Why Arbitrum DAO’s $200m gaming play came under fire by frustrated members

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

The DAO called the project the Gaming Catalyst Program and endowed it with with 225 million ARB tokens, worth about $200 million at the time.

Since then, the ARB token has dropped more than 60%, and the program now has about $86 million.

Frustration has boiled over as losses mount and the initial promise fades.

On Monday, two DAO members proposed 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 allocate capital,” said Arbitrum DAO delegates Nathan van der Heyden and GFX Labs in their clawback proposal.

The proposal has split members and prompted Arbitrum’s Gaming Catalyst Program, or GCP, to appoint a liaison that will report to 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 in the cooperative’s governance forum.

$185 billion industry

Yet the episode demonstrates 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 proposal was controversial from the start.

Critics called it an outsized sum for an industry that has produced few blockbuster hits despite receiving billions in venture capital.

Van der Heyden declined to comment when contacted by DL News.

Billions of tokens

The delegates’ proposal shows how DAO members are running out of patience with management at the cooperatives that run many blockchain projects.

With “decentralisation” as their guiding principle, many blockchain developers cede 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 out of control and depresses the price of the token that simultaneously grants membership in the cooperatives and comprises the vast majority of their reserves.

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-based, layer 2 blockchain.

“As a network, Arbitrum falls behind several major competitors across total games migrated, games launched, and total gamers,” the proposal 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 others’ tokens to vote on their behalf — voiced their 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 overwhelmingly backed the proposal in a vote in June.

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

David Bolger, GCP council

Since then, the program has lost some key members, including Treasure DAO, according to Van der Heyden and GFX.

More recently, the program “sought to increase contributor compensation and lower its own reporting requirements,” they write.

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,” David Bolger, a member of the GCP council, wrote in the Arbitrum DAO governance forum.

Structured communication

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

But supporters conceded communication from the program has been lacking. To that end, the program on Tuesday hired Arbitrum DAO delegate Castle Labs to serve as its liaison to the DAO.

“Castle Labs will implement a structured communication calendar to ensure timely, clear, and recurring updates,” he said.

Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can reach him at aleks@dlnews.com.