Aragon

Degen

The Aragon Association found itself at the center of a controversy this week when it took control of $200 million from its own four-month-old Aragon DAO. The Association, a Swiss nonprofit dedicated to facilitating the creation of <a href="https://www.cryptopolitan.com/aave-accelerate-growth-new-proposal-approval/">DAOs</a>, aimed to safeguard the funds from a group of activist investors led by asset management firm Arca. Arca had been urging the Association to initiate a buyback of tokens issued in a 2017 crowdfunding event, as a means to return money to investors.



Activists in the decentralization sphere quickly decried this move. In response, Aragon issued a statement on Thursday, pledging to return the funds via a &#8220;gradual transfer approach&#8221; and engage in discussions with Arca and other activist investors.



This incident has brought DAOs&#8217; token-based governance into question. DAOs, some managing billions in user deposits, are coming under increased regulatory scrutiny as they grapple with balancing capital raising needs with their founding principles.



<h2 class="wp-block-heading" id="decentralized-autonomy-under-scrutiny">Decentralized autonomy under scrutiny</h2>



Arca co-founder and CIO Jeff Droman stated, “If you issue a token, you now become a fiduciary to those token holders.” DAOs have become an attractive target for activist investors who amass a significant stake, in the form of tokens with voting rights, to influence the organization&#8217;s operations.



Activist investors could potentially profit by acquiring enough tokens to secure a majority vote, then vote to distribute the organization&#8217;s treasury among token holders. This strategy is a &#8220;pure arbitrage play,&#8221; according to Zach Rosenberg, an attorney and principal at Degen Legal.



According to <a href="https://finance.yahoo.com/video/aragon-scraps-planned-community-control-165713322.html?guccounter=1&amp;guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&amp;guce_referrer_sig=AQAAAE-Hr5uoP5YJFYb_iKY6_Yi05iLTgPM1eK7oWXmOaeFN3GzQnh1--f_VpYCahrVqiW7-m3wTBvuXugdw8NcnWZxL2hekaNOhHFl3fZ9FnNwpnVU7cYCnIBMKYvPgHB9nM3gZWVv2O5RbvcDu-TGgyhyjH5o1wmSxWdkJPqP99DS2" rel="nofollow noopener" target="_blank">DefiLlama data</a>, the company possesses $186 million in assets. However, the market capitalization of its ANT token is just over $124 million. This disparity indicates &#8220;untapped potential and value,&#8221; says Dorman, adding that it suggests the market&#8217;s dissatisfaction with the project&#8217;s stewardship of its assets.



<h2 class="wp-block-heading" id="aragon-dao-s-struggle-amid-activist-pressure">Aragon DAO’s struggle amid activist pressure</h2>



The association found itself on the defensive on May 2 when it began to suspect a possible coordinated attack from activist investors, including Arca. They cited suspicious activities, including a surge in messages from new members on Aragon forums and increased accumulation of ANT tokens, which provide voting rights in the Aragon DAO.



In response, the Association proposed to &#8220;repurpose&#8221; the Aragon DAO by running a grants program to fund other nascent DAOs. Rather than moving the entire $186 million treasury to the Aragon DAO, the Association intended to transfer the funds in batches as required.



<figure class="wp-block-image size-full is-resized"><img decoding="async" src="https://www.cryptopolitan.com/wp-content/uploads/2023/05/1-1.png" alt="Aragon" class="wp-image-303876" width="596" height="386" srcset="https://www.cryptopolitan.com/wp-content/uploads/2023/05/1-1.png 1194w, https://www.cryptopolitan.com/wp-content/uploads/2023/05/1-1-300x194.png 300w, https://www.cryptopolitan.com/wp-content/uploads/2023/05/1-1-768x498.png 768w" sizes="(max-width: 596px) 100vw, 596px" /></figure>



However, Dorman termed the Association&#8217;s response as a &#8220;complete overreaction,&#8221; asserting that they merely wished to be active participants in the DAO&#8217;s governance. This move by the Aragon Association faced backlash on social media, with critics accusing the Association of putting on a show of &#8220;decentralisation theatre.&#8221;



Following the outcry, the Aragon Association apologized and reassured that it will eventually move the entire treasury to the DAO in a secure and gradual manner. In an interesting twist, the organisation&#8217;s co-founder Luis Cuende, despite not being involved in the Association&#8217;s daily operations, has supported Arca&#8217;s call for an ANT buyback. The Aragon Association has not dismissed the possibility, stating that buybacks might be permitted if they benefit the project&#8217;s purpose.

Aragon Association’s controversial seizure of funds sparks outrage

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