DAO

ATHDAOx: Building the future of Web3 in physical-digital with DAOs

The DAO-centric event took place in Athens, Greece over two days and focused on everything from governance and legal issues to community building and security.

ATHDAOx, an event in the tradition of the Solana Hacker House, took place on Dec. 9 and 10 in Athens, Greece to discuss all things decentralized autonomous organization (DAO).

From governance and legalities to community building and security, the event brought together the local DAO-focused community in Greece and abroad.

Cointelegraph was on the ground for the event and spoke with one of the event’s founders, Dimitris — aka Takisoul — about his experience building a physical space to discuss digital communities.

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Arbitrum DAO passes $23M extra budget to fund all grant applicants

The Arbitrum community is expanding its grant program budget to over $70 million, supporting a total of 56 projects.

The Arbitrum DAO has confirmed the disbursement of millions in extra tokens to fund all projects approved on its latest Short-Term Incentive Program (STIP), boosting its budget by $23.4 million.

The proposal, voted by the Arbitrum community between Nov.

The supplementary capital was approved by 216.7 million votes in favor to 73.1 million against, bringing STIP’s total budget to 71.4 million ARB tokens.

ARB holders approved the addition of 21.1 million tokens for funding grant applications. Source: Tally/Arbitrum

Arbitrum is a layer-2 networking designed to scale transactions on the Ethereum blockchain, allowing funds to be transferred more quickly and at a lower cost.

DefiLlama data shows that Arbitrum generated over $180,165 in fees and $43,342 in revenue just on Dec.

Layer-2 Arbitrum generated over $57 million in cumulative transaction fees. Source: DefiLlama

The new budget includes funding for Gains Network (4.5 million ARB), Wormhole (1.8 million ARB), and Stargate Finance (2 million ARB).

The approval of additional funding was not without controversy.

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Arbitrum proposal to return 700M ARB fails, whale calls it a “power play”

The AIP-1.05 was defeated by 118 million votes. The proposal was introduced after the Arbitrum Foundation transferred funds without community approval.

A controversial proposal seeking the return of 700 million ARB governance tokens to Arbitrum’s DAO Treasury was rejected by a massive number of votes on April 15. The Improvement Proposal AIP-1.05 was introduced after the Arbitrum Foundation transferred funds without community approval in March. 

The AIP-1.05 was defeated by 118 million votes, representing 84% of the total votes received, while 21 million ARB tokens voted for the proposal, nearly 14.5% of the total. Around 2 million ARB tokens abstained. The proposal asked the Foundation to return the tokens as a “symbolic gesture to demonstrate that the governance holders ultimately control the DAO, not the Arbitrum service provider nor the Foundation.”

Screenshot – AIP-1.05: Arbitrum Improvement Proposal Framework. Source: Arbitrum DAO. 

On the governance forum, a whale with 4.8 million ARB tokens said the proposal “seems to only serve as a power play” that would add an “unnecessary step” and delay the Foundation’s ability “to support the growth of the Arbitrum ecosystem.”

Another whale voting against the proposal with 18 million ARB tokens stated that balance is necessary to promote decentralization and progress in the ecosystem: 

“There is a balance that we need to try to accomplish between advocating for decentralization and preventing progress in the ecosystem. I believe that decentralization on its ideal form is nowhere to be seen in this industry yet.”

Arbitrum’s community and its Foundation are engaged in a dispute over the Foundation’s governance proposal AIP-1 — which called for investment of nearly $1 billion worth of ARB tokens to fund its operations. After facing community backlash, the Foundation later said that AIP-1 was a ratification, not a proposal. It added that some of the tokens were already sold for stablecoins.

The AIP-1 proposal was Arbitrum’s first attempt at governance after its tokens airdrop in early March. The Foundation has already released a new set of improvement proposals aimed at reestablishing dialogue with the community.

Magazine: The legal dangers of getting involved with DAOs

Arbitrum proposal to return 700M ARB fails, whale calls it a “power play”

AIP-1.05 was defeated by 118 million votes after the proposal was introduced following the Arbitrum Foundation’s transfer of funds without community approval.

A controversial proposal seeking the return of 700 million ARB governance tokens to Arbitrum’s DAO treasury was rejected by a massive number of votes on April 15. The improvement proposal called AIP-1.05 was introduced after the Arbitrum Foundation transferred funds without community approval in March. 

