1. Introduction

Arbitrum leads the Ethereum Layer-2 ecosystem with $13 billion in total value secured (TVS) as of March  2025—topping all rollups, according to L2Beat. It is also among the few rollups to reach Stage 1 status, highlighting considerable progress in security and decentralisation. A key factor behind Arbitrum’s success is its community-led governance. The Arbitrum DAO, one of the largest by treasury size, with over $1.3 billion in assets under management, and high voter participation relative to other DAOs, allows ARB holders and delegates to propose and vote on core decisions aimed at optimising treasury management, promoting growth and providing incentives through investments and grants.

Meanwhile, organisations such as Entropy Advisors work to improve transparency within the DAO and strengthen its decentralised governance by informing strategic decisions. With multiple onchain proposals advancing every month, tracing voting patterns and funding allocations can be complex. To address this, we have launched a real-time Dune dashboard, offering clear insights into governance activities and treasury usage.

2. How Arbitrum DAO Governance Works

Governance Process

The Arbitrum governance process ensures transparency and community participation through a multi-stage approach. Proposals undergo open discussion on the Governance Forum (7-days minimum), followed by an off-chain Snapshot Vote to gauge sentiment. If supported, slight modifications might be made before advancing the proposal to Tally for onchain voting, where delegates cast binding votes. Proposals approved onchain move to the implementation phase and are then executed within the network. This entire process takes around 5 weeks assuming all things go smoothly, but it oftentimes takes much longer to reach consensus amongst its diverse set of delegate token voters.

Types of Proposals

The Arbitrum DAO oversees both Arbitrum One and Arbitrum Nova, with governance structured around Arbitrum Improvement Proposals (AIPs). These proposals fall into two categories:

• Constitutional AIPs: Introduce changes to the governance framework, core protocol updates, and chain management (e.g., Activate Arbitrum BoLD + Infura Nova Validator Whitelist).
• Non-Constitutional AIPs: Involve treasury allocations, grants, and community-driven initiatives (e.g., Stable Treasury Endowment Program).

As of March 2025, 57 AIPs have undergone onchain voting, with less than a quarter classified as constitutional and the remainder as non-constitutional.

Voting Process

In the Arbitrum DAO, token holders may vote on proposals directly or designate a delegate to vote on their behalf. This approach allows participants to stay involved in governance without tracking every proposal, as delegates vote in accordance with the values of those they represent. Voting power is determined by the quantity of ARB either held or delegated. As of March 2025—nearly two years after the DAO’s formation—there were around 240,000 delegates, collectively wielding 320 million ARB in voting power.

Voting Result

When a proposal goes live on Tally, delegates typically have three voting options: for, against, or abstain. For a proposal to pass in the Arbitrum DAO, it must meet two requirements:

1. Secure more than 50% of votes in favor.
2. Meet the quorum threshold.

Quorum is calculated as a percentage of the total votable tokens:

• Constitutional AIPs: Require at least 5% of abstain and for votes.
• Non-constitutional AIPs: Have a lower threshold of 3%, ensuring governance remains both accessible and robust.

3. Shifts in Governance Participation

Arbitrum’s governance participation has evolved over time, reflecting a common trend observed in many DAOs: an initial surge in engagement, followed by stabilization and a shift toward more concentrated involvement. Voting participation has increasingly transitioned from individual voters to delegated voting. While the number of individual voters has declined, overall participation has remained steady, with a growing proportion of votes now coming from delegates that ARB token holders deem worthy of voting on their behalf. This trend suggests that active delegates have gained the trust of ARB holders, who are increasingly relying on them to represent their interests and make informed voting decisions on their behalf.

The data revealed that, during the first two years of the DAO’s existence, treasury-related proposals—particularly those involving investments and ecosystem incentives—faced the highest level of scrutiny. While these proposals consistently met quorum requirements, their approval rates were lower compared to those of network upgrades. This pattern suggests a more cautious approach to financial allocations within the DAO, reflecting a balance between fostering innovation and maintaining fiscal responsibility.

