the company’s CEO, Evgeny Gaevoy. Forbes compared Gaevoy to Sam Bankman-Fried (SBF) of Alameda Research and praised his ability to proficiently navigate the cryptocurrency market and win big during the crisis. According to Gaevoy, Wintermute had $400 million in equity and $720 million in assets as of December last year.
The CEO’s wife also serves as the COO of Wintermute’s venture capital subsidiary. Despite its success, Wintermute does not have an exchange, and there are some who think it will end up like FTX. With these controversies surrounding Arbitrum and its relationship with Wintermute, many are beginning to question the ecosystem’s legitimacy and governance. It is not yet clear how the foundation will respond to these concerns and whether it will regain the community’s trust in the project.
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