Arbitrum DAO Proposes Clawing Back $185M It Bet on Gaming

Last year, Arbitrum DAO, a digital cooperative that runs the Arbitrum blockchain, made a massive bet on gaming.

Last year, Arbitrum DAO (CRYPTO: ARB) made a large bet on gaming.

The DAO called the project the Gaming Catalyst Program and endowed it with with 225 million ARB tokens, which was worth about $200 million at the time. But since then, the ARB token has dropped more than 60%, and the program now has about $86 million.

As frustration boils over with the burn rate and the initial promise fades, two DAO members on Monday proposed shutting down the program and clawing back most of the $86 million the cooperative had approved to invest in companies building games for Arbitrum.

“We must wind down GCP activities and secure all possible funds in order to safeguard the DAO’s funds and restore investor confidence in the ability of this DAO to capital allocate capital,” said Arbitrum DAO delegates Nathan van der Heyden and GFX Labs in their clawback proposal.

The proposal will likely split members and prompt Arbitrum’s Gaming Catalyst Program, or GCP, to make more effort to engage with the cooperative.

“This collaboration is a direct response to your feedback and signifies our renewed focus on fostering a more transparent, engaged, and collaborative relationship with the Arbitrum DAO,” GCP contributor Rock Johanson wrote of the liaison in the cooperative’s governance forum.

$185 billion industry

The episode shows how major DeFi projects have continued to eye the $185 billion online game industry as a potential cash cow years after GameFi electrified the crypto market, and then ebbed.

Arbitrum’s GCP was controversial from the start. Some members said it was an outsized sum for an industry that has yet to produce any blockbuster hits despite receiving billions in venture capital.

One delegate, GFX, attempted to scuttle the program, saying it was “an enormous amount of money for an industry vertical with no visible winners.” But the DAO backed the proposal in a vote in June.

Billions of tokens

The delegates’ proposal shows how DAO members are growing impatient with management at the cooperatives that run many blockchain projects.

With “decentralisation” as their goal, many blockchain developers hand over control of their product to its users. These user-led cooperatives — decentralised autonomous organisations, or DAOs, in crypto parlance — often have billions of tokens at their disposal, which they use to pay service providers and lure new projects.

Some have argued that spending at DAOs is excessive and depresses the price of the token that simultaneously grants membership in the cooperatives and comprises the vast majority of their capital.

Turbocharged

Karel Vuong, founder of video game developer Treasure DAO, co-authored the Gaming Catalyst Program, which was designed to funnel money toward game publishers and developers over a three-year period.

Online games are increasingly relying on in-game collectibles to boost profits, and some studios have explored issuing those collectibles as blockchain-based non-fungible tokens, or NFTs.

In March 2024, he pitched it as a way to turbocharge game development on the largest Ethereum (CRYPTO: ETH)-based, layer 2 blockchain.

“As a network, Arbitrum falls behind several major competitors across total games migrated, games launched, and total gamers,” the proposal for the Gaming Catalyst Program reads.

“We believe that earmarking an aggressive budget to attract builders and retain talent will result in a few major wins.”

Several Arbitrum delegates — members who use other people’s tokens to vote in the cooperative — have voiced concern with the size of the Gaming Catalyst Program.

GFX attempted to scuttle the proposal, saying it was “an enormous amount of money for an industry vertical with no visible winners.” But the DAO backed the proposal in a vote on 12 June.

‘Over 50 deals have been put forward to the GCP, yet fewer than 5% have reached the final stages.’

Since then, the program has lost some key members, including Treasure DAO, according to the clawback proposal from two Arbitrum delegates.

More recently, the program “sought to increase contributor compensation and lower its own reporting requirements,” they add. And it published its bylaws in February — an unacceptably long time, according to critics.

But GCP contributors have leaped to defend the program and argued its slow progress is proof it doesn’t intend to spend the money with abandon.

“To date, over 50 deals have been put forward to the GCP, yet fewer than 5% have reached the final stages—demonstrating a clear commitment to due diligence,” said Arbitrum Gaming Catalyst Program council member David Bolger.

Structured communication

“While this approach has led to some frustration within the ecosystem, it ultimately ensures that treasury funds are allocated effectively, rather than being distributed indiscriminately or carelessly.”

But supporters conceded communication from the program could be better. To that end, the program on Tuesday appointed Arbitrum delegate Castle Labs to serve as its liaison to the DAO.