Are Arbitrum, Wintermute, Terra, FTX, and Alameda related?

The Arbitrum Foundation, the team behind popular DeFi scaling project Arbitrum, has been criticized by the community for selling its ARB without permission. The fund issued a staggering 2.7 billion ARBs, worth $3.2 billion, and intends to sell 700 million of them to cover operating costs and provide special grants. That’s a total of $840 million, which means each team member could get $65 million if the LinkedIn profile is accurate.

While the Arbitrum ecosystem has gained attention as ethereum’s DeFi scaling solution, some blockchain developers have questioned the need to issue such large but difficult-to-manage tokens. The circulating OP of competitor Optimism is only 315 million, which is only 1/9 of Arbitrum.

Things got more complicated when the community realized that the platform was selling ARBs without the approval of ARB holders. Initially, the platform promised to move to a decentralized autonomous organization (DAO), giving ARB holders a voice in Arbitrum’s governance. However, when the fund proposed allocating $1 billion worth of ARB tokens to itself in the name of management fees and special allowances, ARB holders voted against the proposal.

Unexpectedly, the platform sold some ARB tokens before the proposal was submitted for voting. When questioned by the community, the foundation stated that the first proposal was only to approve the decision made by the foundation. The incident revealed governance issues within the Arbitrum ecosystem and raised questions about the effectiveness of community due diligence.

COINGEEK author Jordan Atkins, a graduate of the University of Auckland Law School, weighed in on the issue, saying that “Arbitrum’s promise of decentralization is just a front.” Will give token holders any decision-making power, showing that it is not a decentralized autonomous organization.

Atkins also raised concerns about Arbitrum’s relationship with its market maker Wintermute. Wintermute received $40 million in ARB as part of a dividend agreement worth $1 billion. The London-based digital asset hedge fund is known for its rapid growth in returns in 2021, with profits rising from about $23 million at the end of 2020 to more than $500 million by December 2021. It earned more crunch during Terra last year.

Wintermute executed a $250 million UST-LUNA arbitrage trade when Terra crashed in May and made tens of millions of dollars in profit. Forbes reported that Wintermute bought UST for $0.8, exchanged it for $1 worth of LUNA, and then sold the LUNA back for a profit. This trade continued until UST dropped to around $0.10.

Wintermute’s job of generating revenue and performing well during Terra’s crisis falls to CEO Evgeny Gaevoy. Forbes compared Gaevoy to Alameda Research’s Sam Bankman-Fried (SBF), praising him for his ability to deftly navigate the cryptocurrency market and win big in times of crisis. As of December, Wintermute had $400 million in equity and $720 million in assets, according to Gaevoy.

The CEO’s wife is also the COO of the Wintermute Ventures subsidiary. Despite its success, Wintermute has no swap and is said to be intent on filling the void left by FTX.

With the controversy surrounding Arbitrum and its relationship with Wintermute, many have begun to question the legitimacy and governance of the ecosystem. Let us wait and see how the platform handles doubts and whether the project can regain the trust of the community.

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according to Kyptos

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