Interestingly, the highest delegate engagement occurred during governance amendments in the DAO’s early days. As the DAO matured, the focus shifted toward strategic investments, ecosystem funding, and long-term sustainability initiatives.

Voter retention in the Arbitrum DAO reflects the consistency of participation across multiple proposals, offering insights into governance health and community engagement. Cohorts were determined based on the first proposal a new voter participated in, as well as their subsequent participation rates. As the data suggests—and as the DAO approaches its second anniversary—there has been a high retention rate among new voters, indicating robust engagement within the delegate community.

4. A Treasury Built for Growth

The Arbitrum DAO controls the DAO Treasury, which funds the ongoing development and maintenance of the organization and its technology stack. The treasury is fueled by four primary sources:

• ARB Genesis Allocation: At launch, the Arbitrum DAO was allocated approximately 3.5 billion ARB, creating a substantial treasury designed to support long-term ecosystem growth.
• Transaction Fees: L2 base and surplus fees are directed to the DAO treasury, while the L1 base fee covers data submission costs. Soon, Timeboost will add to this revenue line item by enabling certain forms of MEV.
• Arbitrum Expansion Program (AEP): Projects can permissionlessly deploy and customize their own blockchains using the Arbitrum technology stack, Orbit. In return, these projects contribute 8% of their chain revenue to the DAO’s treasury and 2% to the Arbitrum Protocol Developer Guild.
• Treasury Management Programs: By converting idle assets—primarily ARB and ETH—into yield-generating investments, the DAO strengthens its long-term financial sustainability and ensures continued support for key initiatives. Programs like the Stable Treasury Endowment Program (STEP) aim to establish a sustainable treasury management strategy by diversifying into stable, yield-generating real-world assets (RWAs), creating a legal and operational framework for future investments, and supporting ecosystem growth while maintaining DAO control over assets.

The DAO treasury, primarily composed of ARB, ETH, and RWAs, funds a diverse range of initiatives, with the largest allocations directed toward ecosystem growth, developer incentives, and infrastructure investments. While operational expenses (OpEx) are often included in funding allocations, this approach is not always the most cost-effective for the DAO. To address this, OpEx is tracked by proposals, enabling the community to benchmark and compare appropriate spending levels. This practice aims to minimize unnecessary expenditures and maximize the funds allocated to impactful initiatives.

In the first two years of the DAO’s existence, over $700 million in funding was allocated to a wide range of proposals, with the majority sourced from the DAO’s ARB treasury. During the first year, funded proposals primarily focused on incentives to support the growth of protocols building on Arbitrum and to expand the network as a whole. In the second year, proposals centered on investments to diversify the DAO’s treasury, as well as grants, gained significant traction.

5. Conclusion and Future Prospects

As Arbitrum’s ecosystem expands, its governance mechanisms can evolve to encourage broader participation, enhance transparency, and optimize treasury management. The DAO’s ability to navigate these complexities will be pivotal in shaping Arbitrum’s trajectory within the decentralized finance landscape, balancing financial prudence with strategic funding to ensure long-term growth and sustainability. Decentralized governance is more than just a system—it is a living, evolving process driven by the community. As Arbitrum continues to push the boundaries of blockchain scalability, its governance model will serve as a pioneering experiment in the power and potential of decentralized decision-making.

On the other hand, decentralized organizations often face challenges in attracting and retaining top talent, navigating complex governance structures, and maintaining accountability. Without effective coordination, decision-making processes can become inefficient, hindering the growth and sustainability of DAOs. At Entropy Advisors, we bridge the gap between structure and flexibility to enhance the efficiency, transparency, and strategic direction of DAOs, fostering environments where innovation and accountability thrive. By optimizing governance models, facilitating effective communication, and providing expert advisory services, we empower DAOs to reach their full potential. We believe the future of crypto lies in well-coordinated, professionally managed DAOs that can scale without compromising decentralization. As blockchain networks continue to evolve, we remain committed to refining governance frameworks that uphold the principles of transparency, participation, and long-term sustainability.