Arbitrum DAO Debates the Future of Its Web3 Gaming Fund

Arbitrum’s decentralized autonomous organization (DAO) is evaluating the potential clawback of funds allocated to building a gaming ecosystem on the network. The decision is being considered due to a lack of transparency and insufficient progress.

On March 24, DAO member Nathan van der Heyden submitted a proposal to recover unused funds from the Arbitrum Gaming Catalyst Program (GCP). Launched in 2024, the program aimed to position Arbitrum as a leading platform for blockchain-based gaming development.

Van der Heyden noted that the expectations at the time of the program’s approval were overly optimistic and that the current state is unsustainable.

“We must wind down GCP activities and secure all possible funds. This will help protect the DAO’s financial resources and rebuild investor confidence.”

He also claimed that the program had been reluctant to document its activities and had failed to deliver on its promises.

A Divisive Proposal Within the DAO

Another DAO member supported the proposal, emphasizing the need to protect the remaining funds:

“The DAO should secure the remaining funds and then determine the best strategy moving forward.”

While many members favored an immediate clawback, some argued that it could be counterproductive. One member acknowledged the importance of transparency but cautioned against abruptly withdrawing all funds, stating that such a move could be overly harsh and have unintended negative consequences.

Instead, they suggested a phased approach to reclaiming funds and implementing a more flexible reporting system for the program.

ARB Token Down 81% Since GCP Launch

The GCP was announced on March 12, 2024, to foster the growth of Web3 gaming within the Arbitrum ecosystem. The program allocated 225 million ARB tokens, intended to fund gaming studios and solidify Arbitrum’s position in blockchain gaming.

However, the program’s launch coincided with a $2.2 billion token unlock, leading to a drop in ARB’s price. By June 2024, the allocated funds had lost over 50% of their initial value, falling to $215 million.

Similarly, ZKsync recently announced the termination of its Ignite liquidity rewards program, citing challenging market conditions.

Declining Investments in Web3 Gaming

The Arbitrum DAO debate comes amid a broader downturn in Web3 gaming investments. Toshiyuki Otsuka, founder of GameFi platform Snpit, noted that investors are becoming more cautious, focusing on projects that demonstrate long-term viability.

“The speculative frenzy of previous years has given way to a more sustainable investment landscape. Only the most promising projects can now secure funding.”

This suggests that the fate of the Arbitrum Gaming Catalyst Program is closely tied to shifting investment trends within the Web3 gaming sector.

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Details and Purpose of the Recommendation

Frission, a delegate in the Arbitrum ecosystem and a core team member at Tally, offers to reward ARB token holders with 50% of future excess sequencer fees for staking and active delegation. This proposal addresses concerns about the security of Arbitrum DAO’s growing treasury. Currently the treasury contains excess fees exceeding $50 million. The proposal suggests that ARB tokens, of which only 10% are actively used in governance, and declining voting participation could make the treasury an attractive target for potential governance attacks.

Frission’s proposal aims to increase the DAO’s economic security and reduce the risk of treasury attacks by encouraging governance participation. By offering ARB holders the ability to stake and delegate their tokens, 50% of future excess sequencer fees are planned to be allocated as rewards. This system is expected to offer an annual reward rate of approximately 7% for stakers, based on current prices. Importantly, Arbitrum’s existing treasury funds will remain unchanged and only future fees will be directed to stakers.

Liquidity and Governance Participation

The proposal plans to use Tally’s liquid staking token system to maintain liquidity for staked tokens. This mechanism will allow them to participate in governance while preserving the liquidity of staked positions.

Voting Process and Future Steps

A priority temperature control vote on the proposal will be held on the Snapshot platform next month. If accepted, smart contract development will begin and final on-chain voting could occur in September.

Last year, another proposal proposed funding staking returns using the DAO’s Arbitrum treasury funds and distributing them to stakers over 12 months via a smart contract. Although this proposal passed the initial temperature control vote, it did not become a formal AIP due to objections over its feasibility. This new proposal for Arbitrum DAO is considered an important step to increase governance participation and security.

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