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Transparency report: Initial foundation setup

Introduction​

The establishment of The Arbitrum Foundation, a Cayman Islands foundation company, was a critical first step in the establishment of the DAO. The Arbitrum Foundation serves the ArbitrumDAO community and is governed by it, aiming to foster the growth and development of the Arbitrum ecosystem while remaining accountable to the community.

This document acknowledges the actions that were required in advance of the DAO setup in order to legally comply with registration and operational requirements. The Arbitrum Foundation believes it is important for the community to understand all actions taken in the lead-up to DAO formation (especially for one as large as this), and therefore seeks to describe documents and activities conducted by the Foundation on the DAO's behalf.

This document sets forth a transparent summary of what has occurred thus far; the structure of a decentralised autonomous organisation (the "ArbitrumDAO"), that is governed by holders of $ARB, responsible for fostering, developing, authorising and governing the ArbitrumDAO-governed chains (as defined in the ArbitrumDAO Constitution) and its governance powers over The Arbitrum Foundation.

The ArbitrumDAO has the ability to submit Arbitrum Improvement Proposals ("AIPs"), vote on them and approve through on-chain execution or actions of The Arbitrum Foundation. The guiding values of The Arbitrum Foundation and ArbitrumDAO are described in Section 5 of the ArbitrumDAO Constitution.

Through the submission of AIPs in line with the constitution, the ArbitrumDAO is able to collectively decide and effectuate changes ranging from core protocol technology to non-technical decisions that otherwise impact the community and $ARB tokenholders. Throughout this transparency report below, it's noted where decisions made during Foundation setup can be modified by an AIP, and the process for doing so.

1. Foundation Governance: Directors​

As a Cayman Islands foundation, The Arbitrum Foundation is required to have at least 1 director responsible for the management and operation of The Arbitrum Foundation, in particular approving and entering into contractual arrangements on behalf of The Arbitrum Foundation (i.e., the parties actually approving and signing agreements). These directors were required to be appointed as part of the initial set-up of the Foundation.

The initial directors of The Arbitrum Foundation are the following individuals:

  • Campbell Law is the founder of Silverside Ltd, and co-founder of Provenance Ltd. He has over 30 years' experience in the financial services industry in the Cayman Islands. He has considerable experience working within the offshore world including 11 years as a VP at Goldman Sachs and now focuses on corporate governance for Cayman Islands entities.
  • Edward Noyons is a director of Marfire and co-founder of Autonomous and is focused on providing directorship and DAO services to web3 funds, DAOs / foundations and OpCo’s. He most recently served as an audit director at a Big-4 Audit, Tax and Advisory firm where he worked for 11 years, 8 of which were in the Cayman Islands.
  • Ani Banerjee worked at Citigroup, Cheyne Capital and BlackRock, as an investor, for the first fourteen years of his career. Since 2017 Ani has been a private investor in various companies and advises them closely on strategy and corporate governance.

As laid out in the Foundation's governing documents, the ArbitrumDAO has significant authority over the directors as it may remove or elect The Arbitrum Foundation's directors, or expand or reduce the number of directors at any time pursuant to a Non-Constitutional AIP.

2. Initial Set-up Costs of The Arbitrum Foundation and ArbitrumDAO and Initial Operating Funds​

The Arbitrum Foundation incurred pre-launch costs to set up the Arbitrum DAO and governance. The work included careful consideration and guidance of legal structures and technical expertise and development. This was done in the spirit of providing a safe, legal and technical framework to allow the DAO to self-govern on a trusted platform, and to allow for the safe transfer of the Arbitrum One and Arbitrum Nova networks to the DAO from both a technical and legal perspective.

With the launch of the ArbitrumDAO, the responsibility for operation of the Arbitrum network was transferred to the ArbitrumDAO. As part of its responsibilities to the DAO, the Foundation has assumed the costs of paying for operations, blockchain operation, infrastructure, service contracts, and ongoing improvements to the Arbitrum ecosystem. In addition, the net on-chain fee revenue (the net difference between fees collected by on-chain operations and L1 fees paid by the Sequencer) from the Arbitrum One and Arbitrum Nova chains is now being sent to the ArbitrumDAO treasury. As such, the ArbitrumDAO will need to ensure The Arbitrum Foundation is adequately funded going forward to continue operating core infrastructure for the Arbitrum network including the Sequencer and public RPC interface.

