This week, the Aragon Association was in the spotlight of the decentralization world. The Swiss nonprofit, typically facilitating the creation of DAOs, made a controversial move when it seized $200 million of its four-month-old Association’s funds. This was in response to a group of activist investors, led by asset management firm Arca, pushing the Association to enact a buyback of tokens issued in a prior crowdfunding event.

Unsurprisingly, this drew criticism from a number of decentralization activists. Aragon released a statement on Thursday, claiming to be in discussion with Arca, and vowing to eventually realize the transfer of the funds in a secure, gradual manner. With DAOs managing billions in user deposits and coming under a mounting degree of regulation, their token-governance is increasingly being implicated into the spotlight.

At its heart, the dispute between Arca and the Association centers around whether a legal entity, like the Aragon Association, has fiduciary responsibilities for token holders. In its statement, the Association noted its right to “preserve the safety of its assets,” particularly in light of “suspicious activity” by Arca and other activist investors.

Arca co-founder and CIO Jeff Dorman disagrees, surmising that since the Aragon Association had issued tokens, they have assumed “fiduciary obligations” to those holders. Arca’s strategy was to purchase a majority of ANT tokens – those associated with Aragon DAO – in order to execute a “pure arbitrage play” that would rebound to favor the investors.

Data from DeFiLlama suggests that the value of the Aragon Association’s assets is $186 million, but that its bearer ANT token has a market capitalization of only $124 million. These figures, together with the “suspect activities” from Arca, may have caused the Association to react as it did.

Activist groups were not the only ones to criticize the Association’s actions. Even the Association’s own co-founder Luis Cuende was not satisfied, supporting Arca’s call for an ANT buyback. This idea has not been firmly rejected, as the Association has commented that a buyback could hypothetically go through as long as it served the project’s purpose.

Regardless, with the Association having released a statement pledging to secure and gradual return the funds and engage in talks with Arca and other activist groups, it appears both sides are edging toward a resolution. However, the incident has raised plenty of questions about the potential of DAOs and their associated governing systems.



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