‘Not a bet against Arbitrum’ – Why Blockworks is leaving its DAO role

Blockworks Advisory announced that it would wind down its Arbitrum governance role. This move highlights how DAO-run firms are changing their governance models. In a statement on the 1st of June, the firm billed the move as a realignment and not a bet against the Layer 2 (L2) chain.  Stepping back from active delegation is, for Blockworks, a way to align with the current business goals of our organization, and should not be read as a lack of appreciation for Arbitrum nor a bet against the Arbitrum DAO itself. Blockworks said it believes the DAO has a ‘bright future’ and urged delegators to seek active contributors as alternatives.  DAO's shifting landscape DAOs represent community token holders and vote on proposals affecting the chain. Token holders can choose the preferred DAO delegate to voice their concerns. Currently, Blockworks is the second-largest Arbitrum delegate after Entropy Advisors.  Why are DAOs facing pressure? Historically, DAOs were part of the three-layered approach for blockchains. Notably, the Labs companies raise capital and build the network. Aave Labs for Aave or Offchain Labs for Arbitrum are examples of these Lab companies.  The Foundation acts as the legal bridge between the chain and the rest of the world. It funds operations from the treasury reserve, dominated by the chain’s native tokens. That’s where Aribitrum Foundation falls in.  Finally, the DAO or governors decide how the treasury is speto be nt to improve the network. This was the best way to avoid regulatory issues and claim "decentralized." But the Aave-DAO governance conflict showed how the three-layered approach is losing its relevance. Labs or the original chain builders now want more say and control in the chain. The spat has forced a key Aave DAO delegate and builders to quit the protocol, driving losses to AAVE token holders.  One of the reasons for the changes is increased regulatory clarity. Several Biden-era enforcement actions by the SEC have been dropped. Besides, the CLARITY Act has clear rules for a ‘mature blockchain’ and treatment of DAOs.  In fact, a recent European Central Bank (ECB) study found that most DeFi DAOs aren’t as decentralized as they claim, noting that few voters control upto 96% of delegated power.  Joseph Axisa, a specialist in legal advisory and managing partner at Axis Group, echoed these changes and noted,  As DAOs continue to die (get killed by Labs Co’s), this is a decision that will become more common amongst several professional delegates. Following the update, ARB dropped 6%, which was partly accelerated by Bitcoin’s extended pullback.  Final Summary Blockworks will wind down its Arbitrum governance role and urged its current delegates to look for alternative DAO delegators.  The move is part of a broader shift amid increased tension between DAOs and Labs, the original developers of the chains.