In total, 7.5% of the token supply was distributed to the Foundation when the token supply was generated. 0.5% of $ARB tokens were needed to complete initiation of the DAO. Of the 0.5%, 0.4% of $ARB tokens were provided as a loan as previously disclosed. The other 0.1% was sold to meet the obligations of initial governance setup and initial and near-term operating funds. This has been distributed to the Foundation in order to satisfy these upfront and near-term costs on behalf of the DAO.

These tokens were intended to fund the following expenses:

  • DAO administration setup and registration fees
  • Legal costs
  • Chain service provider fees
  • Director fees
  • Fund near-term operating costs
  • Contracts with third parties

Aside from the distribution to the Administrative Budget Wallet, 35.27% of the token supply was distributed to the on-chain DAO treasury, 11.62% to individual wallets, and 1.13% have been allocated to DAOs in the Arbitrum ecosystem.

3. On-Chain DAO Governance​

The Governance Structure was established in line with the The Constitution of the Arbitrum DAO.

Governance powers breakdown​

1. $ARB Tokenholders

  • $ARB tokenholders, who make up the ArbitrumDAO, play the most critical role in the proper functioning of decentralised governance in the pursuit of a trustless, transparent and verifiable Arbitrum ecosystem. As Arbitrum is intended to be a public good, it is only right that governance over it should be directed by those for whom such public good is intended.
  • $ARB token holders have the ability to directly propose, vote on and effectuate on-chain AIPs with respect to the ArbitrumDAO-governed chains.

2. Security Council

The Security Council is a committee of 12 members of a multi-sig wallet which has the ability to perform both Emergency and delayed Non-Emergency Actions, further detailed in Section 3 of the ArbitrumDAO Constitution.

The Security Council was required to be operational at the time the DAO launched, as they would be required to mobilise in cases where a critical vulnerability has been identified that could significantly compromise the integrity or availability of a chain governed by the ArbitrumDAO, or to ensure that any actions of the DAO abide by the rules of the Constitution.

The initial Security Council members, split by cohort, are as follows:

i. September Cohort

  1. Mo Dong is the Co-Founder of Celer Network. Mo received a PhD from the University of Illinois Urbana-Champaign in computer science.
    • 0x526C0DA9970E7331d171f86AeD28FAFB5D8A49EF
  2. Harry Kalodner is Co-Founder and CTO at Offchain Labs. Harry started working on building Arbitrum while studying at Princeton University.
    • 0xf8e1492255d9428c2Fc20A98A1DeB1215C8ffEfd
  3. Diane Dai is the Co-Founder of DODO, a leading decentralised trading platform. Diane has extensive marketing experience in Defi space since 2017 and was named to Forbes Asia 30 under 30 in 2022.
    • 0x0E5011001cF9c89b0259BC3B050785067495eBf5
  4. Caleb Lau has been a software engineer at Etherscan since 2019. He works closely with L2 scaling teams to bring users the Etherscan experience on the explorer front.
    • 0x8688515028955734350067695939423222009623
  5. Ed Felten is Co-Founder and Chief Scientist at Offchain Labs. Prior to this, Ed served as the Robert E. Kahn Professor of Computer Science and Public Affairs at Princeton University. Ed also served as the Deputy U.S. Chief Technology Officer from 2015-17.
    • 0x6e77068823f9D0fE98F80764c21Ec294e4d96AdB
  6. Bryan Pellegrino is Co-Founder and CEO at LayerZero Labs, an omnichain interoperability protocol. Bryan is a multi-time founder/serial entrepreneur who has been active in crypto for more than 10 years.
    • 0x8e6247239CBeB3Eaf9d9a691D01A67e2A9Fea3C5

