Arbitrum DAO Faces Backlash Over 7,500 ETH Treasury Investment Plans

Arbitrum DAO's Growth Management Committee (GMC) has sparked controversy with a proposal to deploy 7,500 ETH (approximately $16.5 million) from the DAO treasury to non-Arbitrum native protocols. The recommendation, which would direct funds to Lido, Aave, and Fluid, has drawn criticism from developers and delegates who question why no Arbitrum-native projects were included in the allocation.

The proposal represents the first major deployment of idle ETH from Arbitrum's treasury as part of a strategy to generate yield while supporting ecosystem growth. According to the plan, 5,000 ETH (67% of the allocation) would be staked with Lido in exchange for wrapped staked ETH (wstETH), which would then be deposited into Aave V3 on Arbitrum. The remaining 2,500 ETH (33%) would be lent on Fluid's Arbitrum platform.

Committee members justified their selections by focusing on risk management, describing the chosen protocols as "safe applications that achieve conservative yield and strongly support ecosystem growth." The GMC expects the wstETH deposits to generate around 4.54% yield (3.2% from ETH/stETH yield, 0.62% from Aave supply yield, and 0.82% from wstETH deposit incentives). The Fluid allocation should produce 1-2% native ETH yield. With this strategy, the DAO aims to generate approximately $750,000 in annual yield based on current rates.

However, the exclusion of Arbitrum-native protocols has triggered significant pushback. Delegate 'ultra' expressed disappointment on social media, arguing that the selections "signaled that none of the Arbitrum native projects are good enough."

In comments to The Block, ultra added: "I don't think the current allocation is necessarily wrong, it's just the simplest and laziest allocation. If even just 10% of those funds were used in Arbitrum native projects it would already be enough for me to be happy."

Another delegate known as 'JoJo' wrote that it was "quite strange that out of 7,500 ETH, we couldn't even allocate 10% spread in other protocols" to support builders who choose Arbitrum over competing chains.

The committee reviewed proposals from 45 protocols, including Arbitrum-native ones such as Dolomite, GMX, and Camelot. Among the rejected proposals was Dinero's request for 500 orbETH and 500 ETH for Balancer liquidity, Camelot/Jones' plan for 1,000 ETH in LST/LRT pools, and Dolomite's proposal for 500-1,000 ETH supply to borrowers.

In response to criticism, Entropy Advisors, who authored the proposal, stated: "We want to remind all applicants that this is hopefully the first round of many future allocations. The desire is to continually reinvest ETH and stablecoin revenue into the Arbitrum DeFi ecosystem."

Some delegates have also raised concerns about potential conflicts of interest, noting that Wintermute, whose representative Callen Van Den Elst sits on the committee, has financial interests connected to Lido and Aave. The three-member committee also includes Entropy Advisors and LlamaRisk.

The proposal will move to a Snapshot vote on Thursday, February 27, requiring a simple majority with a 3% quorum of votable tokens to pass. Ultra predicted the proposal would likely be rejected, suggesting a revised plan might include "5-40% allocation to Arbitrum native projects."

The GMC and a separate Treasury Management Committee (TMC) were established last year to explore yield-bearing opportunities for Arbitrum's ETH holdings. According to Entropy Advisors, the DAO has "foregone approximately 400 ETH by not staking its idle holdings."

Committee members, except for Entropy Advisors who waived payment, will receive three installments of $20,000 USDC (totaling $60,000 per member) if they meet key milestones during their six-month terms. The first payment triggers after DAO approval of the treasury management recommendations.