The proposal was defeated by 118 million votes, representing 84% of the total votes received, while 21 million ARB tokens voted for the proposal, nearly 14.5% of the total. Around 2 million ARB tokens abstained. The proposal asked the foundation to return the tokens as a “symbolic gesture to demonstrate that the governance holders ultimately control the DAO, not the Arbitrum service provider nor the Foundation.”

Screenshot of AIP-1.05: Arbitrum Improvement Proposal Framework. Source: Arbitrum DAO. 

On the governance forum, a whale with 4.8 million ARB tokens said the proposal “seems to only serve as a power play” that would add an “unnecessary step” and delay the foundation’s ability “to support the growth of the Arbitrum ecosystem.“

Another whale voting against the proposal with 18 million ARB tokens stated that balance is necessary to promote decentralization and progress in the ecosystem: 

“There is a balance that we need to try to accomplish between advocating for decentralization and preventing progress in the ecosystem. I believe that decentralization on its ideal form is nowhere to be seen in this industry yet.“

Arbitrum’s community and its foundation are engaged in a dispute over the foundation’s governance proposal AIP-1, which called for an investment of nearly $1 billion worth of ARB tokens to fund its operations. After facing community backlash, the foundation later said that AIP-1 was a ratification, not a proposal. It added that some of the tokens were already sold for stablecoins.

The AIP-1 proposal was Arbitrum’s first attempt at governance after its tokens airdrop in early March. The foundation has already released a new set of improvement proposals to reestablish dialogue with the community.

Magazine: The legal dangers of getting involved with DAOs

DAOs can become a disaster more quickly than you think

Decentralized autonomous organizations suffer from a lack of oversight. Companies and founders should take that into account in their planning.

As the decentralized finance (DeFi) ecosystem grows in size and influence, the question of how to best govern DeFi protocols has taken center stage. In crypto-native circles, decentralized autonomous organizations (DAOs) are far and away the most popular governance structures.

DAOs are often touted as an all-in-one fix for everything from investor-manager alignment to regulatory risk. However, as a spate of well-publicized internal disputes and regulatory crackdowns has shown, DAO governance is not a panacea.

Blockchain technology, especially trustless smart contracts and distributed ledgers, has created an unprecedented opportunity to build a more transparent financial system, with fewer centralized intermediaries. However, these technologies are still nascent. They should be used to complement — not replace — traditional legal structures.

When it comes to safeguarding investors, there is simply no substitute for traditional legal entities and investor protection regulations.

The problem with current DAO models

Although DAOs purport to be decentralized and autonomous, the vast majority of them are virtually identical to conventional technology startups, with founders, investors, product roadmaps and go-to-market strategies.

The main difference between DAOs and traditional businesses is that DAOs, by and large, do not operate within established legal frameworks. Many DAOs are effectively unincorporated associations. The remainder usually opt for relatively exotic, untested legal structures, which confer few, if any, legal rights to stakeholders.

Related: Elizabeth Warren is pushing the Senate to ban your crypto wallet

That’s bad news for investors and users, who are left with little to no recourse if something goes wrong. It’s also a problem for regulators, which has resulted in DAOs facing critical regulatory issues. This includes taxation of DAO tokens, treasuries, and investments, implementation of Anti-Money Laundering (AML) rules and Combating the Financing of Terrorism policies, as well as foundational questions of ownership, control and accountability.

Recently, DAO decision-making has drawn particular interest from the legal system, with concerning consequences for investors. In two recent court cases in the United States involving bZx DAO and Ooki DAO, officials took the stance that as governing members of a DAO, tokenholders themselves may be personally liable for legal infractions or negligence by a DeFi protocol’s core team.

As an industry, DeFi must do a better job of upholding the rights of users and tokenholders. Multiple regulatory pathways exist, both globally and within the United States, that offer important protections for investors, as well as considerable flexibility to DeFi protocols.

DAOs have potential that hasn’t been realized

While the current model of DAO governance is flawed, the underlying technology still holds vast potential. In fact, decentralized blockchain technology can be a powerful complement to traditional investor-protection regulations.

For example, trustless smart contracts and self-custodied “receipt” tokens have the potential to render many forms of mismanagement and malfeasance by asset managers virtually impossible. Similarly, decentralized oracles can ensure investors always have access to unbiased, up-to-date data on performance, thus greatly diminishing the scope for fraud.