ii. March Cohort

  1. Patrick McNab Is a Co-founder of Mycelium which has been developing and deploying decentralised financial infrastructure since 2018. Mycelium (previously Tracer DAO) were one of the first protocols deployed on Arbitrum in 2021 and support the Arbitrum ecosystem through running validators and Chainlink nodes.
    • 0x566a07C3c932aE6AF74d77c29e5c30D8B1853710
  2. Justin Drake has been a researcher at the Ethereum Foundation since 2017. He focuses on Ethereum consensus layer upgrades.
    • 0x5280406912EB8Ec677Df66C326BE48f938DC2e44
  3. Bartek Kiepuszewski has been a blockchain architect at MakerDAO since 2017. He also co-founded l2beat.com and TokenFlow Insights. Bartek holds a PhD in computer science from Queensland University of Technology.
    • 0x0275b3D54a5dDbf8205A75984796eFE8b7357Bae
  4. Rachel Bousfield has been a software engineer at Offchain Labs since 2021. She is currently leading the development of Stylus.
    • 0x5A1FD562271aAC2Dadb51BAAb7760b949D9D81dF
  5. Patricio Worthalter has been working full time in the Ethereum space since 2015. In 2018 he founded POAP, a web3 native public good that mints digital collectibles for the preservation of memories.
    • 0xf6B6F07862A02C85628B3A9688beae07fEA9C863
  6. Yoav Weiss is a security researcher at the Ethereum Foundation and has been building in the Ethereum space since 2017, working on account abstraction (ERC-4337), OpenGSN, L2 security, etc. Yoav brings over 25 years of experience and has developed security technologies used by industry leading companies.
    • 0x475816ca2a31D601B4e336f5c2418A67978aBf09

Compensation:

  • Security Council members are each paid $5,000 per month in $ARB tokens for their time, expertise, and efforts in serving the community.

Security Council Elections:

For absolute clarity, as laid out in the Constitution, the DAO may appoint and elect members of the Security Council and may even expand or reduce the powers of the Security Council through a constitutional AIP.

3. Data Availability Committee (Arbitrum Nova chain only)

Transactions occurring on the Arbitrum Nova chain are settled on Ethereum mainnet, but, unlike transactions occurring on the Arbitrum One chain, the underlying transaction data batches are posted and stored by the members of the Data Availability Committee on a Data Availability Server (and not on Ethereum mainnet). The Committee has already been providing this service for the Arbitrum Nova chain for the past 6 months, ensuring its speed and security.

The initial members of the Data Availability Committee of the Nova chain are authorised representatives of the following parties:

  • Reddit, Inc.
  • ConsenSys Software Inc.
  • QuickNode, Inc.
  • P2P.org
  • Google Cloud
  • Offchain Labs, Inc.
  • Opensea Innovation Labs Private Limited

Data Availability Committee members can be appointed and removed at any time pursuant to a Constitutional AIP approved by the ArbitrumDAO. In the event that a Data Availability Committee member is removed (and not otherwise replaced) pursuant to a Constitutional AIP approved by the ArbitrumDAO, or in the event that a Data Availability Committee member resigns without a replacement, the Security Council may execute an emergency action (9-of-12 approval required) to appoint a replacement for such removed or resigned Data Availability Committee member.

The decision was made for a distribution of 20% of the L2 base fee on the Arbitrum Nova chain with a split of 8% to the Data Availability Committee and 12% to the Arbitrum Nova Validators. These entities are critical given the security, availability, and performance that they provide to Arbitrum Nova, with this distribution enabling these groups to provide continued support. This allocation can be reduced, expanded, or eliminated pursuant to a Constitutional AIP approved by the ArbitrumDAO.

The DAC and Validators are only given a share of the base fee but not congestion fees, so that no member will be incentivized to promote on-chain congestion. 100% of Nova's congestion fees and the remaining 80% of its base fee is sent to the DAO treasury.

4. Arbitrum Voting Protocol Procedure

Section 2 of the ArbitrumDAO Constitution lays out the AIP process and voting procedures, as well as the various categories of AIPs and is not incorporated in this report.

There are several governance avenues available, each serving its own purpose.

  1. Discourse: https://forum.arbitrum.foundation/ is a discourse forum for governance related discussions. Community members must register for an account before sharing or liking posts.
  2. Snapshot: https://snapshot.org/#/arbitrumfoundation.eth is an off-chain voting interface that allows the community to signal sentiment on the proposed AIP.
  3. Tally: Tally.xyz serves as the initial on-chain voting platform for the ArbitrumDAO to submit and vote on AIPs

Tally serves as a front-end user interface that allows DAO members to do several things, namely:

  • Create AIPs;
  • View delegates and their voting share;
  • Re-delegate votes to a different delegate;
  • View current and past AIPs;
  • Vote on AIPs on-chain, interacting with the on-chain governance contracts via the Tally front-end; and
  • View the status of AIP execution during all voting stages

The process of voting, choice of any of the tools, and length of voting can be changed by the community through a Constitutional AIP.