Arbitrum’s Watchdog Committee has proposed permanently excluding three DeFi projects from future DAO programs after flagging cases involving 457,553 ARB, valued at roughly $76,000.
Summary
- Good Entry, Limitless, and APX Finance face separate permanent-ban votes.
- The committee identified alleged misuse involving a combined 457,553 ARB.
- Projects have until Sep. 10 to respond and return any disputed funds.
- Any ban would restrict future DAO participation without freezing wallets or protocols.
Arbitrum grant cases involve three different findings
The Sep. 3 governance proposal said Good Entry, Limitless, and APX Finance, formerly ApolloX, had been linked to what the Watchdog Committee classified as high-severity misuse of DAO funds.
According to the committee, high-severity cases involve large and deliberate misuse of money allocated by ArbitrumDAO. Examples can include fabricated work and theft, although the findings differ across the three projects under review.
The cited amounts add up to 457,553 ARB, worth about $76,000 at the valuation used in the proposal’s coverage. However, the total does not represent one confirmed theft or a single balance owed to ArbitrumDAO. It combines separate findings involving distributions to ineligible accounts, funds moved away from Arbitrum, and grant tokens that were allegedly left unused or distributed late.
Good Entry received 200,000 ARB through the first round of Arbitrum’s Short-Term Incentives Program. On-chain analysis reviewed by the committee found that 142,839 ARB went to 1,032 users deemed ineligible during and after the incentive period.
Wallets connected to the Good Entry team also showed signs of self-farming, according to the proposal. When investigators sought an explanation, the committee said the project refused to cooperate. Good Entry has since stopped operating, so any approved ban would apply to its founders rather than an active team.
Arbitrum has used community funding for several years to attract users and developers. In November 2023, three funding programs allocated a combined 500,000 ARB through retroactive funding, matching grants and prizes for grant-related tools.
Limitless allegedly moved its entire grant to Base
Limitless faces a separate finding tied to the Long-Term Incentives Pilot Program. The project received 75,000 ARB but later exchanged the full grant for the USDC stablecoin and transferred the funds to Base, according to the Watchdog Committee.
Investigators classified the case as suspected theft because the conversion and cross-chain transfer removed all the grant money from the Arbitrum ecosystem. The committee said it could not contact any Limitless team members for an explanation or to recover the funds.
Limitless also appears to have stopped operating since its participation in the incentive program. Under the proposed enforcement policy, a permanent ban would therefore apply to its founders.
The committee has not said that transferring assets to another blockchain is automatically improper. Its findings center on the alleged use of funds assigned for an Arbitrum incentive program and the team’s failure to explain or return the money.
Base is an Ethereum layer-2 network incubated by Coinbase, while Arbitrum operates as a separate Ethereum scaling ecosystem. Moving the grant to Base placed the assets outside the network they had been provided to support, according to the proposal.
APX Finance faces overlapping concerns over 239,714 ARB
APX Finance received approval for 525,000 ARB under the Long-Term Incentives Pilot Program, but the watchdog’s findings concern 239,714 ARB rather than the entire award.
On-chain analysis found that a large share of the grant remained in APX Finance treasury addresses instead of moving to distribution contracts. Investigators also identified transfers to distributor contracts after the required period and a suspected Sybil cluster connected to team addresses.
Sybil activity generally involves one operator controlling several wallets to obtain a larger share of incentives intended for separate users. The committee described APX Finance’s case as a combination of unreturned funds, late distributions and suspected self-Sybil activity.
Investigators were unable to reach APX Finance team members for clarification or recovery, according to the filing. APX later combined with Astherus, with the merged platform adopting the Aster brand.
Unlike Good Entry and Limitless, the proposed language could cover more than APX Finance’s founders if the DAO considers the project or its successor operation active. The committee’s proposed ban on an operating project includes founders, current team members, and affiliated contributors.
Aster’s operations have become more closely associated with BNB Chain since the merger, while the disputed incentive allocation relates to APX Finance’s earlier participation in an Arbitrum program.
Separate votes would decide each Arbitrum ban
Each named project has been given one week from the proposal’s publication to answer the findings in the governance forum. The committee set Sep. 10 as the tentative response deadline, though the published timeline remains subject to change.
If an explanation does not satisfy the committee and the relevant funds are not returned within the same period, ArbitrumDAO will hold three separate Snapshot votes. Token holders will be able to vote for a ban, oppose it, or abstain in each case.
No project has been banned at this stage. The committee has proposed individual votes because the evidence, amounts, and operating status differ among Good Entry, Limitless, and APX Finance.
Snapshot voting will seek social agreement from the DAO without executing a blockchain transaction. As no on-chain action is required, an approved ban would not freeze project wallets, remove deployed smart contracts, or prevent users from trading related tokens. It would make the affected people and projects ineligible for future ArbitrumDAO programs.
Arbitrum created the Watchdog Program to encourage reports backed by evidence and improve oversight of ecosystem grants. As of Sep. 2, the program had received 90 reports, recovered about 532,000 ARB, and distributed roughly 268,000 ARB in rewards to reporters.
The figures indicate that the program has recovered more ARB than the combined amounts cited across the three cases, although each investigation uses its own findings and recovery status.
U.S. investors have indirect exposure through Robinhood
For U.S. investors, the proposed bans carry no stated trading restrictions or changes to access. Their more direct relevance lies in how ArbitrumDAO controls treasury programs and infrastructure tied to companies serving the American market.
Nasdaq-listed Robinhood uses Arbitrum’s Orbit software for Robinhood Chain. As crypto.news reported in July, chains covered by the Arbitrum Expansion Program send 10% of net protocol revenue back to the ecosystem, with eight percentage points going to the DAO treasury and two funding the Arbitrum Developer Guild.
Robinhood Chain had generated more than $2 million in cumulative revenue after its July 1 launch, sending about $200,000 to the Arbitrum ecosystem under that arrangement. The revenue link gives shareholders of a U.S.-listed company an indirect reason to monitor how ArbitrumDAO governs treasury money and handles alleged misuse.
DAO governance can also raise legal questions for U.S. participants. A recent DAO governance explainer noted that the Commodity Futures Trading Commission’s Ooki DAO case established that governance participants can face liability for a DAO’s conduct under certain circumstances.
The pending Arbitrum measures differ in scope because they seek eligibility restrictions through off-chain votes. The proposal does not announce a referral to the CFTC, Securities and Exchange Commission, Justice Department, or any other U.S. authority.