At the same time, blockchain technologies such as zero-knowledge identify-proofs promise to ease the burden of regulatory compliance for DeFi applications while protecting users’ privacy and anonymity. With unique cryptographic proof, users can complete in-app Know Your Customer (KYC) and AML checks almost instantly without ever disclosing their personal information.

For all its flaws, on-chain governance has the potential to enable value-enhancing participation and guarantees that investor resolutions are truly binding. The only missing link preventing this technology from reaching its full potential is legal compliance.

Hybrid models can work

As with most emerging technologies, there is currently a lack of oversight regarding DAO regulation. However, the novelty of both blockchain and DAOs does not erode the need for regulatory compliance. If anything, it heightens it.

The need for proactive legal compliance in DeFi has never been more urgent. Regulatory institutions are cracking down on DAOs more than ever. A recent example of this is the Sushi DAO debacle, whereby the Securities and Exchange Commission issued a subpoena to the platform. The SEC indicated it was investigating potential securities law violations, including selling tokens that may be considered securities without proper registration.

Related: OpenAI needs a DAO to manage ChatGPT

DeFi protocols need to reconsider the DAO model. For protocols with securities-like governance tokens, the best option may be abandoning the DAO structure altogether. In the United States, established legal entities such as private funds may offer protocols considerable flexibility while clarifying and strengthening legal protections for tokenholders.

Similarly, DeFi protocols should consider housing their full-time core teams within registered limited liability companies, or their equivalent in jurisdictions outside the United States. Corporate structures are critical for protecting team members from personal liability and building effective, streamlined organizations.

DAOs have the potential to make a huge difference in both Web3 and mainstream businesses. The solution is not pitting decentralized and traditional finance against each other as adversaries — it’s integrating the strengths of both.

Alex O’Donnell is the founder and CEO of Umami Labs and worked as an early contributor to Umami DAO. Prior to Umami Labs, he worked for seven years as a financial journalist at Reuters, where he covered M&A and IPOs.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Uniswap funds DAO incentive improvement project

The project will provide at least three proposals for Uniswap incentive mechanisms by June.

Financial modeling platform Gauntlet has been awarded a grant from Uniswap Foundation to improve DAO incentive mechanisms, according to an announcement from Gauntlet.

Gauntlet describes itself as a “crypto-native financial risk management solutions provider.” It uses economic models to optimize fees and rewards for decentralized finance (DeFi) protocols, according to the announcement. The company is creating a new division, Gauntlet Applied Research, which will specifically focus on problems related to the growing decentralized autonomous organization (DAO) ecosystem.

In its announcement, Gauntlet said that it would provide three pieces of research to UniswapDAO. The first will be a quantitative framework that the DAO can use to evaluate the success or failure of the Uniswap protocol. The second will be an analysis of trader and liquidity provider behavior, and the third will be at least three proposals for incentive mechanisms to allow the DAO to achieve its goals.

Gauntlet said that it expects all three of these deliverables to be completed by June.

Devin Walsh, executive director of Uniswap Foundation, expressed hope that Gauntlet’s research will help to improve not only the Uniswap protocol but also the crypto ecosystem as a whole, stating:

“One of our goals at the Uniswap Foundation is to build long-term relationships with the most talented and values-aligned teams in the space, and work with them on the most complex and interesting questions facing the Uniswap Protocol.”

DAOs have become a basic feature of the crypto economy over the past few years, with DAO analytics provider DeepDAO currently listing over 2,300 existing DAOs. Most DAOs are governed by tokenholders, who are allowed to vote directly on the blockchain to support or reject proposals for changes to a protocol.

However, token-based DAO governance has also been criticized by some industry experts, including Ethereum Founder Vitalik Buterin, who stated that this system could lead to “vote-buying” and “outright attacks.”

Over the past few months, some DAOs have attempted to provide better incentive mechanisms in the hopes of preventing vote-buying attacks. For example, MakerDAO passed a constitution on March 27 to formalize governance processes and provide checks and balances to prevent concentration of power.

French central bank looks at certification, incorporation as part of DeFi regulation

The Banque de France presented a well-written consideration of issues related to DeFi and the forthcoming MiCA regulation, with suggestions.

The Banque de France has contributed to the discussion of European crypto asset regulation with a close examination of decentralized finance (DeFi) and potential approaches to its regulation. The discussion is timely, given the growing use of tokenization in finance and the introduction of blockchain technology in many economic sectors, the authors said.  

