Arbitrum's attempts to transfer control to its community did not go as planned. The initiative faced significant backlash, with critics labeling the first governance proposal a "Sham Vote" and accusing it of being mere decentralization theater. This controversy caused the ARB token to lose over 18% of its value before the weekend, as reported by CoinGecko.

The dispute centers on the DAO's proposal to establish an Arbitrum Foundation governed by the community. It was suggested that $1 billion worth of ARB be allocated to the foundation for debt repayment and other expenses. However, Blockworks Research revealed that 750 million ARB had already been earmarked for the Foundation, suggesting the vote was a mere formality. Additionally, 50 million ARB was sent to Binance on March 23, 2023, to start trading.

Jason Schwartz from Fried Frank noted the challenge Arbitrum faces in proving the vote's legitimacy to courts and regulators. Another critic, Olimpio, who holds 18 million ARB, voted against the proposal and tweeted that Offchain Labs could have avoided controversy by clearly stating the allocation of 750 million ARB tokens to the Foundation, as done by Starknet and the Optimism Foundation.

The Arbitrum Foundation has acknowledged communication failures. Foundation member Patrick McCorny stated that the funds are being used for the DAO's benefit, including conversion into stablecoin. Of the 50 million tokens sent to Binance, 40 million were loaned to Wintermute, and 10 million were allocated for operational expenses.

Due to the overwhelming vote against the proposal, amendments are being made. Arbitrum will reintroduce the proposal for a new vote and release a transparency report detailing fund usage. Additionally, the 750 million ARB will undergo a four-year vesting period and will not be used in the voting process.