The paper, written by members of the Fintech-Innovation Hub at the French central bank’s Prudential Supervision and Resolution Authority, notes that the term “DeFi” represents a range of crypto asset services, technologies and associated risks, which cannot be adequately addressed with current regulations:

“The main idea developed in this paper is that the regulation of disintermediated finance cannot simply replicate the systems that currently govern traditional finance.”

The paper suggests that regulation through certification could strengthen blockchain infrastructure security, decentralized autonomous organizations (DAOs) could be supervised by making them incorporate, and control over the intermediaries that allow access to DeFi services could enhance customer protection. As currently written, the European Union’s Markets in Crypto-Assets (MiCA) regulation excludes fully decentralized services from its scope and would have to redefine “crypto asset service providers” to make it possible to extend regulation to DeFi intermediaries.

Blockchain code could be subject to minimum standards, the paper argues. However, controlling the concentration of validation capacities in a DAO would be fraught with complexities and knock-on effects on a public blockchain, so the authors prefer a “resolution mechanism” that can be triggered after a cap has been reached. A private blockchain has the advantage of selecting trusted players but would require a more specific regulatory framework.

Related: French central bank pilots blockchain-based CBDC for debt market

Furthermore, the code in smart contracts could be subject to certification through a variety of mechanisms to assure it functions as intended, the paper says. Decentralized oracles could be regulated to avoid collusion.

Stablecoin regulation would be a necessary complement to DeFi regulation, as stablecoins “are now essential to the functioning of DeFi.” This is complicated under the MiCA framework, due for its final vote this month, as “the MiCA Regulation does not apply to services provided in a fully decentralized manner without any intermediary.” An additional rule would have to be introduced here, too, for the regulation of stablecoin use in DAOs.

At 45 pages, not including a consultation questionnaire, the paper’s argumentation is dense. Nonetheless, the English translation distinguishes itself with its clear language and thorough descriptions of DeFi technology and the issues it perceives with it.

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Community wants Arbitrum Foundation to return 700M ARB to DAO Treasury

A new proposal asks the Arbitrum Foundation to return 700 million ARB tokens after community backlash. Voting ends on April 14.

The Arbitrum community has initiated a new proposal requesting the Arbitrum Foundation to return 700 million ARB tokens to its DAO Treasury. The move comes after the Arbitrum Foundation transferred the funds without receiving the community’s approval in March. 

According to the proposal, the foundation should proceed with its budget plan only after returning the tokens. “This is a symbolic gesture to demonstrate that the governance holders ultimately control the DAO, not the Arbitrum service provider nor the Foundation,” said a community member.

Voting will end on April 14. At the time of writing, 55% of voters supported the proposal, 42% opposed it, and 2% abstained.

Screenshot: AIP 1.05: Return 700M ARB to the DAO Treasury. Source: Arbitrum’s DAO.

The dispute between Arbitrum’s foundation and its community started at the end of March, following the foundation’s first governance proposal (AIP-1), which called for funding its operations with 750 million ARB tokens — worth nearly $1 billion.

Following backlash from community members, the foundation said in a forum post on April 2 that AIP-1 was a ratification, not a proposal. It added that some of the tokens were already sold for stablecoins. At that time, the foundation noted that its symbolic first governance attempt failed due to communication problems and decisions that were “clearly not articulated correctly.”

A few days later, the Arbitrum Foundation released a set of new improvement proposals aimed at restoring community dialogue. The new proposals include AIP-1.1, which covers a smart contract lockup schedule, spending, budget and transparency. The other, AIP-1.2, tackles amendments to current founding documents and lowers the proposal threshold from 5 million ARB tokens to 1 million ARB “to make governance more accessible.”

The efforts, however, did not resolve the issues with ARB holders. “The foundation has unilaterally been allocated $750M tokens from the DAO that was not approved by the governance tokenholders. Any funds must be returned until it has been properly allocated by the DAO and the DAO only,” the proposal says.

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Aragon and Polygon Labs collaborate to boost DAO accessibility

The collaboration is set to allow users to build decentralized autonomous organizations quickly and securely, for less than 50 cents, with no coding required.

Aragon, an open-source framework designed to launch decentralized autonomous organizations (DAOs), has revealed that its infrastructure is now available on the Polygon network. 

The collaboration between Aragon and Polygon Labs will offer users a cost-effective and accessible solution for creating and managing DAOs. The partnership will enable users to build DAOs quickly and securely, for as little as 50 cents, with no coding required.

A DAO is an organization that is run through rules encoded as computer programs on a blockchain. Unlike traditional organizations, DAOs operate without a central authority or hierarchy and rely on a distributed network of stakeholders to make decisions and govern the organization.

Through the partnership, users will be able to leverage Aragon’s “lean codebase” and Polygon’s layer-2 blockchain to rapidly launch DAOs without requiring technical expertise. By employing fully on-chain technology, this new method aims to lower the barriers and costs linked with establishing and administering DAOs, thereby enabling people worldwide to participate in the process at an affordable rate.

Sandeep Nailwal, the co-founder of Polygon Labs, said the partnership would make on-chain governance “accessible to everyone in the world,” thereby contributing positively to the “mass adoption of blockchain technology.” 

Established in 2016, Aragon and Polygon have a history of collaboration. In September 2021, Aragon’s initial products were introduced on Polygon’s platform, leading to the creation of more than 6,000 DAOs.

Related: Reddit deploys Gen 3 NFT avatar contracts on Polygon

On March 27, Polygon released its open-source zkEVM Ethereum scaling technology to the mainnet, a zero-knowledge rollup (zk-Rollup) scaling solution equivalent to the Ethereum Virtual Machine. The technology allows thousands of transactions to be batched off-chain, reducing transaction costs and increasing the throughput of smart contract deployments. The technology is set to facilitate the reduction of gas fees for decentralized application users and enable developers to copy existing smart contracts to Polygon’s zkEVM easily.

Arbitrum’s first governance proposal sparks controversy with $1B at stake

The Arbitrum Foundation announced that it was only ratifying an existing decision when it proposed a 750 million ARB tokens budget.

A proposal to fund the Arbitrum Foundation with 750 million ARB tokens — nearly $1 billion — raised controversy in the ARB community over the weekend after the foundation announced that the vote was only to ratify a decision that had already been made. 

The conflict comes after a few days the layer-2 protocol airdropped its governance token.

According to the AIP-1 proposal on Arbitrum’s DAO, the 750 million tokens would be used to cover “Special Grants, reimbursing applicable service providers […] and covering ongoing administrative and operational costs of The Arbitrum Foundation.” Over 70% of tokens taking place in the vote had been cast against the move at the time of writing:

Screenshot: AIP-1: Arbitrum Improvement Proposal Framework. Source: Arbitrum DAO. 

After facing backlash from community members, the foundation said in a forum post on April 2 that AIP-1 was a ratification, not a proposal. It added that somof the tokens were already sold for stablecoins. In other words, its billionaire budget and allocations would not be subject to an on-chain governance process. 

Nearly 50 million ARB tokens were moved on-chain in the past few days. The foundation said 40 million tokens had been allocated as a loan to a sophisticated actor in the financial markets space, while 10 million tokens have been converted to fiat currency for operational costs. 

The Arbitrum Foundation said the symbolic first governance attempt failed due to communication problems and decisions that were “clearly not articulated correctly,” writing:

“One of the mistakes in the drafting of AIP-1 was a failure to note at the outset that this proposal was intended to act as a ratification of the initial setup of both the Arbitrum DAO and the Foundation that has been created to serve the DAO. […] the point of AIP-1 was to inform the community of all of the decisions that were made in advance.”

Commenting on the governance forum, members of the community pointed out that Arbitrum’s team “has been dumping tokens that were initially informed to the community as locked tokens,” claiming that “all tokenomics page shows only User airdrop + DAO airdrop tokens as unlocked” with remaining “tokens to unlock in March 2024.”

Others highlighted that under the United States securities laws, the anticipated sale would be considered fraud and that U.S. citizens who have bought ARB tokens or claimed the airdrop “are eligible for legal remedies.”

“I will be pursuing this with my lawyers and expect to file a securities fraud lawsuit in the next few days. […] Immediately, the Arbitrum Foundation is advised to halt all illegal sales of the token that are being done without any authorization and against the provisions of the law,” said a community member.

Arbitrum’s blockchain holds 65% of the Ethereum layer 2 market share, according to data from the layer-2 analytics site L2Beat. The highly anticipated launch and airdrop of its native governance token took place on March 23, with hundreds of thousands of eligible users and DAOs claiming ARB. Overwhelming user demand led the airdrop claim page to crash shortly after its launch, Cointelegraph reported. 

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Update (April 2, at 21:03 UTC): This article has been updated to insert information about 50 million ARB tokens moved on-chain.